Section 326-USA PATRIOT Act Customer Identification Program

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					FEDERAL RESERVE SYSTEM                        THE ASPEN INSTITUTE

                        Achieving

          Sustainability,
             Scale, and
             Impact
             in Community Development
          Federal Reserve Bank of San Francisco
                   January 24-25, 2006

                   Kirsten Moy and Greg Ratliff

                       The Aspen Institute
FEDERAL RESERVE SYSTEM   THE ASPEN INSTITUTE
FEDERAL RESERVE SYSTEM                                       THE ASPEN INSTITUTE

                                 Supporters
          Conference Partner: The Federal Reserve System
          Research Partners
               The F.B. Heron Foundation
               GE Consumer Finance - Americas
               Deutsche Bank

                 GE Consumer Finance
                 Americas


          Past Supporters
               The John D. and Catherine T. MacArthur Foundation
               The Fannie Mae Foundation
          Forum Participants - you!




                                Thank you!
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

            Aspen Institute
     Economic Opportunities Program
          Practice Areas
         Workforce Development
         Microenterprise
         Access to Capital and Credit


          Goals
         Connect the poor and underemployed to the mainstream economy

         Facilitate learning

         Applied research to stimulate dialog and action
FEDERAL RESERVE SYSTEM                           THE ASPEN INSTITUTE

                         Conference Goals
 • introduce a new framework for scale and sustainability for the field of
   community development institutions

 • explore the feasibility of collaborative models with potential for
   promoting scale and sustainability among four groups in the
   community development field

 • provide a forum where stakeholders in each group can participate in
   the exploration and design of business models and share ideas about
   the future of their respective area of community development

 • encourage future dialogue and action on implementation of business
   models where appropriate
FEDERAL RESERVE SYSTEM                  THE ASPEN INSTITUTE

                       What is Scale?
     More capital

     More customers

     More effectiveness

         “Economies of scale” usually refers to the
     development of mass markets and progressive cost
       reduction through increased business volume.
            Can the industry groups assembled
                achieve this kind of scale?
FEDERAL RESERVE SYSTEM                 THE ASPEN INSTITUTE

                    Why Pursue Scale?
    To reach more people
    To provide access to services to as many low income
     people and communities as possible on a permanent and
     sustainable basis
    To tap into economies of scale
    To become more sustainable
    To have greater impact in low income communities
FEDERAL RESERVE SYSTEM                      THE ASPEN INSTITUTE

                                But
     But … scale itself is not necessarily a suitable proxy for
      success.
     And the very characteristics - high customization and
      high touch - that helped make each group successful in
      the past are barriers to achieving greater impact because
      they lead to high cost delivery.
     In other words, there’s no “economy of scale” if the cost
      to deliver the service goes up with increasing volumes.


     So we need to better understand what scale is,
         and the dynamics of getting to scale.
FEDERAL RESERVE SYSTEM                     THE ASPEN INSTITUTE
       Model for Taking an Innovation to Scale


               Experiment-          Early
                  ation           Replication                Best
     Idea
                 (Innovation        (Innovation             Practice
                & Refinement)      & Refinement)


                       the fantasy short cut




                                                          Innovation
                                                           at Scale!



                                                   Source: Alan Okagaki & Associates
FEDERAL RESERVE SYSTEM                      THE ASPEN INSTITUTE
   A Better Model for Taking an Innovation to Scale


                   Experiment-        Early
                      ation         Replication               Best
      Idea
                     (Innovation     (Innovation             Practice
                    & Refinement)   & Refinement)




                   Infrastructure   Wide Scale             Innovation
 Standardization
                      Building       Roll Out               at Scale!



                                                    Source: Alan Okagaki & Associates
FEDERAL RESERVE SYSTEM                      THE ASPEN INSTITUTE




                   Experiment-        Early
                      ation         Replication               Best
      Idea
                     (Innovation     (Innovation             Practice
                    & Refinement)   & Refinement)




       the keys to scale

                   Infrastructure   Wide Scale         New Innovation
 Standardization
                      Building       Roll Out            at Scale!



