inclusive business ecosystems

Tackling Barriers to Scale:From Inclusive Business Models to Inclusive Business Ecosystems

Christina Gradl and Beth JenkinsCSR Initiative, Harvard Kennedy School

Thematerial in this publication is copyrighted. Quoting, copying, and/or reproducing portions or allof this work is permitted provided the following citation is used:

Gradl, Christina and Beth Jenkins (2011). “Tackling Barriers to Scale: From Inclusive BusinessModels toInclusive Business Ecosystems.” Cambridge, MA: the CSR Initiative at the Harvard Kennedy School.

The views expressed in this paper are those of the authors and do not imply endorsementby the John F. Kennedy School of Government, or Harvard University.

ACKNOWLEDGEMENTS

The authors are deeply grateful to Jane Nelson, Director of the CSR Initiative, for her insight and

guidance on this paper, which builds on more than 20 years of work she has done on the role of the

private sector in solving systemic development challenges. John Ruggie, Faculty Chair of the CSR

Initiative, also contributed the insight of many years’ focus on systems. Finally, the authors would like

to thank Martin Herrndorf, Aline Krämer, Solveig Haupt, Filippo Veglio, Richard Gilbert, and Zahid

Torres-Rahman for their thoughtful review and feedback.

Thanks also to the members of the CSR Initiative’s Corporate Leadership Group, the Bill & Melinda

Gates Foundation, the IFC, UNDP, GIZ and DfID for the valuable support and insights they have

provided to the CSR Initiative’s ‘Business and International Development’ research program.

Written by Christina Gradl and Beth Jenkins

Designed by Alison Beanland

Cover photographs: IDRC/Sy, Djibril; ITC Limited; Alquería S.A.; Olyset

© 2011 by the CSR Initiative at the Harvard Kennedy School

CONTENTS

FOREWORD Jane Nelson, John Ruggie 4

EXECUTIVE SUMMARY 5

INTRODUCTION 6

UNDERSTANDING INCLUSIVE BUSINESS ECOSYSTEMS 8

STRATEGIES FOR STRENGTHENING INCLUSIVE BUSINESS ECOSYSTEMS 11

STRUCTURES FOR STRENGTHENING INCLUSIVE BUSINESS ECOSYSTEMS 14

OUTLOOK 23

BIBLIOGRAPHY 26

APPENDIX: EXAMPLES REVIEWED IN DEPTH FOR THIS PAPER 29

Tackling Barriers to Scale:From Inclusive Business Models to Inclusive Business Ecosystems

4 TACKLING BARRIERS TO SCALE: FROM INCLUSIVE BUSINESS MODELS TO INCLUSIVE BUSINESS ECOSYSTEMS

One of the greatest contributions that businesscan make to society is to expand access togoods, services, and economic opportunities.Through offering goods and services that

people can afford and value enough to pay for,companies can create jobs and opportunities forsuppliers, distributors, and retailers along the valuechain – fueling broader economic growth and risingstandards of living, when underpinned by responsiblebusiness practices.

In many countries, however, market failures,governance gaps, and other bottlenecks preventbusiness from reaching the scale or leverage it might becapable of. This is especially the case when it comes toserving low-income consumers or engaging withlow-income producers and workers. The poor face notonly lower incomes, insufficient assets and exclusionfrom formal economic value chains, but often limitededucation and skills, geographic isolation, and legal orpolitical exclusion.

Over the past five years, the CSR Initiative at theHarvard Kennedy School has engaged in research andoutreach on the role companies can play in expandingaccess to goods, services, and economic opportunitiesfor the poor. Two common themes have stood out:• First, companies must move beyond philanthropyand social investment, although these can play acatalytic role, to harness their core business resources

and competencies in order to effectively tackledevelopment challenges and to build inclusivebusiness models. In short, there must be a businesscase: both up-front investment and long-termsustainability depend on it.

• Second, business cannot do it alone: there aresystemic barriers to scale that can only be tackled incollaboration with other players in the private sector,in government, and in civil society.

It has become clear that for companies to maximize theircontributions to development, they need to engage ina combination of both business model innovationwith the potential for long-term sustainability andbroad, multi-stakeholder collaboration to removesystemic barriers to scale and impact. New models ofcollaboration are as important as new business models.In this context, the CSR Initiative has initiated aresearch workstream focused on ways companies canstrengthen and manage inclusive business ecosystems:the communities or networks of interconnected,interdependent players whose actions determinewhether or not inclusive business models will succeedand generate impact at scale. This paper presents thefindings of our first phase of research. It will be followedby more in-depth case studies of specific initiatives andthe hosting of dialogues between leaders in the corporateand development community. We welcome yourfeedback and look forward to sharing deeper insights asour work unfolds.

Foreword

Jane NelsonDirector, CSR InitiativeMossavar-Rahmani Center for Business and GovernmentHarvard Kennedy School

John RuggieFaculty Chair, CSR InitiativeBerthold Beitz Professor in Human Rights and International AffairsMossavar-Rahmani Center for Business and GovernmentHarvard Kennedy School

TACKLING BARRIERS TO SCALE: FROM INCLUSIVE BUSINESS MODELS TO INCLUSIVE BUSINESS ECOSYSTEMS 5

Executive Summary

This paper describes the concept of an inclusivebusiness ecosystem, and presents three structurescompanies can employ to strengthen theseecosystems. It is based on an analysis of 15 case

examples that have been identified in a review of 170documented efforts by companies to start and scaleinclusive business models.

Inclusive business models engage people living at the baseof the economic pyramid (BOP) in corporate valuechains as consumers, producers, and entrepreneurs. Suchmodels offer great promise: to enable business growth inmarkets that cover two thirds of the world’s population,while creating economic opportunity and betterstandards of living for the poor in the process. Yet whilecompanies – and also donors, development banks andother players – have put much effort into creating suchmodels, relatively few have gained significant scale so far.What is keeping inclusive business models from reachingtheir full potential? Among the most obvious factors isthat operating environments for inclusive business arechallenging, with significant gaps in the institutional,informational and infrastructural conditions required tomake markets work.

