During Business Fights Poverty NYC, expert insights were shared contributing towards a Challenge to find out how business can take an ecosystems approach to support Micro, Small and Medium Enterprises (MSMEs) in their extended value chains.
Business Fights Poverty has been running a Challenge to find out how business can take an ecosystems approach to support Micro, Small and Medium Enterprises (MSMEs) in their extended value chains.
To ensure MSMEs thrive, large companies, governments, donors and funders and NGOs need to move towards a holistic and joined-up approach to enterprise support. MSMEs face multiple external constraints, including difficulties in accessing finance, weak infrastructure, regulatory burdens, and capacity or information constraints. The “ecosystems” approach aims to overcome these impediments by strengthening the underlying ecosystem in which MSMEs operate.
Business Fights Poverty held a lunch session to explore how to overcome the barriers to effective collaboration on the ground. We also considered what architecture is needed to enable more systemic interventions to emerge and be sustained.
Barriers and drivers for more effective collaboration
Our participants suggested that collaborations are more likely to fail when:
On the other hand, collaborations succeed when:
Insights on developing a strong business case
Many of the business and social impact objectives of collaborative MSME support programmes are uncertain in nature and can take years to materialize. This poses a challenge to building a strong business and investment case. It is not always easy to demonstrate that social or environmental investments support commercial objectives, and it can be challenging to identify, upfront, the life cycle of required investment over an extended time horizon. Also, when seeking to collaborate with other companies, it is important to note that a business case can mean different things to different organisations.
The business case should begin with thorough diagnostics of the problems facing MSMEs, complemented by interim targets to track progress. These should focus on “softer” KPIS, orientated towards reputational risks, gaining license to operate, and stakeholder engagement targets. Nevertheless, the business plan should not be set in stone: all partners need a flexible mind-set that allows for regular programme review and course correction.
Sustainability is just one lens around which to frame a persuasive business case; other key components include commercial issues relating to product or service quality and security of supply. Integrating the business case with risk management processes also gets the attention of senior management. Many people in business may be largely unfamiliar with the Sustainable Development Goals, but they do understand risk.
Moving towards an Ecosystems Approach
Avoid standalone initiatives
Standalone MSME business initiatives tend to be too distant from the commercial core of the business. Consequently, they are difficult to scale and potentially lack sustainability after the initiative “expires”.
Government as key partner
Business can engage with governments to encourage them to take a leadership role. Aligning programmes with national and local government policies and embedding them in relevant government departments is vital for building long-term government ownership and sustainability of programmes.
Bridging the large company - SME impact investor / accelerator divide
Participants highlighted a lack of meaningful engagement between large companies supporting MSMEs in their value chains and the SME impact investment and accelerator community, represented by organisations like ANDE. More needs to be done to bring together these two groups as there are significant opportunities to align objectives, resources and know-how to support the growth and success of MSMEs.
Importance of data to ensure partner accountability
The collection of data is expensive but is worth the investment. Robust data collection and analysis is key to understanding where and how to focus interventions. Data which is linked to clear objectives is also crucial for maintaining accountability between programme partners.
Pre-competitive collaboration opportunity
Many of the challenges that MSMEs and large companies are facing are bigger than any one company or organisation. More needs to be done to evaluate opportunities for pre-competitive collaboration between sectors and companies in areas like water resource management, plastics recycling, supporting women and financial inclusion, health and wellness, working within the rules regarding competition law.
Ensuring cross-functional participation
When developing a “consortium” approach that brings together interested large companies to work together on holistic solutions that extend beyond traditional business footprints, it is vital to build and mobilise internal cross-functional teams including commercial, procurement, finance, sustainability and legal representatives to enable meaningful progress to be made.
Mobilise around vision of the future
A greater emphasis needs to be on mobilizing partners around an exciting vision of the future. Programmes aimed at supporting MSMEs can suffer from a lack of imagination if they are designed around a view of what is possible today.
The valuable insights gained from our discussion will feed into the practical business guidance that Business Fights Poverty are preparing on why, when and how to take an ecosystems approach to MSME development. If you’d like to find out more, please do contact us.