How Are Companies & Donors Working together to Achieve Development Outcomes?
In this blog we examine how companies and donors are working together to achieve development outcomes in market systems projects and how this relates to the business case for inclusive business models on the part of the participating companies and opportunities to stimulate more inclusive economies on the part of donors.
What drives Success: Passion or Planning?
Neither passion nor careful planning though both necessary, is sufficient to drive success. It takes all of passion, planning and true partnership.
Market Systems projects, as per the DCED, “seek to reduce poverty by changing the way the poor interact with market” [systems]. The M4P Operational Guide states that, “a market system is a multi-function, multi-player arrangement comprising the core function of exchange by which goods and services are delivered and the supporting functions and rules which are performed and shaped by a variety of market players.” In other words, despite the levels of complexity and uncertainty in this multi-variable system, we want to optimize a single variable, “how the poor interact with it.”
Market systems approaches need careful planning leading some to treat it as a predictive model. At the same time, the calls for iterative learning-by-doing strategies which suggest this might be more of an art than an exact science. So, what should drive the implementation of a market systems project; passion or planning? If one oversimplifies the uncertainty and complexity surrounding such systems, passion applied to an area of focus can lead in a neat, linear way to the results envisaged. If on the other hand one assumes a path to outcomes can be planned, they are reminded by ODI that, “complex systems are not capable of being isolated from their environment, which make them subject to random influences beyond the control of individual project managers.”
Does this mean that companies and donors rooting for systemic change in favour of the poor need to be collectively schizophrenic or else be equipped with a crystal ball? Thankfully, experience shows that is not a requirement and a crystal ball is unnecessary technology. What companies and donors need today is a crystal bowl!
To properly implement a market systems project, careful analysis and planning between companies and donors is needed to identify where the greatest opportunities lie for change and impact. The practitioners then construct a theory of how they expect that change to occur and impact to accrue. Next, they don white lab coats, put on protective gloves, glasses, boots and so on and test the assumptions they have made. The experiment happens in a large crystal bowl whilst they stand back looking from outside-in. They observe the effects, reflect, learn the lessons, adjust their theories and experiment again, iteratively, until their theories model the actual behaviours within the system well enough for both change and impact to become predictable.
But this is a complex system. The crystal bowl analogy above suggests this can all happen, neatly, at an arm’s length from the experimenters and nothing could be farther from the truth. These experiments occur as action learning where there are real risks for both company and donor and real value is on the line. Part of the planning is to ensure that companies involved in the experiment are carefully selected and have real incentives to participate and benefit from the results. It assumes a good sales job has been done beforehand by the donor such that the company now acknowledges and can freely articulate, without the donor, why the experiment is necessary to their role in the market system and how optimistic they are about the usefulness to them, of the lessons to be learnt. Failure to do this adequately, upfront, allows unrealistic expectations to be nurtured by both or either party. Thus, partner identification, recruitment and retention is a major skill to get right in order that companies and donors successfully work together to achieve development outcomes.
How do Companies & Donors Partner?
In the relationship between donor and company, mutually high will/skill is needed and should result in synergy. Incentives should be aligned and capacities complementary enough to generate a nexus of agendas. Where donors see companies merely as tools for fixing market constraints and failures, they run the risk of not being able to adequately convince business there is something in it for them. The result might at best be very shallow tick-box participation rather than one borne out of conviction or real commitment because of a clearly understood link to company growth or survival.
The Market Systems Operational Guide suggests there are two key questions to consider when trying to identify partner companies: Which market player has both the incentive and capacity for change? And, what type of donor support might help catalyse sustainable behaviour change? It then goes on to suggest that where both will (incentive) and skill (capacity) are high, opportunities for change and impact lie in exploring obstacles external to the partner. This is the ideal situation to be in when implementing a market systems project. Where partner skill is low but the will is high, a lot more support will be needed by partner to build ability to operate outside its comfort zone. Where will is low but skill is high, the focus should be on helping to reduce incremental risk associated with change. However, all this assumes that the donor (implementer) is perfect and can relate with the company efficiently and effectively but at least four kinds of relationships with different results, can be observed in market systems projects:
- This bad combination where implementer (donor) does not have will/skill appropriate for market systems change facilitation and partner (company) does not have will/skill for change being attempted should never be allowed to occur
- Where the implementer does have the will/skill but partner doesn’t, there is a high risk of a Donor dependency forming
- Where the Partner has the will/skill but the donor doesn’t, there is a high risk of Donor Exploitation occurring
- The good combination is where both the partner and the donor have the requisite will/skill, creating a better chance the relationship will lead to success
What is in it for the partner Company?
