BusinessModels(&BusinessModelling)

forSustainableDevelopment

AlessandroRossiforMasterCodeClass4

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3

assignment• Discussionoftheassignment• [REMEMBERTOPOSTTHEMINTHEBLOG]

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

ʻs business model

poor entrepreneurs!

branches!

personal!

micro-loans!

capital!

branches!brand/trust!

lending & collecting payments !

risk management!

government!

people!

capital costs!

interest rates!

local microfinance institutions!

poor entrepreneurs!

wealthy westerners!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

ʻs business model

Kiva.org!

Kiva.org Platform !

risk management !

loans!

lend to poor entrepreneurs!

Paypal!managing platform!

optional donations on top of loan!

local microfinance institutions!

risk management !

screening MF

institutions!

platform!screening!

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

3rd party-funded business models

donor!

recipient!

proposal!

mission!

donations!

reputation!

proposal writing!

tendency to

focus on

donor (money

source)!

no direct

“$feedback”

from beneficiary !

OFFER

DISTRIBUTION CHANNELS

CUSTOMER RELATIONSHIPS

CUSTOMER SEGMENTS

REVENUE STREAMS COST STRUCTURE

KEY ACTIVITIES

PARTNER NETWORK

KEY RESOURCES

income opportunity!

mobile connectivity!

villagers!

phone ladies!

phone ladies!

Grameen branches!

Grameen Bank!

communication revenues!

network management!

network!

Telenor! license!

network management!

customer-funded business model

il caso Grameenphone

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classoutline• basicsonsocialinnovation• TxtEagle casestudy• techniquestoinnovate• finalassigment

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bottomline onSI• transitiontomoresustainabledevelopmentcallsforaddressinginnovationfromeconomical,socialandenvironmentalperspective

• recentdiscussiononinnovationandsustainabledevelopment(partiallist):– eco(green)innovation– openinnovation– opensourceinnovation– socialinnovation

SI:apossibledefinition[GeoffMulgan,2006]

• businessinnovationisgenerallymotivatedbyprofitmaximizationanddiffusedthroughorganizationsthatareprimarilymotivatedbyprofitmaximization.

• socialinnovationreferstoinnovativeactivitiesandservicesthataremotivatedbythegoalofmeetingasocialneedandthatarepredominantlydiffusedthroughorganizationswhoseprimarypurposesaresocial.

• keepinmind:idealtypes vs.hybrid/realtypes,partnershipsandjoint socialventure,etc.

SI:otherdefinitions

• StanfordSocialInnovationReview• “Socialinnovationisdefinedasanovelsolutiontoasocialproblemthatismoreeffec-tive,efficient,sustainable,orjustthanexistingsolutionsandforwhichthevaluecreatedaccruesprimarilytosocietyasawholeratherthanprivateindividuals.”

SI:otherdefinitions

• CentreforSocialInnovation:Toronto• “Socialinnovationreferstonewideasthatresolveexistingsocial,cultural,economic,andenvironmentalchallengesforthebenefitofpeopleandplanet.Atruesocialinnovationissystemschanging– itpermanentlyalterstheperceptions,behaviors,andstructuresthatpreviouslygaverisetothesechallenges.”

SI:otherdefinitions

• CentreforSocialInnovation:NewZealand• “Asimpledefinitionis‘thedesignandimplementationofbetterwaysofmeetingsocialneeds.’Whenwetalkabout‘betterways,’wemeantransformationalimprovements,notincrementalgains.”

SI:yesterday

• industrializationandurbanizationinXIXcent.• civilsocietyinterventionbetweenXIXandXX• secondpostwarperiod:Stateintervention

SI:nowadays[1]

• frompostindustrialeconomies…• …toindustriesinterestedinsocialneeds• withapluralityofrelevantactors

SI:nowadays[2]

• moreaffirmedinanglo-saxon/north-americancountries– limitedwelfarestatetradition– greatsocialissues– incomedivide

• …emerginginUEcountries– fromintegrativeto…– …tosubstitutetowelfarebasedpublicpolicies

SI:thebigchallenge

• traditionalbusinessmodelsareblind• innovationplayersareblind• grassroot activismwithnoentrepreneurialskills

