A couple of years ago, the catchphrase in development was sustainability. As years went by, others such as resilience, impact, scale became imperative. Today, business model innovation is probably the most popular catchphrase amongst development practitioners, but questions abound whether it’s understood. To asses this, let’s first define its building block- business model.
Throughout business literature, there has not been an agreement on the meaning. However, the most acceptable and widely used definition is by Alexander Osterwalder and Yves Pigneur. The duo noted that business model defines who are the customers, which markets to operate in, who the business partners are, what costs are there, where will revenues come from, which activities to engage in, and how is value created and delivered to customers. Succinctly put, a business model is how a firm creates value for customers, partners and itself. A business model is therefore a firm’s answer to the questions: what to produce, for whom and how to make money doing so. Business model innovation is thus the re-definition of “who?”, “what?” and “how?” of the business architecture.
In the field of Market Systems Development (MSD) in Uganda, it’s mostly project-employed staff who provide advisory services to partner businesses, with a key focus on growth to enable such businesses unleash opportunities for the poor. The key role of a development practitioner in such a case is therefore to help the businesses innovate their business models by enabling them to precisely identify who their targeted customers are, what value proposition should be offered to them, how the offer should be generated and provided and how the business should capture value from its offer. Similarly to any other thin market, Uganda presents a challenging total available market, and customers are particularly difficult to come by at first. Because of this difficulty, we observe that most businesses engaged by MSD projects have struggled to addressed the above key questions, yet that has not stopped the claims for “business model innovation” amongst the practitioners. According to our analysis, the followings are the major reasons why:
Limited view of role of the poor in thin Markets: Even in thin markets, the poor will always assume the roles of; (i) Consumers, (ii) Producers, (iii) Employees and (iv) Entrepreneurs, most times simultaneously. Therefore, businesses engaging them need to develop innovative business models that can offer opportunities for them with awareness of all of such roles. Most MSD initiatives in Uganda however, have been monolithic in conceptualizing the role of the poor in rural markets, majorly as consumers (As seen in input systems strengthening projects), producers (value chain projects) or entrepreneurs (business/entrepreneurship support projects), but rarely have development practitioners or projects looked at them as playing such roles at the same time in a market.
Development practitioners have therefore tended to focus on enabling the poor access the inputs they require for production and supply their commodities as raw materials to firms sourced from within and without the economy. This in our view is majorly driven by the desire for scoring quick-wins for reporting, which is not bad in it self, but a broader view should follow. Mostly, when an attempt is made successfully to create or enhance an international supply chain for such commodities, the bold claim for business model innovations is then made!
But how comes railway lines in pre-independent Uganda connected productive areas of Nwoya/Pakwach and Kasese to Mombasa? The reason is that then, rural poor were already viewed as suppliers of raw materials, and 100 years later MSD projects are still doing the same thing, often times targeting the same commodities! In our view, by helping businesses to have such a pluralistic view of the roles of the poor, MSD practitioners can enable them (businesses) to truly re-engineer their business models to deliver processes, products, services, in a manner that offers broader opportunities to the poor.
“Project memory agenda” and “reading from the script” trap: As we have already mentioned, it’s equally very important for MSD practitioners to help businesses address the ‘how’ dimension in a business model. Here, the practitioners could help businesses identify their value network; their relationships with suppliers and partners; the distribution channels; customer relationships; and the underlying revenue model. In thin markets, this requires even deeper thought and reflection. Moreover, physical dispersion of population and poor infrastructure will always amplify this challenge.
These constraints should therefore ordinarily drive development practitioners to dig deeper, and provide valuable, solution oriented information for businesses; but as Michael Skok of Harvard Innovation Lab warned a few years ago, most times the practitioners don’t spend enough time on value proposition early. We observe that indeed most times practitioners resort to “great” model(s) that have worked sometime, in some past project and in some context, which then become the basis for delivering advice to partner businesses. Consequently, they will either push the businesses to copy these models, we call this behavior the ‘project memory agenda’; or in the absence of such “proven models” they will get locked in advising businesses solely from the information from project documents, foundation notes, business cases or market systems analysis, we call this practice ‘reading from the script’.
Either way, the results are mostly wrong answering of the “how?” questions by the businesses, culminating into frustration. While we don’t write off learning from the past projects, since they can be a great arsenal of information for a practitioner, we note advise that such learning should only aid in triggering creative thoughts and brainstorming to generate innovative answers necessary for a specific market in a specific time.
Wrong people for the job: We acknowledge that getting the right people with inclusive business management skills is challenging in any developing market. Being able to advise businesses to create innovative business models requires a set of skills, and a different level of professional appetite for learning. To do the job, the right starting point is often helping the businesses develop an insight into how to meet the needs of an un-served or under-served customer group. This helps to develop a clear and strong value proposition for the targeted users, which is a solid characteristic of strong business models and a good insight into the behavior of the target users and the context of their use of the product or service is usually required to adequately achieve this. Sadly most development practitioners in Uganda do not demonstrate the skills necessary to fcilitate this process during their work, either due to lack of it or reluctance to deploy them, and the result is always limited value offered to the businesses being advised. Perhaps this is why the former ambassador of the Kingdom of Netherlands to Uganda, H.E Alphons Hennekens challenged development practitioners to run projects like business.
Normally, a major change in one dimension of a business model leads to a need to change other components – and henceforth leading to creation of a new innovative business model. Also, Business model innovation may be radical, involving a complete transformation of the firm and its business recipe, or it may be incremental, involving more modest change and re-alignment. Managing all these require access to and use of qualitative and quantitative data at the Macro, meso and micro levels to develop projections that can convince businesses of the need for such a change. Only by developing the necessary skills and insights, can development practitioners in Uganda help businesses develop appropriate innovative products, channels and processes that are relevant for the poor.
Wrong metrics for measuring performance: Often times, development practitioners in Uganda focus on number of poor people “reached” by businesses as the key metric. Perhaps if development projects additionally got interested in measuring the performance of partner businesses using metrics such as reach of delivery channels, quarterly sales volumes, returns on sales, gross margin ratios, penetrated market growth rates, then they could help the businesses assess their true performances and feel the need to innovate business models for improvement in performance.
In conclusion, we insist that without enabling businesses to innovate their business models, it is near impossible for development practitioners to transform business behavior in a manner that is expected to cause transformation in the local economy. Business model innovation is therefore the holly grail in MSD projects. Development practitioners need to look at the above and other reasons as to why real business model innovations are not being achieved, because in the current status quo, the same businesses are being targeted by different projects for same products/market opportunities). And if this is not disrupted, we predict that MSD will suffer the same fate as other previous approaches; millions of dollars will be spent, without real changes being observed in the market.
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