                                                    Source: Alan Okagaki & Associates
FEDERAL RESERVE SYSTEM            THE ASPEN INSTITUTE

                    Our Process
    Research                         Case Studies

    Publications                     Banknorth Group
                                         7-11 VCOM
    Conferences
                                             Visa
    Interviews                     Ace Cash Express
                                        Allied Capital
    y
                                  The Reinvestment Fund
    z                             Fannie Mae Self Help
                                          ACCION
                                             Dell
                                  Unified Western Grocers
                                         Carpet One
FEDERAL RESERVE SYSTEM   THE ASPEN INSTITUTE




           Lessons
           from the
             Case
            Studies
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

                              Lessons
1.   Profitability was the primary driver of product development. The
     ability to produce a diversified yet complementary set of products
     was critical to achieving scale.
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

                              Lessons
1.   Profitability was the primary driver of product development. The
     ability to produce a diversified yet complementary set of products
     was critical to achieving scale.
2.   Demand for services or a clear market gap were the primary drivers in
     determining which products and services to scale up.
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

                              Lessons
1.   Profitability was the primary driver of product development. The
     ability to produce a diversified yet complementary set of products
     was critical to achieving scale.
2.   Demand for services or a clear market gap were the primary drivers in
     determining which products and services to scale up.
3.   Geographic expansion was central to generating sufficient volume of
     transactions to reach scale.
FEDERAL RESERVE SYSTEM                            THE ASPEN INSTITUTE

                               Lessons
1.   Profitability was the primary driver of product development. The
     ability to produce a diversified yet complementary set of products
     was critical to achieving scale.
2.   Demand for services or a clear market gap were the primary drivers in
     determining which products and services to scale up.
3.   Geographic expansion was central to generating sufficient volume of
     transactions to reach scale.
4.   Infrastructure investments were crucial to growth. Investments often
     increased integration of operations and facilitated product development.
FEDERAL RESERVE SYSTEM                            THE ASPEN INSTITUTE

                               Lessons
1.   Profitability was the primary driver of product development. The
     ability to produce a diversified yet complementary set of products
     was critical to achieving scale.
2.   Demand for services or a clear market gap were the primary drivers in
     determining which products and services to scale up.
3.   Geographic expansion was central to generating sufficient volume of
     transactions to reach scale.
4.   Infrastructure investments were crucial to growth. Investments often
     increased integration of operations and facilitated product development.
5.   Technology investments often led to increased efficiency and cost
     savings.
FEDERAL RESERVE SYSTEM                        THE ASPEN INSTITUTE

                            Lessons
6.   Companies partnered to gain specific knowledge or expertise, or
     to access a needed component of the product or service.
FEDERAL RESERVE SYSTEM                         THE ASPEN INSTITUTE

                             Lessons
6.   Companies partnered to gain specific knowledge or expertise, or
     to access a needed component of the product or service.
7.   Capital was raised several times; the volume of capital raised was
     tens of millions in every instance.
FEDERAL RESERVE SYSTEM                         THE ASPEN INSTITUTE

                             Lessons
6.   Companies partnered to gain specific knowledge or expertise, or
     to access a needed component of the product or service.
7.   Capital was raised several times; the volume of capital raised was
     tens of millions in every instance.
8.   Several organizations changed their legal structure to
     accommodate growth.
FEDERAL RESERVE SYSTEM                         THE ASPEN INSTITUTE

                             Lessons
6.   Companies partnered to gain specific knowledge or expertise, or
     to access a needed component of the product or service.
7.   Capital was raised several times; the volume of capital raised was
     tens of millions in every instance.
8.   Several organizations changed their legal structure to
     accommodate growth.
9.   Regulatory changes often supported or enabled growth and
     expansion.
FEDERAL RESERVE SYSTEM                        THE ASPEN INSTITUTE

                             Lessons
6. Companies partnered to gain specific knowledge or expertise, or
    to access a needed component of the product or service.
7. Capital was raised several times; the volume of capital raised was
    tens of millions in every instance.
8. Several organizations changed their legal structure to
    accommodate growth.
9. Regulatory changes often supported or enabled growth and
    expansion.
10. Different management skills were needed at different points in
      the growth process.
FEDERAL RESERVE SYSTEM                        THE ASPEN INSTITUTE