• businessschool• practitioners• publicpolicies

planningforSI

• who?• process– identificationofsocialneeds– generatingnewsolutions– development,prototyping,testing,pilotstudiesofinnovativesolutions

– evaluation,scalability,diffusionofworkingsolutions

– learningandadapting,loopsandfeedbacks

identificationofneeds

• how:– directvoice/actionfromdisadvantagedindividualsandgroups

– awarenesscampaignsbyactivists,rightsmovements– publicdebateonsocialaspects

• who:– informalsocialmovements– religiousgroups,charities– existingvoluntaryorganizations

findingsociallyinnovativeideas[1]

• theyrarelyarisewellformed• trial&error,rework,temperingwith• finaluserinvolvementandcooptation“Someofthemosteffectivemethodsforcultivatingsocialinnovationstartfromthepresumptionthatpeoplearecompetentinterpretersoftheirownlivesandcompetentsolversoftheirownproblems.”(Mulgan 2006)

findingsociallyinnovativeideas[2]• locusofnovelties– ICTbasedinnovation– neworganizationalforms– newknowledgesources

• informal/implicitpatternsofinnovationgeneration:fieldexperimentation,trialanderror,learningbydoing,tinkering

• recombination/syntheticapproachtoinnovation• formaltechniquesforthecreativegenerationofideas• virtuallabsandinstitutesforinnovationgeneration

sociallyinnovativeideas:development,prototyping,test

• “let’sseeifitcouldwork”• spontaneoussmallscaletesting• grassroot activism• noconnectionwithinstitutionalsubjects• workingprototypeasasubstituteforformalmodeling,businessplans,feasibilitystudies

• learningfrominitialfailures• portfolioapproach

sociallyinnovativeideas:evaluation,scalability,diffusion

• fromprototypetolargescale– resourcescarcity– designcoherence– founder’scurse:competence,delegation,growthtraps– neworganizationalmodels:affiliates,franchising,NGOelargesocial

entreprises,etc.• frominnovationtoimitation->diffusionandreplicationofsuccessful

ideas• managingnetworks(pluralityofpublic,private,mixedactors)

– stakeholders– externalinvestors

• measuringprojectreturns• timetomarketandcompetition

– private/public/mixed->differentformulas– publicfunds/publicendorsement

sociallyinnovativeideas:learningandevolution

• lifecycleofSI– intuition,localizedactions,bottom-upchangesandexperiments

– roleofpioneers:tacitknowledge,leadership,narrow-mindedness,tacticoverstrategy,localfocus

– diffusionandscalingup,institutionalizationprocess,bureaucratictransition

– explicit,formalizednormsandregulations,organizationalroutines,self-servingistitutions

– transitiontowardsotherfields

Mulgan 2006

• somerecurrentthemesinthearticle:– hybridization• Governments,NGOs->managerial

– shiftingrolesandrelationships• fromadversarialtopartners

– integratingprivatecapitalandpublic/donors$$$:

vignettesoninnovatinginSI

• bottomofthepyramidapproach• catalyticinnovation (disruptiveinnovation)• designthinking• positivedeviance

BoP – shift ofmindset• traditionalapproaches– poorarehelpless– needcharity,subsidies,publicassistance

• marketbasedapproaches– allpoorhouseholdstrade,buy,sell(cash,labor,bartering)– hybridbusinessstrategiesthatincorporate

• consumereducationorothercapacitybuilding• microloansandproducer/consumerfinance• cross-subsidyfromdifferentincomegroups• franchiseandotherdistributionarrangementswhichproducejobsanddistributeincome

• partnershipwithNGOsandpublicsector

BoP – newfocusforbusiness

• unprecedentedphenomenon:– emergingnewcustomers– revolutionaryas:e-business,mobilebusiness,etc.