Broadening the focus from developing inclusive businessmodels to strengthening inclusive business ecosystems, asthis paper suggests, helps companies deal more efficientlyand effectively with these challenges – by deliberately andstrategically engaging the networks of interconnected,interdependent players whose actions determine whether ornot their inclusive business models will succeed. The playerstypically include individuals, companies, governments,intermediaries, NGOs, public and private donors, andothers.

Companies use a variety of strategies to strengthen theecosystems around their inclusive business models.These include BOP awareness-raising and capacity-building, research, information-sharing, public policydialogue, and creating new organizations.We find thesestrategies across the cases analyzed for this paper.

Companies execute these strategies using three structuresto harness the necessary resources and capabilities andovercome the incentive problems that coordination andcooperation entail:

• Private initiative by an individual company is thedefault structure for firms seeking to strengthen theirinclusive business ecosystems, because it enables themto move quickly with fewer transaction costs. Itpresumes sufficient resources and the necessarycapabilities, and typically works best when incentiveproblems are limited to the company and its directcustomers and suppliers – and can be addressedthrough payment and certification systems embeddedin the business model.

• Project-based alliances with one or more otherorganizations are employed when companies relycritically on the resources and/or capabilities of otherplayers, and cannot simply purchase them on themarket. These might include the expertise,on-the-ground networks, and catalytic financing ofNGOs, donors, and development banks. Since thereputation and success of each partner is at stake if theother fails to comply with its commitment, formalalliance models, such as partnerships or joint ventures,are often required.

• Platforms are formal networks of potentially largenumbers of players, established for a commonpurpose. Platforms can overcome free rider problemsin the creation of public goods such as basic researchor shared infrastructure. They can also organizecollective action to overcome weakest links intight-knit regional systems, such as agricultural valuechains.

These structures are complementary, and companiesoften use them in combination, either sequentially orsimultaneously. The cases studied reflect a range ofpossible combinations.

This paper provides a simple framework for companiesto think about the strategic management of inclusivebusiness ecosystems. Yet, much more remains to bedone. This paper marks the next stage of an ongoingresearch workstream by the CSR Initiative at HarvardKennedy School on the role of the corporate sectorin international development. It will be followed byin-depth case studies to provide more concrete andpractical insight on how to employ the strategies andstructures described here.


Introduction

Poverty reaches two thirds of the world’s population. Can inclusive business?

In 2001, C.K. Prahalad and Stu Hart spotted apossible “fortune at the bottom of the pyramid.”1

Most of the global population was poor, they pointedout – and their collective purchasing power was bothsignificant and largely untapped by the mainstreambusiness sector. Since then, great momentum has grownup around the concept of doing business with the poor.Companies have begun to engage those at the base ofthe global income pyramid as consumers, retailers,distributors, and suppliers, expanding access to goods,services, and livelihood opportunities for those whoneed them most. Donors, impact investors, consultingfirms, and research institutions have developed a rangeof offerings to support companies in their efforts.

Doing business with the poor – now commonly called“inclusive business” – is doubly intriguing. On onehand, it offers the potential to drive business innovationand growth. And on the other hand, it offers thepotential to drive development impact sustainably andat scale.2

Unfortunately, relatively few companies have managedto realize inclusive business’ potential for businessgrowth and development impact at scale.3 This hasn’tbeen for lack of effort. The United NationsDevelopment Programme (UNDP) has compiled adatabase of more than 1,000 inclusive businessinitiatives, for example, and the Monitor Group hasidentified more than 600 such initiatives in India andAfrica alone.4 But most remain small and relativelyisolated examples; few inclusive business models haveachieved scale or the financial success necessary toinspire replication beyond a small circle of dedicatedpioneers.

We believe it is time for a new unit of analysis andaction. Over the course of ten years of research in thisfield, we have seen companies be deliberate, strategic,and often very creative in developing inclusive business

models.To tackle the barriers to scale, companies mustbe equally deliberate, strategic, and creative aboutcultivating the inclusive business ecosystems on whichthose models depend.

Base of the pyramid markets are plagued by challengeslike low levels of education, inadequate infrastructure,poorly designed or enforced regulation, and more.Thesechallenges are often too systemic to address throughbusiness model innovation alone. Certainly nowhere inthe developed world do we expect business ingenuity tosubstitute for a well-functioning market environment.Inclusive business models can compensate for gaps inthe market environment, or work around them, butinclusive business ecosystems – spanning a wide range ofmarket players in business, government, and civil society– can actually overcome them. Inclusive businessecosystems thus play a critical role in the cost structure,performance, and potential for scale and developmentimpact of individual inclusive business models.

In fact, inclusive business ecosystems have been criticalenablers in some, if not all, of the inclusive businessmodels that have reached scale. One of the most famouscases, described in Prahalad’s 2004 book on base of thepyramid business,5 is Aravind Eye Care in southernIndia. Aravind treats 2.5 million patients and performs300,000 eye operations every year. Even thoughmany ofits patients are unable to pay, the hospital has a solidprofit margin. That margin could only be achieved bystrengthening the whole ecosystem around the corebusiness to enable extreme efficiency and overcomebarriers to scale. That ecosystem includes a lensmanufacturing joint venture, research and traininginstitutes, and civil society groups that organize patientscreening events in rural areas.