Many implementers of market systems fail to realise what excites companies is not just the fixing of some constraint or market failure for all participants in a market system. Companies are always searching for competitive advantage and so working for some nebulous concept like the common good is not what appeals, even though they may see the ultimate benefit. A more compelling argument is one which shows how participation confers a first mover advantage that can potentially lead to some adaptation not easily copied by others, even if many others can easily adopt the basic innovations introduced. The more feasible the proposition in terms of how manageable the level of risk, finance, time and other resources involved are, and the better aligned it is with generating growth or ensuring survival (core business related), the better.
Clay Christensen of the Harvard Business School introduced the concept of Disruptive Innovation and argues the disrupter focuses innovation on helping the bottom of the market get the jobs they want done. Such a focus on underserved lower levels of the market helped companies like Uber, AirBnB and so on introduce their products. In Africa it gave rise to new exciting forms of banking like Mpesa and SMS based banking products. Innovating to overcome challenges for the BoP when done successfully gives rise to products and services that incumbents find very hard to compete with. Greater exposure to the power and efficacy of these kinds of models will stimulate companies to develop beneficial relationships with donors.
What’s in it for the Donor (Implementer)?
Donors have typically seen themselves as guides; providers of solution maps and frameworks but actively promoting inclusive business within market systems projects could lead to much greater outcomes. In market systems projects, it is true the donor should not allow itself to be manoeuvred into becoming an actor in the market system and therefore beyond its own will and skill, should search for companies to partner with who have “fire in their belly” for the sort of change all agree is needed. “Fire in the belly” can be seen through the risks, investment, time and other resources that the company has already planned or put into developing its inclusive business model making it easier to justify its selection as a partner to work with. This allows for greater confidence that a partner adopting an innovation could go on to adapt it and then expand it to as many other advantageous situations they may find which improves prospects for achieving the development outcomes. Successful, impactful projects are currency for donors.
Lessons for Inclusive Business
However, what ought also to be of concern to donors is that fixing constraints and failures in value chains as they are, without further modification, may not necessarily result in serious changes to the way the poor interact with a market. Let’s consider the dairy sector in Nigeria where feed improvement through Napier grass substitution for local fodder is increasing milk yields from less that 1L/day to about 4L/day on single milking. The pastoralists in rural areas propagate the fodder themselves and the surplus milk they produce will end up in milk collection centres to be aggregated for delivery to factories who serve urban populations. Meanwhile, there is a crude animal protein gap in Nigeria and the poor are getting 8.6g/head/day instead of the minimum of 35g/head/day. Modifications to the value chain that enable the poor to process the milk into yoghurt in small 60g sachets for example could allow greater physical and economic access to the proteins needed by the poor while creating more jobs and trapping more of the value in the chain. For the donor, encouraging inclusive business models in the implementation of market systems projects could lead to the development of more inclusive markets and economies.
Summary
Market systems projects have held varied results for companies and donors alike. Both want successful inclusion of the poor, which we conclude will not happen simply because of passion or good planning. It will happen because passion and planning meet good partnership and good partnership works to produce good modelling of reality within a ‘crystal bowl’. We also conclude that good partnerships are motivated by clear incentives for both company and donor strengthening the case for inclusive business models by companies and suggesting opportunities for inclusive markets and economies to donors.
This blog is part of the January 2017 series on how, and why, donors and businesses work together for development impact. For more candid opinions on what works, and what doesn't, read the full series on demystifying donor-business collaborations.