Good Enough Innovation : reconciling social i ...

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Companies are showing a growing interest in the 3 to 4 billion people who live on less than USD 6 a day. Conquering this market requires breakthrough innovations, and Good Enough Innovation enables social business players to create products that combine economic viability and social impact. An interview with David Menascé, Professor, HEC Social Business/Enterprise and Poverty Chair.

Social business, Bottom of the Pyramid, Good Enough Innovation… are we talking about the same thing ?

While the ultimate objective is the same – reconcile economic sustainability and social impact – these terms do, however, refer to different practices.

The Bottom of the Pyramid (BoP) concept invented by CK Prahalad schematically refers to both a population segment – the 4 billion people living on less than a few dollars a day – and a strategic approach which aims to invent both economically profitable and socially positive business models.

The notion of social business is a bit different. The ambition of social business, which was popularized by Professor Muhammad Yunus, is to invent economically sustainable models with the express aim of achieving a social objective. As state aid falls short of needs, it involves inventing economically sustainable mechanisms to solve social problems – access to water, energy and sanitation – with a distribution of added value that is different from the one made in traditional strategies. Indeed, Muhammad Yunus based social business on the “no loss, no dividend” principle, whereby any profits generated are to be reinvested in the social business.

More informations on “Idées Pour Le Développement” blog, animated by AFD.

Can social business rescue development ?

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Donors are currently showing a very keen interest in social business and are adopting specific strategies and tools (Asian Development Bank, USAID, DFID, KFW and, just recently, AFD). Indeed, social business could be seen as a miracle solution in this context of fiscal austerity. But let there be no mistake: public financial support continues to be one of the conditions for its success.  

Reconciling the social objective and the need for profitability

The aim of social business is, as with social policies, to address social problems, but at the same time by generating incomes that are essential to the sustainability of the project, based on an entrepreneurial economic model. It involves organizations with different statuses (associations, NGOs, cooperatives, enterprises…) which have a priority social (and/or environmental) objective and are seeking to achieve financial equilibrium in order not to be dependent on public financing.

While profit is not the primary objective, it is the way to ensure the autonomy of the project, as well as its growth if reinvestments are made in it. The beneficiaries of these projects can be clients (who are sold essential products at a low price), or employees (who are offered more than just a job : improved working conditions, return to work…), suppliers (who are offered stable outlets at a fair price, by helping them to structure their sectors), and external persons (who are offered products and services, or a share of the profits).

See the full article on the blog ideas4development, animated by AFD

Social Business : the challenge of scaling up

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Entrepreneurship can meet the needs of “base-of-the-pyramid” populations, provided the business in question has reached the critical size needed for profitability and sustainability. Examples of “inclusive businesses” which have successfully “scaled up”, however, are few and far between. Rectifying this situation means removing a number of practical, psychological and financial barriers. There are many ways in which development finance institutions can help this sector to grow.

What role can businesses play in combating socio-economic inequalities and environmental depletion? This key issue in the current debate over development straddles three relatively independent phenomena. First, with financial ressources now limited or reduced, authorities and private foundations are looking for leverage that will boost the impact of their actions. Their watchwords now are social-business support, public-private partnerships and impact investing. The second phenomenon is the 2008 financial crisis which triggered a moral conflict in many business leaders seeking to reconcile their responsibilities towards their shareholders with their personal convictions. Here the watchwords are inclusive business, shared value and base- of-the-pyramid. The third phenomenon applies to NGOs, non-profits and social entrepreneurs who wish to sustain their initiatives and reduce their dependence on ad hoc resources such as grants and donations. Their watchwords are social business, sustainability and “turning beneficiaries into customers”.

While the outlook, ideologies and vocabulary differ, the key question is the same, i.e., can businesses – long considered the source of social and environmental problems – become part of the solution? Are there any concrete examples which prove that inclusive business1 approaches can solve social problems in an economically profitable way and on a large scale? While inclusive businesses may have sprung up in developing countries, we need to ask ourselves why they are not more wides- pread? What obstacles do they encounter when changing scale and what can development finance institutions do to help them grow?

Success of scaling up: examples of your inclusive businesses

The following examples of inclusive businesses prove that scaling up is indeed possible. The businesses in question have reached a critical size that ensures both profitability and sustainability. They also directly impact a huge number of customers and have inspired the creation of similar businesses.

See the full article on the blog Private Sector & Development, animated by Proparco.

The ambitious and challenges of social busine ...

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Social business is a demanding business model: social enterprises pursue social or environmental goals while also seeking long-term profitability and they face many challenges. In the wide- ranging ‘impact investing’ sector, it is vital that the social businesses are able to structure and differentiate themselves, both to attract investment and to boost their impact.

Despite the involvement of the international community and extensive multi-actor engagement, guaranteed access to essential goods and services is still a long way off for the world’s poorest populations. 1.5 billion people do not have reliable access to clean, affordable electricity; more than a billion lack drinking water or adequate health facilities; access to existing treatments for infectious diseases such as HIV/AIDS, tuberculosis and malaria is still very limited; and 70% of all children around the world not attending school live in Southern Asia and sub-Saharan Africa (Acumen, Hystra, WHO, 2014). Public funding alone cannot tackle all these challenges and while the private sector is already a significant funding source of development,[1] there is a need for new sources to be harnessed so that wider approaches can be developed, ‘workable’ solutions disseminated, and innovative responses devised that will benefit the very poorest. Working alongside the public sector, which plays a vital role in all these areas, investors and social enterprises face the challenge of developing capacity to meet this global demand for goods and services at affordable prices.

The emergence of ‘social business’: the culmination of a long story

The business world has many different terms for enterprise with a social or environmental focus, including “the social and solidarity economy”, “social entrepreneurship”, “bottom-of-the-pyramid initiatives”, “the inclusive economy”, “impact investing” and “social business”. However, while these terms appear to refer to the same concepts, they need to be differentiated. “The social economy” is an established term that represents a global attempt to combine economic activity and social benefits. This movement has produced different kinds of business, including cooperatives and mutual societies. Since the late 1990s, traditional private sector businesses have increasingly been embracing environmental and social issues, initially by focusing on controlling their environmental and social risks, and subsequently by incorporating notions of sustainable development and corporate social responsibility (CSR) into their organisation. At the same time, the financial sector has been creating “socially responsible investing” (SRI) tools – new investment vehicles that enable investors to monitor how their assets perform in social and environmental terms.

See the full article on the blog Private Sector & Development, animated by Proparco.