It is not surprising, therefore, that the importance ofecosystems has surfaced in much of the literature aboutinclusive business models. As Prahalad noted in his book,


“The need for building an ecosystem for wealth creationand social development at the BOP is obvious.”6

Prahalad’s colleague and co-author of the 2002HarvardBusiness Review article “Serving the World’s Poor,Profitably,” Dr. Allen Hammond, has written about“[building] an entire ecosystem to support scale, ratherthan just a stand-alone venture.”7 He describes a numberof strategies for “expanding the scope of the venturecreation activity beyond traditional definitions that focustightly on the business itself in order to gain allies,supporters, innovations, and new solution modes andthus better cope with the difficulties of BOP venturecreation.”8 In other work, the UK’s Department forInternational Development (DFID), the Swiss Agencyfor Development and Cooperation (SDC), and otherdonors have generated extensive know-how on makingmarkets work for the poor;9 the CSR Initiative atHarvard Kennedy School has conducted research on therole of the private sector in systems-strengthening;10

UNDP’s research has highlighted the roles of companiesand other players in developing inclusive businessmodels;11 and a United Nations Global Compactworking group, led by Unilever, has begun to look at“transformational partnerships” to “create impact at asystemic level across sectors and geographies.”12

As work on inclusive business models has progressed, theneed for systemic approaches has becomemore andmoreapparent. More analysis and practical guidance areneeded. This framing paper aims to build on theliterature to date, focusing explicitly on inclusive

business ecosystems and how they can be created andimproved. It begins by showing how companies muststrengthen those ecosystems to tackle the barriers to scalethey face when developing inclusive business models. Itthen moves on to discuss a range of strategies andstructures companies are using to build better-performing inclusive business ecosystems. The paperthus makes three main contributions to the developmentof more successful inclusive business models:• It broadens the perspective from the inclusivebusiness model to the inclusive business ecosystem,the critical unit of analysis for companies seeking toscale even under the difficult market conditions atthe base of the pyramid;

• It identifies cross-cutting strategies companies can useto strengthen inclusive business ecosystems; and

• It introduces a simple framework consisting of threegeneric structures that companies can use to organizethe ecosystems around them, and shows how thosestructures can be combined over the course ofstarting and scaling an inclusive business model.

As a field, we are in the early stages of understandinghow to build and manage such ecosystems, and some ofthe most intriguing approaches are relatively new. Somehave yet to generate tangible results, not to mentionlongitudinal data that would lend itself to a rigorousimpact evaluation. Nevertheless, now is the time tobegin reflecting on experience to date and distillinglessons learned. Inclusive business leaders would do wellto get ahead of the curve.

This paper builds on complementary strands

of researchby theCSR Initiative (CSRI) and the

authors individually on inclusive business

models and the role of the private sector

in systems-strengthening.13 It captures the

findings of a first phase of work under a new

CSRI workstream focused on inclusive

business ecosystems.

We began this research with a literature

review of inclusive business, business

partnerships for development, and to a

lesser extent, business ecosystems and

systems theory. From the literature, we

compiled a list of more than 170 initiatives

in which companies were working either

to start or scale inclusive business models

(i.e., businessmodels offeringgoods, services,

and livelihood opportunities to the poor

in commercially viable ways). We selected

15 initiatives for which we could gather

sufficient information on ecosystem-level

dynamics through secondary research (see

full list in the appendix). We analyzed how

the companies involved in these 15 initiatives

worked to create or strengthen those eco-

systems– identifying cross-cutting strategies

and developing a typology of structures

employed.

It is important to note that relatively few

existing inclusive business case studies look

in depth at inclusive business ecosystems,

their dynamics, and how companies manage

them. Primary research is necessary, andwill

be the focus of a secondphase ofwork by the

CSR Initiative in this area.

Box 1.Methodology


Understanding Inclusive BusinessEcosystems

In a McKinsey Award-winning Harvard BusinessReview article in 1993, business strategist James F.Moore introduced the concept of a business

ecosystem. “Even excellent businesses,” he observed,“can be destroyed by the conditions around them.”14

He suggested that in order to remain competitive,executives had to learn how to cultivate and managethose ecosystems just as well as they cultivated andmanaged their own businesses.

The same observation applies to inclusive businessmodels – they can be destroyed by the conditions aroundthem. Base of the pyramid markets are plagued bysystemic challenges like low levels of education,inadequate infrastructure, poorly designed or enforcedregulation, and more. These challenges are welldocumented. For example, UNDP has identified fiveprimary constraints in the market environment: a lackof market information, ineffective regulatoryenvironments, inadequate physical infrastructure, limitedknowledge and skills, and limited access to financialservices.15 In their work onmaking markets work for thepoor, DFID and SDC divide the market environmentinto rules (including regulations, social and culturalnorms, and voluntary standards) and supportingfunctions (including information, skills, and financialservices).16 There can be gaps in any of these categories.

These gaps can stunt the growth of inclusive businessmodels. Consider, for example, that:• Sourcing from smallholder farmers is only asustainable, scalable strategy if those farmers knowhow to produce to the buyer’s specifications; ifagro-dealers stock and sell the inputs they need ataffordable prices; if banks and other financialinstitutions offer credit to finance the productioncycle; and if consumers are willing to pay what itcosts to produce this food.

• Mobile phone-based payments will only reach scaleif a critical mass of consumers, retailers, serviceproviders, and employers understand the benefits;

if users can “cash in” and “cash out” conveniently ata wide range of locations; if the technology andphysical infrastructure are robust; and if thegovernment regulates it appropriately, striking theright balance between financial inclusion, consumerprotection, and overall stability of the financialsystem.

Inclusive business models must compensate for gaps inthe market environment, or work around them. As aresult, as the International Finance Corporation (IFC)and others have highlighted, many inclusive businessmodels are “high-touch” – involving significant customereducation; supplier, distributor, and retailer training;provision of financial services, even among non-financialinstitutions; and other tactics.17 As the Monitor Grouphas pointed out, companies must organize the valuechain end-to-end.18 However, high-touch models areexpensive.Without high operating margins or the abilityto cross-subsidize to cover costs, companies may beunable to engage lower-income segments commerciallyat any kind of scale.19

Deliberately improving the ecosystems around inclusivebusiness models can help overcome the market gapsthat make those models high-touch, high-cost, and –all too frequently – small-scale. Moore defined abusiness ecosystem as:“an economic community supported by afoundation of interacting organizations andindividuals – the organisms of the business world.The economic community produces goods andservices of value to customers, who are themselvesmembers of the ecosystem. The memberorganisms also include suppliers, lead producers,suppliers, and other stakeholders [such as investors,trade associations, government agencies, and evencompetitors]. Over time, they co-evolve theircapabilities and roles, and align themselves withthe directions set by one or more central[organizations].”20


Inclusive business ecosystems are functionally equivalent:they are communities or networks of interconnected,interdependent players whose actions determinewhether or not a company’s inclusive business modelwill succeed. These players typically include:

• Individuals purchasing goods and services asconsumers, providing goods and services asproducers, investing in businesses, and engaging inmyriad other activities as employees and citizens.

