"Profitable Business Models and Market Creation in the Context"
Profitable Business Models and Market Creation in the Context of Deep Poverty. A Strategic View. Christian Seelos & Johanna Mair IESE Business School, Barcelona, Spain How it all started. Question: Why are there so few convincing cases of BOP models? Observation: We find so many innovative business models in the entrepreneurial sphere (our research and teaching on social entrepreneurship). Research Agenda: How can our research on entrepreneurial organizations be a valuable contribution to corporate practitioner needs for BOP strategy formulation? Approach: • Derive some initial hypotheses from case studies and field research. • Submit proposal to a competitive bid for company-sponsored research by the European Academy for Business in Society (EABIS). • Proposal was considered highly relevant to companies and selected for funding (Feb 2005). • Present initial findings in a workshop to several companies (Sep 2005). Key question: „How to do it?“ - traditional BOP prescritions perceived as complicated and far removed from corporate reality.– finetune research questions, approach and relevant literature perspectives. Key finding: Close engagement with corporations helped to keep research relevant and evolve into those areas where practitioners perceived the largest need for insights. How to recognize and access economically undervalued resources to be able to generate economic returns? Description Economic Value Intangible • Mr. Yunus was considered a person of • To protect Telenor’s reputation it was Resources impeccable integrity. critical to find the right partner that would resist the corruption prevalent in poor countries. • Yunus’ prior success and social and • Important local knowledge reduced business experience building the uncertainty and search costs and enabled Grameen Bank and other Grameen agreement on economic and social initiatives. objectives. • High level of awareness for and trust in • The name GrameenPhone was crucial to the brand “Grameen” by both poor and get a license and for marketing. Building a middle-income people. new brand would have been very costly. Tangible • The Norwegian Agency for • Ability to acquire a key asset relatively Resources Development (NORAD) had already cheaply significantly reduced the invested in a fiberoptic network for the investment risk. internal communication of the national railway system, which was never used to its full capacity. • The rural development strategy opened • Development organizations bear some of access to funding provided by the Asian the market risk in return for efforts at Development Bank, the IFC, the social and economic development; this Commonwealth Development lowered Telenor’s cost of capital. Corporation and NORAD. Capabilities • Special skills in accessing, • Opportunity for integrating a vastly communicating and working with the untapped potential rural market into the rural poor in more than 50,000 villages overall business model; already drives in Bangladesh. more than 10% of the revenues of GrameenPhone. • Deep expertise in setting up a successful • Enabled selection of appropriate phone microfinance system, providing loans owners and efficient payment collection; and ensuring the accountability of microfinance enabled poor people to individual members of the rural poor. convert future earnings into current financial ability to buy phones instead of depending on donations. Key finding: When corporations employ their capabilities to remove a bottleneck in an existing pro-poor organization, they may get preferential access to important resources as a basis for a profitable business model. 1 How to configure profit and not-for-profit resources into an overall business model able to achieve private strategic objectives? 700 12.0 Revenues EBITDA Subscriptions 600 Revenues, EBITDA (US$ Million) 10.0 Subscribers (Million) 500 8.0 400 6.0 300 • Grameen brand reputation • Trust in Yunus capabilities and as 4.0 200 shield against corruption 2.0 100 Connectivity to: Urban Middle Class 0 0.0 2001 2002 2003 2004 2005 2006e + Enable Profits businesses Jobs Willingness to pay Grameen Phone Higher Strategic Goals Connectivity income Profits Large Grameen Coverage Telecom Enable Economies of Rural Jobs businesses Jobs scale Low costs 300000 Numbers of Village Phone Subscribers + • Development funds 250000 Connectivity to: Need to cover all of • Cheap loans Rural Poor Bangladesh • Existing fiberoptic network 200000 • Existing Grameen Bank network • Microfinance capability • Experience working with poor people • Efficient community 150000 • Knowledge of trustworthy individuals in management villages 100000 • Poor got used to be held accountable for contracts and payments 50000 0 2001 2002 2003 2004 2005 2006e Key finding: Profitable BOP models and creation of markets require innovative new business models. Innovation comes less from new resources/capabilities but from new configurations of existing building blocks. How to structure alliances that limit risk to partner goodwill and competence? Strategic Interface Strategic Objective Objectives Telenor Connectivity Urban Economic Grameen Rural create Jobs Users Returns supply Bank Poor Resources, Revenues Capability Replication Jobs; MapAgro Revenues Clean Rural Economic Waste Urban create Environ- Farmers Returns demand Concern Poor Inexpensive Compost ment Capability Redeployment Private benefits Simple Interface Private benefits Key finding: BOP alliance partners employ their unique capabilities in existing structures (competence); they are better off the more the company partner fulfills his private strategic objective (goodwill). Simple and transparent interface is key. 2