                              Lessons
6. Companies partnered to gain specific knowledge or expertise, or
    to access a needed component of the product or service.
7. Capital was raised several times; the volume of capital raised was
    tens of millions in every instance.
8. Several organizations changed their legal structure to
    accommodate growth.
9. Regulatory changes often supported or enabled growth and
    expansion.
10. Different management skills were needed at different points in
    the growth process.
11. The ability to adapt to changing market conditions allowed
      organizations to continue growing.
FEDERAL RESERVE SYSTEM                                                    THE ASPEN INSTITUTE
                                         Achieving Scale
     impact




              Product Innovation             Organizational                     Industry
                                              Innovation                       Innovation
   actions




               Design for scale (e.g.,           Infrastructure                Regulatory policy
                 standardization,                 Technology                  Strategic positioning
                  simplification &                   Capital                Industry intermediaries
                   refinements)                    Partnering                Industry infrastructure
                                                 Management                 New sources of capital
                                          New organizational structures
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

                       Product Level Needs

   Practitioners have an urgent need for investment in
    the following areas of product development:
       Market research to improve understanding of current and
        emerging community needs.
       Patient capital for experimentation, reinvention and refinement
        of products.
       Pilot testing and eventual roll-out of quality products that make
        it through a rigorous development process
FEDERAL RESERVE SYSTEM                           THE ASPEN INSTITUTE

                   Organizational Level Needs

              have an urgent need for investment to
 Practitioners
  support organizational growth:
      Infrastructure to integrate larger, often physically distributed,
       operations.
      Technology to increase efficiency, promote cost savings and
       higher quality services to low income customers.
      Capital to support broader organizational needs e.g., research
       and development, operational cash flow.
      Management expertise to guide larger institutions.
FEDERAL RESERVE SYSTEM                           THE ASPEN INSTITUTE

                       Industry Wide Needs

   Improved competitive positioning of the industry
    possible through a series of investments in:
       Infrastructure to support institutions across a range of activities
        and service delivery methodologies
       Industry specific technology: management software, cost
        accounting, branding marketing and communications
       Industry intermediaries that broaden the range and increase the
        sophistication of the product and service mix offered by an
        individual organization
FEDERAL RESERVE SYSTEM   THE ASPEN INSTITUTE




            Issues facing
           the Community
            Development
               Industry
FEDERAL RESERVE SYSTEM                          THE ASPEN INSTITUTE

                    Child Care Group
 Focus  on state licensed family child care homes and
  child care centers.
 Programs operate as small businesses in isolation
  from each other which leads to:
      High costs,
      Neglect of fiscal and administrative issues,
      Neglect of infrastructure,
      Minimal program improvements.
 Seeks   to understand gaps in infrastructure, reduce
  administrative costs, increase financial expertise of
  field, facilitate growth of programs.
 Organized by Low Income Investment Fund
FEDERAL RESERVE SYSTEM                         THE ASPEN INSTITUTE

                Charter School Group
 Focus on charter school development in California
  where there is a critical mass of schools.
 Charter operators must act as educators and business
  managers:
      Lack of central administration creates heavier back office burden
      Opportunity for innovation and experimentation
 Seeks  to explore how current inefficiencies can be
  addressed through common infrastructure without
  stifling innovation.
 Organized by NCB Development Corporation
FEDERAL RESERVE SYSTEM             THE ASPEN INSTITUTE

                  IDA Group
 Focus  on national network of IDA and asset-building
  practitioners and their partners.
 American Dream Policy Demonstration led to
  creation of multiple programs now at risk due to end
  of ADD funding.
 Seeks to connect IDA practitioners through the
  creation of a dual system of internet-based and in-
  person tools, models and activities.
 Organized by CFED
FEDERAL RESERVE SYSTEM               THE ASPEN INSTITUTE

                   CDFI Group
 Focus   on mid-sized CDFIs making investments in
  small businesses.
 Current business and earnings model limits collective
  future.
 Seeks to support CDFI delivery of products and
  services available through larger financial institutions
  to people, places and markets that are not well served
  by those institutions.
 Organized by Shorebank Enterprise Groups
FEDERAL RESERVE SYSTEM            THE ASPEN INSTITUTE

      Issues facing the Community Development
                        Industry

                1. Industry Structure
                  2. Infrastructure
                     3. Subsidy
             4. Model for achieving scale
FEDERAL RESERVE SYSTEM                             THE ASPEN INSTITUTE

                     Basic Model of Key Players
Industry leaders play a powerful
role in setting standards and       INVESTORS
creating standardization in the     & FUNDERS
industry.