• Companies engaging in research and development,commercializing newproducts and services, purchasingfrom and selling to other companies, providingfinancing solutions, investing in new operations andinfrastructure, creating standards, competing againstother companies, and lobbying the government (oftentogether with other companies via associations).

• Governments adopting new policies and regulations,adjusting tax codes, and improving public serviceslike health care, education, and in some countries,provision of energy, water, and sanitation.

• Business associations, cooperatives, unions,standards bodies and other intermediariesproviding services such as information or access to

markets to their members, and representing memberinterests towards others – above all the government.

• Non-governmental organizations raising consumerawareness and trust, setting environmental andsocial standards, changing social and cultural norms,informing government policy reform, and creatingtraining facilities.

• Public and private donors building the capacitiesof farmers and producers, providing catalyticfinancing to companies and entrepreneurs, andadvising governments on how to improve marketenvironments.

• Academic and other research institutionsundertaking on basic research that will ultimatelybenefit all players in a market, analyzing what worksand what doesn’t in either the business or policyspheres, creating knowledge that other actors mayhave neither the time nor incentive to do, andmaking sure it is disseminated.

• The media and other trend-setters raisingawareness, influencing social and cultural norms,providing information, and creating momentum forchange.

Figure 1.Moore’s Business Ecosystem

Stakeholders,including investorsand owners, tradeassociations andlabor unions

Governmentagencies and otherquasi-governmentregulatory bodies

Suppliers ofmy suppliers

Customers ofmy customers

Competing organizations having shared product andservice attributes, business processes, and

organizational arrangements

Standards bodies Direct customers

Direct suppliers

Providers of complimentaryproducts and services

Distributionchannels

BUSINESS ECOSYSTEM

EXTENDED ENTERPRISE

CORE BUSINESS

Source: Moore, James F. (1996). The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. New York, NY: HarperCollins. Page 27.


Both individually and collectively, these players canfulfill critical roles in tackling barriers for inclusivebusiness models to scale, as depicted in Figure 2 below.

But each of the players in an inclusive businessecosystem has its own perspective, capabilities, goals,and incentives. How can a company encourage andenable them to act – whether individually or collectively– in ways that, together, pave the way for their inclusivebusiness models to succeed? The question is equallyrelevant for donors, civil society organizations, andothers hoping to accelerate the growth anddevelopment impact of inclusive business writ large.

Aligning and strengthening inclusive businessecosystems can be a complex process. That is why theytypically evolve slowly. But far from accepting theirecosystems as given, companies can play active roles inhelping them evolve faster and more deliberately, as theinitiatives reviewed for this paper illustrate.

As a field, we are in the early stages of understandinghow to strengthen inclusive business ecosystems, andsome of the most intriguing approaches are relativelynew. Yet patterns in the strategies and structures beingused are beginning to emerge. We outline these in thefollowing sections.

Figure 2. Inclusive Business Ecosystem Players and their Roles

BARRIERS TO SCALE

Limited knowledge and skillsamong the BOP

Lack of market information

Ineffective regulation

Inadequate infrastructure

Limited access to financeamong the BOP

PLAYERS ANDTHEIR ROLES

Companies, specialized firms, media outlets, development agencies, and NGOs:education and training

Companies, specialized firms: trial-and-error learning, market research

Governments, companies: regulatory change, self-regulation

Governments, companies, contractors: building infrastructure

Financial services companies: business model innovation

Source: Barriers to scale sourced fromUNDP (2008). “Creating Value for All: Strategies for Doing Business with the Poor.” New York, NY: UNDP.


Strategies for StrengtheningInclusive Business Ecosystems

BARRIERS TO SCALE

Limited knowledge and skillsamong the BOP

Lack of market information

Ineffective regulation

Inadequate infrastructure

Limited access to financeamong the BOP

PLAYERS ANDTHEIR ROLES

Companies, specialized firms, mediaoutlets, development agencies, andNGOs: education and training

Companies, specialized firms:trial-and-error learning, market research

Governments, companies: regulatorychange, self-regulation

Governments, companies, contractors:building infrastructure

Financial services companies: businessmodel innovation

STRENGTHENING STRATEGIES

Source: Barriers to scale sourced fromUNDP (2008). “Creating Value for All: Strategies for Doing Business with the Poor.” New York, NY: UNDP.

Inclusive business ecosystems involve many differentplayers, each with different incentives andcapabilities. Strengthening and aligning their actions

can help inclusive business models reach greater scaleand impact. This means raising awareness, encouragingexperimentation, reducing cost and risk and theperceptions thereof, and often, building a new visionfor what could be.While large donors and developmentfinance institutions are doing important work in thisregard, powerful leadership also comes from companiesthemselves.

Among the initiatives reviewed for this paper, we seecompanies using a number of strategies to encourageand enable other players to align their actions with theinclusive business models those companies are workingto start and scale. These include BOP awareness-raising

and capacity-building; research; information-sharing;public policy dialogue; and even creating neworganizations to fill gaps in the ecosystem.21 A numberof these strategies are emphasized in existing literatureon inclusive business models – most notably BOPawareness-raising and capacity-building, which targetplayers participating at the core business level in thosemodels.22 That such strategies appear again and againshows the extent to which companies must influenceand enable the ecosystems around their inclusivebusiness models. An explicit ecosystem-strengtheningapproach can help companies achieve their goals moreeffectively and efficiently. Instead of reacting ad hoc tochallenges in the market environment, companies candeliberately and strategically engage the players whoseactions determine whether or not their inclusivebusiness models will succeed.