• forcetorethinkcommonbusinesswisdomon:– hitech/lowtechinproductandservices– scaleandprofitability– price/performance– productivity– sustainabledevelopment

anexample:Hindustan Lever [1]

• detergentbusiness• northern/northwesternIndia• Lever:MNCwiththetypicalToP approach• Nirma:– newcomerlocalfirm– newformulation,process,packaging,distributionandpricing

– focusedonthepoor• Lever:laterecognitionandresponse

anexample:Hindustan Lever [2]

• sustainabledevelopment– soapformulation• lowerfattowaterratio• indigenousoils• novel,greenerprocessing

– localcompany• researchwithlocaltalent• localemploymentandawareness• commitmenttothebottom

anexample:Hindustan Lever [3]

• hugesuccess:– Nirma:$150Msales,grossm.18%,ROCE121%– Lever:$180Msales,grossm.25%,ROCE22%– LeverP:$100Msales,grossm.18%,ROCE93%

• lessonslearned:– bottomcanbeveryprofitable– lowmargin+highunitsales– volume->capitalefficiency!– profitvs.grossmargins

newbusinessmodels fortheBoP

• price-Performance• robustproducts(e.g.transport,dust,heat)• capitalefficiency• laborintensity• newalliances• SG&A,O/Hstructure• volumes andlogistics• packaging• sustainability

designthinking• avoidpreconceivednotionsaboutneedsandsolutions

• integratetheuser’sviewandneedsinconcepts,prototypes,innovativesolutions

• lookforfeedback(validation)• constructiveandexperientialapproach• systemicapproach:needsofusers,infrastructuresfordelivering,etc.

• initially:productdevelopmentforbusiness• nowadays:socialproblems

e.g.:fetchingwaterincountrysideIndia

• dailyprovisionofwaterforfamilyneeds• currentsolution(usedforgenerations):

– local,always-open,100-meterdistantborehole– 11-liter,headtransportable,plasticcontainer– notsosafe,periodicallyinducingsickness

• newmarket-basedsolution:– foundation-runcommunitytreatmentplant– atwalkingdistance(500meters)– wellknownandreputable– affordable($0.2fora19-litercontainer)– waterfeesasstatussymbolforsomevillagers

• familiesstillusethetraditionalsource– whythat?

e.g.:fetchingwater[solution]

• designflawsinthecontainer– toobig– tooheavy– difficulttograspandholdatthehip/onthehead

• flawsinthedeliveryoftheservice– openinghours:notaccessibleforworkingpeople

• flawsinthemarketprovision– monthlypunchcardfor19litersaday

• notethatthesolutionworksverywellforthe“typicalcustomer”:familieswithhusbandsoroldersonswhoownbikesandcanvisitintheopeninghoursthefacility

disruptiveinnovation(Christensen)

• “normal”innovations:– largeincumbents– betterexistingproducts/services– premium,valueaddingversions– targetingmoreattractivecustomers(purchasingpower)

• “disruptive”innovation:– newcomersinthemarket,industrynovices– simpler,strippeddownproducts(goodenough)– verypricecompetitive– newmarketsegments(differentorlessattractivecustomers,,“poor”segments)

whynewcomerssucceed?• traditionalinnovationsreinforcemarketsstatus-quo:– intermsofproduct/service– intermsofneeds– intermsofconsumers

• disruptiveinnovations:– paradigmaltering– newneeds– lessrichdemand– moreovertheyhavegreatpotentialforimprovements,whichovertimeresultsinsubstitutingdominantproductsandservicesformoresophisticatedcustomers

someexamplesofdisruption

• personalvs.mainframecomputers• lowcostaircarrier

• elementsincommon:– majorimpactonindustrystructures– mightunintentionallygiverisetosocialchanges

• disruptiveinnovationswhichintentionallycausesocialchangearelabelledascatalytici.

disruptioninsocialinnovation

• traditionalorganizationsaddressingsocialneeds(hospitals,schools,etc.):– merereplicationoftraditionalbusinessmodels– “disruptive”modelsareverydistant

• catalyticinnovations:– new,“goodenough”solutions– tounsolvedsocialissues– forunderservedgroupofcustomers– whicharenotaddressedbystatusquo

disruptionprocessesforsocialinnovation:anexample

• UShealthcare– highestpro-capite spenditure intheworld– relativelylowhealthcarequalityindicators

• USpubliceducation– 2° forexpenses(OECDcountries)– 29° instandardizedstudentlearningtests

