From Inclusive Business Models to Inclusive Business Ecosystems

An agro-dealer in Morogoro, Tanzania, promoting the government’s Kilimo Kwanza (“Agriculture First”) strategy, which aims to facilitate private sector investment and inclusive business in agriculture. Credit: Courtesy, Christina Gradl, Endeva

By Beth Jenkins and Christina Gradl, CSR Initiative, Harvard Kennedy School.

Will inclusive business ever live up to its promise? The approach is intriguing because it combines business and poverty alleviation in a way that is sustainable and can go to scale. Yet people are beginning to notice that relatively few inclusive business models have actually managed to reach scale (including here on this blog). This hasn’t been for lack of effort; UNDP has compiled a database of more than 1,000 inclusive business initiatives, for example, and Monitor has identified more than 600 in India and Africa alone. But most remain small and relatively isolated cases.

To realize inclusive business’ potential, we need a new unit of analysis and action: the inclusive business ecosystem. By ecosystem, we mean the community or network of interconnected, interdependent players whose actions determine whether or not a particular company’s inclusive business model will succeed.

Business strategist Jim Moore introduced the business ecosystem concept in a McKinsey Award-winning Harvard Business Review article back in 1993, suggesting that to be competitive, executives had to learn how to cultivate and manage those ecosystems just as well as they cultivated and managed their own businesses. The need for an ecosystem approach is especially obvious at the base of the pyramid. Everyone knows that conditions in BOP markets are extremely challenging – low skill levels, inadequate infrastructure, lack of access to finance, poorly designed or enforced regulation, and more. It’s just as common knowledge that no single company can address all the challenges on its own. Other companies, government, civil society, the donor community, academia, the media, and more have to play their roles.

In fact, inclusive business ecosystems have been critical enablers in some, if not all, of the inclusive business models that have reached scale. One of the most famous cases is Aravind Eye Care in southern India. Aravind treats 2.5 million patients and performs 300,000 eye operations every year. Even though many of its patients are unable to pay, the hospital has a solid profit margin. That margin could only be achieved by strengthening the ecosystem around the core business to enable extreme efficiency and overcome barriers to scale. That ecosystem includes a lens manufacturing joint venture, research and training institutes, and civil society groups that organize patient screening events in rural areas.

So far, most practical guidance for companies has focused on inclusive business models. Relatively little is known so far about the concrete strategies and structures companies can use to build better-performing inclusive business ecosystems. Each member of the ecosystem has its own perspective, capabilities, goals, and incentives. How can they be encouraged and enabled to act in ways that pave the way for inclusive business models to succeed?

Ashoka senior entrepreneur Al Hammond has taken an important step in the “how to” direction, describing strategies for building “an entire ecosystem to support scale, rather than just a stand-alone venture.” DFID and SDC, UNDP, the UN Global Compact, and the CSR Initiative at the Harvard Kennedy School (where we are Research Fellows) have also done relevant work.

We build on this emerging body of knowledge and more than 170 published case studies in a recent paper on strategies and structures for strengthening inclusive business ecosystems. Some of these strategies are highlighted in the inclusive business literature already – like awareness-raising and capacity-building for BOP producers and consumers. Others need to be explored further in future research – like influencing the policy environment and creating new organizations to fill gaps in the existing inclusive business ecosystem. For example, Unilever has played a key role in establishing Novel Development Tanzania to manage the local supply chain for the allanblackia nuts it wants to buy. The structures companies are using to implement such strategies also warrant further research. For instance, platforms bring many players in an inclusive business ecosystem together, coordinating their actions to avoid free rider problems and address weakest links. The Southern Agricultural Growth Corridor of Tanzania (SAGCOT) initiative brings business, the government, and international donors together to address many different bottlenecks along the agricultural value chain at once – coordinating and targeting a range of investments to give each individual investment a greater chance of succeeding.

As a field, we’re in the early stages of understanding how to strengthen inclusive business ecosystems. Some of the most intriguing approaches are relatively new, and our in-depth research is already showing that nothing is as clear-cut as it appears. But now is the time to begin reflecting and distilling lessons learned. Given the extent of the business opportunity and development impact that hang in the balance, we would all do well to get ahead of the curve. Please 20*******@en****.org?subject=BFP%20Feedback:%20%20Inclusive%20Business%20Ecosystems">share your experience with us!

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