Figure 3. Strategies for Strengthening Inclusive Business Ecosystems

BOP awareness-raising andcapacity building

Research

Information-sharing

Public policy dialogue

Creating new organizations


BOP awareness-raising and capacity-building: TheBOP consumers and producers that inclusivebusiness models seek to engage are fundamentalparts of the inclusive business ecosystem. Butencouraging them to act in new ways can be tough:people living in poverty have limited disposableincomes, savings, and social safety nets to fall backon. They may have learned to cope with the harshrealities of life by attributing them to nature, fate, ortradition – mental models that can make newbehaviors seem risky or futile. Awareness-raising isneeded to help consumers understand and valuenew products and services enough to change theirpurchasing patterns. Similarly, it is needed toconvince suppliers, distributors, and retailers thatchanging their practices or introducing newproducts will really pay off. And once the benefits ofa new product, service, or livelihood opportunityare clear, capacity-building approaches like financialliteracy, skills training, and one-on-one coaching areneeded to help BOP consumers and producers takefull advantage of them.

Research:Most individuals and organizations onlychange their behavior when they have solidinformation about what they should do instead,why, and how. This applies not only to BOPconsumers and producers, but also to othercompanies, governments, donors, civil societygroups, academic institutions, and other players.Credible research can help to meet this basicinformation need.Research can help companies develop a vision andidentify which players need to align their actions,and how. It can also enable those players to fulfilltheir new roles in the ecosystem – helping companiesdevelop new business models, governments developeffective policies, and NGOs and specialized firmsdevelop better techniques for educating and trainingconsumers and producers at the base of thepyramid.

Information-sharing:Of course, research serves nopurpose if insights are not actively, accurately, andreliably shared so players within the inclusivebusiness ecosystem can make use of them. At thesame time, research is not the only way of generatinginsights – practical experience and experimentation

are just as valuable. Initiatives to strengtheninclusive business ecosystems use a range ofinformation-sharing methods to ensure insightsreach those who need them. These include standardcommunications tools like websites, newsletters,press releases and other forms of media outreach.But they also include opportunities for the players inan ecosystem to interact – not only sharinginformation and experience, but also getting toknow one another, forming relationships of trust,and building and reinforcing a common vision. Farfrom simply being “talk shops,” opportunities likeconferences, workshops, and site visits play criticalroles in aligning individuals and organizations thatmay not previously have had much exposure to oneanother.

Public policy dialogue: One very important – andoften sensitive – form of information-sharing ispublic policy dialogue. On one hand, public policyand regulation can offer the stability and protectionbusinesses need to plan and invest. But on the otherhand, they can unintentionally stifle the innovationthat inclusive business models depend on. Strikingthe right balance can be difficult for regulators withmultiple priorities, diverse constituents, and difficulttrade-offs to make. To do so, they need goodinformation, and much of it must ultimately comefrom business itself.Inclusive business models are new and evolving.Companies are the ones experimenting, bumpingup against constraints, learning what consumersvalue and what problems their suppliers,distributors, and retailers have. But there can bemistrust among business, government, and thepublic. In response, some companies are invitingregulators “behind the scenes” to see how thebusiness works and adjust their requirements inresponse. Others are engaging in dialogue togetherwith bilateral or multilateral development donors,through business associations, or through neutralplatforms involving a range of players across sectors.

Creating new organizations: In base of the pyramidmarkets, key players are often simply missing. Thesecan include intermediary organizations likeassociations, unions, and other civil society groups;research and training institutes; certification bodies;


and complementary parts of a value chain such aslocal transportation companies or financialinstitutions willing to lend to the poor.Taking on the roles of these missing playersthemselves can be costly for companies, and leadthem away from their core competencies.Sometimes it is not even possible. For example,certification bodies need to be independent to becredible. As a result, companies sometimes createindependent organizations to fill the gaps –contributing business planning, internal venturecapital and other forms of catalytic financing,

coaching, and sometimes even incubating these newplayers until they are ready to stand on their own.

Examples of these strategies in action follow in the nextsection, which introduces three different structurescompanies use to strengthen inclusive businessecosystems.• Private initiative by an individual company;• Project-based alliances between a company and oneor more organizations;

• Platforms that allow many different players tocoordinate with each other.


Companies are using the five strategies outlinedabove to influence players throughout theinclusive business ecosystem, encouraging and

enabling them to change and align their actions insupport of inclusive business models. Engaging theecosystem is critical, because companies often lack theresources and capabilities required to overcome thebarriers to scale on their own.

In the process, however, they often run up againstincentive problems that prevent players from takingaction – even when it would be in their own bestinterests, and the best interest of the ecosystem as awhole. For example:

• In the absence of credible information sources andenforcement mechanisms like credit rating agencies,consumer protection bureaus, and contractenforcement systems in base of the pyramidmarkets, a company and its direct customers andsuppliers may not trust that one another will pay orprovide quality products and services. This maydiscourage them from entering what would havebeen mutually beneficial transactions.

• Whether a company’s inclusive business modelsucceeds may depend on the actions of otherplayers, which it cannot simply pay to do the job –like training by NGOs, financing by banks, andpublic policy work with governments by developmentagencies – and vice versa. No individual player willput its assets at risk unless it can trust that the otherswill hold up their ends of the bargain.

• Many different players may need to share resourcesand experience to create common goods likeknowledge, new policy frameworks, intermediaryorganizations, and other market infrastructure. Butthe prospect that others will free ride discouragesthem from contributing their share.

Companies need structures appropriate to resolving theresource and capability constraints and the associatedincentive problems they face. Among the examplesreviewed for this paper, we identified three basicstructures:

Structures for Strengthening InclusiveBusiness Ecosystems

Private initiative by an individual company,

Project-based alliances between a company and one or more organizations, and

Platforms that allow many different players to coordinate with each other.


Private initiative is the default approach of companiesseeking to strengthen their inclusive businessecosystems, because it enables them to move quicklywith fewer transaction costs. However, it presumessufficient resources and the necessary capabilities, andtypically works best when incentive problems arelimited to the company and its direct customers andsuppliers – and can be addressed through payment andcertification systems embedded in the business model.When the company’s own resources and capabilities donot suffice, and when broader or more complexcoordination problems exist, project-based alliances andplatforms can be used. Project-based alliances, forexample, help resolve incentive problems with otherplayers through formal agreements that create legal orreputational liabilities for those that do not followthrough. Platforms can help resolve the incentiveproblems that arise when large numbers of players needto cooperate. However, project-based alliances andplatforms generally require significant investments oftime and resources to manage.