• over-provison ofstatus-quoenhancing solutions• misdirectedinvestments• under-provisionof– newsimplersolutions– foruserswithbasicneeds

catalyticinnovations:casestudies

• WorkingToday– affordableinsuranceforindependentprofessionals(contractors,consultants,par-timers,tempsinNYC)

• communitycolleges• walk-inclinics– basicmedicalservicesinachainofdrugstoresupermarkets(CVS)

positivedeviance

• asset-based,problem-solving,community-drivenapproachtofindingsolutions

• lookforpositivedeviants:– certainindividualsorgroups– havingaccesstothesameresources– facingsimilarorworsechallenges– uncommonbehaviors andstrategiesenablingthemtofindbettersolutions

• http://www.positivedeviance.org/

PDguidingprinciples

• practiceinsteadofknowledge• self-ownershipoftheprocessbycommunity– “Don’tdoanythingaboutmewithoutme”– findexistinguncommon,successfulbehaviors (PDinquiry)

– designwaystopractice&amplifythosebehaviors– “someonejustlikeme”cangetresults– communitysetsbenchmarksandmonitorsprogress.– interactiveengagement,“letthecommunitylead”.

• expandsexistingnetworksandcreatesnewones

PDcasestudy:malnutritioninVietnam

• 1991,newDirectorofSavetheChildreninVietnam• governmentrequest:createaneffective,large-scaleprogramtocombatchild

malnutrition• morethan65%ofVietnamesechildrenlivinginvillagesmalnourished• directorengagedthecommunity:

– identifypoorfamilieswhohadmanagedtoavoidmalnutritiondespiteallodds– facingthesamechallengesandobstaclesastheirneighbours– andwithoutaccesstoanyspecialresources

• positivedeviants:– tinyshrimpsandcrabs+sweetpotatogreens– mostcommunitymembersbelievedtheywereinappropriateforyoungchildren– feedingtheirchildrenthreetofourtimesaday,ratherthantwiceaday

• pilotprojects:– familieswithmalnourishedchildren– invitingthemtopracticethedemonstrablysuccessfulbutuncommonbehaviors whichtheyhad

discoveredintheircommunities– greatresults

PDandSocialInnovation

• greatforNGOs-typeofSI:– educationalprograms– empowermentandcapacitybuildingofcommunity

• mightbealsohelpfulforSocialEntrepreneursorPrivateEnterprises:– PDaccessingprivilegedresources?– isthereawaytoovercomesuchsystem?(SEperspective)– canwethinkaboutBoP marketsolutions?(PEperspective)

grading• Responsible:Prof.Italo Trevisan

• 30%previousassignments• 20%Classparticipation• 50%Finalassignments

• (Possibleà questioninfinalexam)

post-assignment1• pickaninterestig caseofsocialinnovation• discussthebusinessmodelofyoursocialinnovation.Whatisitabout?howisitsustainable?howthebusinessmodelinnovatetheexistingstatus-quosolutions?Doesitpromotesustainabledevelopment?Whatshouldpolicymakersdo?

• submititaspdftoalessandro.rossi@unitn.it• Max2-3pages(5000chars)• NamingConventionoffile:[LASTNAME_FIRST_NAME_BusinessModel_Assignment1.pdf]

• deadline:30November

post-assignment-2• takethecaseoftxtEagle• describeinaparagraphinwhattheinnovationconsist:

– whichproblemdoesitsolve?– forwhoseusers/beneficiaries?– how?whereistheinnovation?– howdifferentfromtraditionalsolutions(ifany)

• Doesitpromotesustainabledevelopment?Prosandcons?

• Max1page(2000chars)• NamingConventionoffile:[LASTNAME_FIRST_NAME_BusinessModel_Assignment1.pdf]

• deadline:30November

socialinnovation?

• …theprocessofdevelopinganddeployingeffectivesolutionstochallengingandoftensystemicsocialandenvironmentalissuesinsupportofsocialprogress(Soule,Malhotra,Clavier)

• Readthis:RediscoveringSocialInnovation,JamesA. Phills, Kriss Deiglmeier, DaleT.Miller,StanfordSocialInnovationReview. 2008, Vol.6, Issue4

•