                                                        TRADE ASSOCIATION
                                     INDUSTRY
        CUSTOMERS                                           INDUSTRY
                                     MEMBERS              INTERMEDIARY




                                   POLICY MAKERS
                                   & REGULATORS
FEDERAL RESERVE SYSTEM                       THE ASPEN INSTITUTE

Industry Structure 1: The Corporation -Customer Dynamic

     Industry Structure 1
                              INVESTORS
                              & FUNDERS




                                                  TRADE ASSOCIATION
                               INDUSTRY
       CUSTOMERS                                      INDUSTRY
                               MEMBERS              INTERMEDIARY




In most industries, direct
interaction between the
customer and the             POLICY MAKERS
industry member is a         & REGULATORS

primary factor.
FEDERAL RESERVE SYSTEM                     THE ASPEN INSTITUTE

    Industry Structure 2: The Small Players Dynamic


                            INVESTORS
                            & FUNDERS




    Industry Structure 2

                                                TRADE ASSOCIATION
                             INDUSTRY
      CUSTOMERS                                     INDUSTRY
                             MEMBERS              INTERMEDIARY




                           POLICY MAKERS
                           & REGULATORS
FEDERAL RESERVE SYSTEM                   THE ASPEN INSTITUTE

        Industry Structure 3: Subsidy Dependent

                                              Industry Structure 3
                          INVESTORS
                          & FUNDERS




                                               TRADE ASSOCIATION
                           INDUSTRY
     CUSTOMERS                                     INDUSTRY
                           MEMBERS               INTERMEDIARY




                         POLICY MAKERS
                         & REGULATORS
FEDERAL RESERVE SYSTEM                     THE ASPEN INSTITUTE

       In industries dominated by smaller players …
  … industry networks and other forms of affiliation become
  more important as agents for successful scale and growth.
       Access to common infrastructure can enable
         networks of organizations to work cooperatively to
         deliver greater volumes of product with increased
         efficiency
         Networks facilitate access to capital often at a lower
          cost of capital
         Strong training and development efforts through
          network services support the development of
          management talent
         Sufficient industry clout can create a more
          supportive legal, regulatory and policy environment
          and increase the availability of subsidy where
          needed
FEDERAL RESERVE SYSTEM   THE ASPEN INSTITUTE


Community Development
              Innovation
           Searching for
     a Better Business Model?
FEDERAL RESERVE SYSTEM               THE ASPEN INSTITUTE

    A Better Business Model to Allow Organizations to:

   Retain local control and ownership
   Lower cost of operations
   Access larger pools of capital
   Reduce effort devoted to fundraising
   Access better management talent and specialized
    expertise
   Increase ability to reach more people
FEDERAL RESERVE SYSTEM                 THE ASPEN INSTITUTE

    A Better Business Model to Allow Organizations to:

   Produce higher quality programs
   Provide more diversified and comprehensive
    programming
   Promote long term sustainability
   Generate better pay and benefits for employees
   Access more up to date technology and
    infrastructure
   Create greater impact
FEDERAL RESERVE SYSTEM            THE ASPEN INSTITUTE

            Collaborative Business Models

   Unified Western Grocers, Inc.
   Lenders One Mortgage Cooperative
   Credit Union Cooperative Structures
   Seedco: EarnFair Alliance
   Professional Employer Organizations (PEOs)
    and Child Care
   Housing Partnership Network
FEDERAL RESERVE SYSTEM                           THE ASPEN INSTITUTE

                        Achieving

          Sustainability,
             Scale, and
             Impact
       in Community Development
                          Contact Information:
                      Kirsten Moy and Greg Ratliff
           Kirsten.moy@aspeninst.org and Gregratliff6@aol.com

                          The Aspen Institute

				
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