It is important to emphasize that these three structuresare complementary. Inclusive business ecosystem-strengthening is a complex, long-term process thatunfolds on multiple levels. Multiple coordinationproblems usually exist, and as a result, we see multiplestructures employed – either simultaneously orsequentially.

The remainder of this section summarizes each of thethree structures in turn, indicating when to choosewhich one based on (1) the resources and capabilitiesavailable at firm level, within the company; and (2) theincentive problems facing the company in collaboratingwith other players in the inclusive business ecosystem.The section concludes by describing how the threestructures are used in combination.

Like the strategies in the previous section, the structuresin this section have been discussed in the business anddevelopment literature.23 This is the first time, however,that these structures are discussed together as part of anoverarching framework for strengthening the inclusivebusiness ecosystems that inclusive business modelsdepend on to scale. Elsewhere, the three structures arediscussed independently, as distinct tools serving avariety of different purposes. This dedicated treatmentprovides valuable guidance on how to plan andimplement each of the structures (though muchremains to be learned in this regard, as well). Theframework presented here, discussing the threestructures together as complementary tools for a singlepurpose, provides guidance to companies on when tochoose which model – and how to combine thesemodels over time to strengthen inclusive businessecosystems.


• To scale up its mobile phone-based money transferservice, SMARTCommunications in the Philippineshad to educate consumers and convince them thesystem was safe; persuade thousands of retailers toaccept mobile payments; and interest a bank inholding large numbers of tiny deposits forlow-income users. The company also collaboratedwith its main competitor and invited regulators“behind the scenes” to see its business operations andadjust the rules in response, rather than in advance –which could limit the company’s flexibility.24

• Tiviski Dairy created a market for camel’s milk inMauritania by changing consumer mindsets;creating an independent, membership-based NGOto provide animal husbandry training, financing, andveterinary services to camel herders; and engagingthe government to develop appropriate standardsand administrative bodies.25

• Sulabh introduced pay-per-use toilet services inIndia, where it was difficult even to talk aboutsanitation, through traditional marketing andbehavior change strategies to change prevailingmental models. To scale up, it set up a variety ofindependent research and training facilities thatdevelop toilet designs for different budgets andlocations; train masons capable of constructingthem; and even incubate other toilet servicesproviders.26

• Georgian NGO Begeli created an ecosystem aroundorganic agriculture by founding a company tomarket organic products, a certification agency toassure consumers, and a trade union to supportfarmers. The organization has engaged inawareness-raising to influence consumer behaviorand public policy dialogue to inform governmentregulation.27

Private initiative is the default approach of companies,who typically prefer to move quickly, maintain control,and minimize transaction costs. Yet, it only works whena company has the necessary resources and capabilitieswithin the firm, and where incentive problems can beresolved through standard business practices.

Resources and capabilities:

In the private initiative structure, it is the companyitself that executes the strategies described in theprevious section: BOP awareness-raising andcapacity-building, research, information-sharing, publicpolicy dialogue, and creating new organizations.28

Therefore, the company’s own resources and capabilitiesmust be sufficient, or it must be able to acquire them onthe market. These include staff, skills, budget, financing

mechanisms, and relationships. A significant localmarket presence often helps.

For the private initiative structure to be effective, thecompany needs to have a core business interest instrengthening the ecosystem – whether an existinginclusive business model or the desire to develop one.Otherwise, it will be difficult to justify the investmentof time and resources required for the length of timeinvolved.

Incentive problems:

The private initiative structure depends on a clearbusiness value proposition that aligns the interests ofmany different players. This value proposition isembodied in a product or service offering that

STRUCTURE 1: PRIVATE INITIATIVE

What is it?

Definition: An individual company.

Examples:

When to choose it?


customers value enough to pay for; that createseconomic opportunities for suppliers, distributors, andother business partners; and that, by extension,government and other parts of society support. As acompany works to start and scale the offering, these andother players respond in their own self-interest.Customers devote limited purchasing power to newuses, cutting down on other expenditures. Suppliers,distributors, and retailers experiment with new businessprocesses or product mixes. The government adjusts taxpolicy, consumer protection laws, workforcedevelopment programs, and other relevant policies andprograms as needed. Competitors are enticed to enterthe market. Industry associations start to developtechnical standards. Inclusive business ecosystems arecreated, grow strong, and evolve.

On its own, private initiative can only solve incentiveproblems between the company and those it doesbusiness with directly: suppliers and customers. Thesetypically hinge upon the ability to verify product orservice quality and the likelihood one party will pay theother.Where business in established markets can mostlyrely on broad-based contract enforcement and qualityassurance systems, inclusive business mostly happens ininformal markets that typically do not offer thesemechanisms. The private initiative structure – that is,the business – can resolve these incentive problemsthrough:

• Payment systems that embed the solution into theproduct or service itself. For example, pre-paidservices like SMART’s mobile phone airtime orSulabh’s toilet facilities ensure that customers pay.In microfinance, where by definition borrowers payafter service is provided, social enforcementmechanisms like solidarity groups are often used.

• Third-party certification can help companies verifythe quality of the products they sell and those theyprocure. People trust third-party certification bodiesbecause they know it is in those bodies’ own bestinterests to be accurate. If products are certifiedwrongly, the certification loses meaning, and thecertifier goes out of business. A to ZTextile Mills inTanzania has its anti-malarial bednets certified forquality and safety by the World HealthOrganization. Through its marketing company,Elkana, Begeli only sells produce certified as organic.

• Technical assistance for suppliers is often considereda sign of commitment by the company providing it.For example, Tiviski’s initial investment inveterinary support through what would laterbecome an independent NGO showed herders thatthey would not be left alone in difficult times andthat they could rely on the income provided by thenew company.

• Project-based alliances with players a company’sBOP producers and consumers already trust cansend a signal that the company, too, can be trusted(see next section).


• BASF is partnering with German developmentagency GIZ to create food fortification andcertification systems in a number of countriesthrough the Strategic Alliance for Fortification ofOils and Other Staple Foods (SAFO). BASF sharesmanufacturing knowledge with local food companiesand GIZ convenes government policymakers todevelop supportive legal frameworks. The partnersstarted by researching best practice fortificationand certification systems, mapping stakeholdersand their incentives, and planning concreteinterventions accordingly.29

• As part of the Conservation Coffee Alliance,Starbucks agreed to give preferential buying status,better prices and contract terms to smallholderfarmers that achieved specified levels of performanceagainst the C.A.F.E. Standards for quality, socialresponsibility, and environmental sustainability. Thecompany partnered with NGO Conservation

International, which has specialized skills andrelationships with farmer groups, to train thefarmers, and with the US Agency for InternationalDevelopment, which contributed funding.30

• Project Nurture is an alliance between TheCoca-Cola Company, its East African bottlerCoca-Cola Sabco, the Gates Foundation, and theNGO TechnoServe intended to develop localsupplies of mango and passionfruit in Kenya andUganda, where the company had been strugglingwith a shortage of quality fruit for its growing juicebusiness. Gates funds TechnoServe, which organizesfarmers into producer business groups; providesthem with agricultural extension services; andfacilitates access to financing and markets.Coca-Cola contributes 50% of the total project cost,a market for some of the fruit produced, and ananchor effect that helps attract additional buyers.31


While there is much companies can do to strengtheninclusive business ecosystems on their own, throughprivate initiative, they cannot always do everything.Specialized and hard-to-replicate assets like localknowledge and relationships of trust may be required.Money may also be required – money that is hard tocome by internally, because the financial return is toosmall or too uncertain to justify the investment.

Where a company cannot feasibly acquire the assets orresources required to strengthen the ecosystemsufficiently on its own, it must collaborate with playerswho can bring them to bear. These players can includeother companies, NGOs, governments, public donors,and private foundations. Through project-basedalliances, two or more players commit to carry outspecific inclusive business ecosystem-strengtheningactivities either jointly (as in joint public policy

STRUCTURE 2: PROJECT-BASED ALLIANCE

What is it?

Definition: A project-based alliance brings two or more players together under aformal agreement to accomplish a certain objective within a settimeframe. It typically includes a project plan with well-definedroles and responsibilities, milestones, andmonitoring and evaluationmechanisms that enable the partners to make course corrections asneeded over the life of the project.

Examples:

When to choose it?


dialogue with government) or individually, in acomplementary fashion (for example, when one partyconducts capacity-building and the other commits tosource from those trained).

Incentive Problems:

Project-based alliances depend on clear alignment ofinterests among the players. This doesn’t mean theirinterests have to be the same. Coca-Cola Sabco mightjoin Project Nurture because it wants to develop itsjuice business, for example, whereas TechnoServe andthe Gates Foundation join because they want farmers todouble their incomes. Similarly, BASF could enter intoSAFO to develop local markets for its micronutrientpremix, whereas GIZ could join to improve nutritionand health outcomes in those markets.

While collaboration can be in the parties’ own bestinterests, it can also create risk. Each party is puttingimportant assets on the line and must trust that theothers will hold up their ends of the bargain. Forexample, in Project Nurture, TechnoServe iscontributing not only its technical capacity foragricultural extension work, but also its reputation andrelationships of trust with farming communities. Thoseassets would be in jeopardy if Coca-Cola did not followthrough on its commitment to purchase the fruit thefarmers produced. Similarly, in SAFO, BASF’sinvestment in sharing its fortification expertise withlocal food manufacturers would be at risk if GIZ didnot follow through on its commitment to helpgovernments develop regulatory frameworks thathelped build consumer confidence and generatedemand for fortified products – and, by extension, forBASF’s premix.

Project-based alliances rarely get started unless there isalready a significant level of trust among the parties.However, the alliance structure itself also helps resolveincentive problems through:

• Formal agreements that add credibility to the parties’commitments by creating reputational (and in somecases legal) liabilities for those that do not comply.Such agreements range from Memoranda ofUnderstanding to Joint Ventures. With SAFO, forexample, BASF and GIZ have entered aPublic-Private Partnership (PPP) under thedeveloppp.de program of BMZ, the GermanMinistry for Development Cooperation andDevelopment. The alliance is formalized via aMemorandum of Understanding that clearly definesthe joint objectives and the individualresponsibilities of the partners.

• Monitoring and evaluation mechanisms that enablethe parties to identify and address issues in real time,as they arise. In the case of SAFO, milestones andgeneral project progress as defined in the MoU areregularly reviewed by a steering board. The boardalso provides direction to the initiative as it unfolds.

Project-based alliances can also help address broaderand more complex incentive problems by establishingplatforms as part of the project strategy and workplan(see next section).


STRUCTURE 3: PLATFORMS

What is it?

Definition: A platform is a formal network structure in which potentially largenumbers of stakeholders participate.While individual members may bemore or less active at any given time, the network is generally dependenton the membership for strategic direction-setting, programming, andgovernance. Members often endorse certain principles and/or agree tocomply with certain conditions, like paying membership fees or reportingperiodically on their activities.

• The 600 companies participating in the GlobalAlliance for Improved Nutrition (GAIN) work tofoster viable business models and sustainablepublic-private partnerships that improve nutritionin developing countries. The platform works onmultiple levels, supporting companies to developand pilot new business models and partnershipsinvolving governments and NGOs; promoting andin some cases providing market infrastructure likeknowledge, standards, and pooled purchasingfacilities; and engaging government in public policydialogue. Information-sharing is a critical role,enabling corporate partners to learn more quicklyand from a wider pool of experience than theywould be able to do on their own, thereby reducingthe cost and risk involved in developing newnutritional products and distribution channels.32

• The Southern Agricultural Growth Corridor ofTanzania (SAGCOT) Partnership counts nearly 30members interested in fostering a modern,commercial agriculture sector offering expanded

economic opportunities for smallholders in thecorridor. It started with research to develop adetailed “blueprint” of investments that public andprivate players would need to make over the next 20years in areas ranging from transportationinfrastructure to processing facilities to agriculturalinput and financial services markets. The secretariatconducts research, shares information, and informspublic policy dialogue to facilitate these investments.It is also raising capital for a Catalytic Fund that willhelp reduce the early-stage costs and risks.33

• The Better Cotton Initiative (BCI) aims to makecotton production more economically, socially, andenvironmentally sustainable. It has set a standard forsustainable cotton production and is now providinginformation-sharing and training to help bothsmallholder farmers and large buyers comply with it.The platform also coordinates national stakeholdercouncils to support implementation in each of itsfocus countries. It counts 13 members, includingfive major international cotton buyers.34


Sometimes, only many players acting collectively arecapable of strengthening the inclusive businessecosystem. This is typically the case where public goods,such as basic research or joint infrastructure, needs to becreated. Collective action is also necessary where thesuccess of one actor depends on the success of another,

because activities are complementary. This iscommonplace in closely-knit, geographically-basedinclusive business ecosystems, like agricultural valuechains and health or education systems. For example,building collection centers will not help a companyincrease local procurement if farmers cannot get access

Examples:

When to choose it?


to the fertilizers, irrigation, transportation equipment orknow-how to improve productivity – or if relevantinputs are available, but they cannot get a loan.

Platform structures are built to accommodate largenumbers of participants and last for extended periods oftime. Their objectives are typically broad andaspirational, like ending malnutrition or fosteringagricultural development. Broad objectives allow forpriorities, workplans, and activities to change over timeas the original challenges are resolved and new onesarise. It is frequently impossible to predict how theprocess of ecosystem strengthening will unfold, so it isimportant that the agenda be allowed to evolve basedon experience and research.

Incentive problems:

Collective action to create public goods or to improvehighly interdependent systems of actors is tough toorganize, because no player has an incentive to changeunless the others do, too.

Free rider problems can prevent companies frominvesting in shaping or building public goods, likeregulation, voluntary standards, social and culturalnorms of behavior, and knowledge. It is hard to preventany one player from benefiting from public goods oncethey are in place – giving all players the incentive totake advantage of them without contributing to thecost. Knowledge can, of course, be kept private. But incases where significant effort is required to research,test, and discover what works – and then thatknowledge can easily be observed and replicated byothers in the marketplace – it makes sense to make it ajoint effort and share the cost as widely as possible. Atthe same time, companies benefit from pooling theirexperiences, learning faster than they would have if theyhad access to their own experiences alone.

Collective action is also required if the whole chain isonly as strong as its weakest link, as is often the case inregional value chains or health and education systems.Then it makes sense for actors to join forces and removebarriers to efficiency. But again, the risk of free ridersand of players not sticking to their commitments canstifle such efforts.

Platforms can address incentive problems like thesethrough the following mechanisms:

• Membership systems that pool resources andinformation through annual fees and reportingrequirements. Membership systems also createpositive social pressure that attracts additionalplayers to join, and incentivizes them to comply inorder to avoid being excluded from the group.Platform members may also be asked to endorseprinciples reflecting common interests and values,which can help to build trust. GAIN, for example,screens businesses that apply for membership fortheir commitment to fight malnutrition on asustainable basis.

• Intermediation that facilitates information flowsamong the players involved, giving them theconfidence to act when their success depends onwhat others are doing. Staff of the newly-establishedSAGCOT secretariat, for instance, will meetregularly with businesses and investors to let themknow about other investments being considered,make connections, and facilitate partnerships. Theywill also reach out to attract new investors wherethere are gaps in the value chain.

• Catalytic financing that enables players to take actionby providing resources and/or reducing risk whenthe returns are long-term or uncertain. SAGCOT israising a Catalytic Fund that will provide early-stagepatient and concessional financing for investmentsin farms, storage and processing facilities, andtransport and logistics hubs in Tanzania’s SouthernCorridor.

All these mechanisms require a significant amount ofcoordination, especially in platforms with manymembers. For this reason, all of the platforms reviewedfor this paper included an independent secretariatfunction performed either by a neutral party or adedicated organization. These secretariats communicatewith members, represent the initiative to the outsideworld, and raise such funds as may be required after anymembership fees are taken into account. Theycoordinate individual and collective action by membersto strengthen the inclusive business ecosystem, andsometimes develop and execute concrete projectsthemselves, such as research.


COMBINATIONS OF STRUCTURES

It is important to emphasize that the three structuresdescribed above are complementary. Inclusive businessecosystem strengthening is a complex, long-termprocess that unfolds on multiple levels. In addition,multiple coordination problems usually exist. As aresult, we see companies using multiple structures –either simultaneously or sequentially. Among the 15cases analyzed for this paper, we found many possiblecombinations.

Some companies utilize project-based alliances orparticipate in platforms first to prepare the ground forinclusive business models. Once the foundations havebeen laid, they can continue strengthening the inclusivebusiness ecosystems around those models throughprivate initiative. BASF, for instance, is engaged in aproject-based alliance with GIZ to strengthen foodfortification ecosystems in various countries. BASF’srole is to provide technical expertise, especially to localstaple food producers; GIZ’s role is to advise the publicsector on supportive regulatory frameworks and tofacilitate multi-stakeholder dialogue. Together, thepartners organize all relevant national stakeholders in aplatform structure – building on existing nationalplatform structures where they exist. These platformscreate food fortification standards and labeling systemsthat send quality signals to consumers. This helpsgenerate demand for fortified products, thus creatingthe market for all industry players. As the marketdevelops, BASF can pursue further ecosystemstrengthening through private initiative, in the processof selling Vitamin A and other micronutrients.

Similarly, the companies participating in GAIN use itsplatform structure to build the knowledge andrelationships they need to develop inclusive businessmodels offering nutritious foods faster and moreeffectively than they could do on their own. UnderGAIN’s auspices, a company may choose to engage ina project-based alliance with other members andstakeholders to pilot and refine a new model. Whilethat alliance may dissolve when the pilot concludes, ifit is successful, the company can continue to strengthenthe ecosystem through private initiative – and willlikely remain involved in the GAIN platform.

Companies that have already initiated inclusive businessmodels often begin strengthening the inclusive businessecosystems around them through private initiative.Along the way, they may discover the need to utilizeproject-based alliances or participate in platforms tomeet specific needs or address broader challenges thanthey are capable of doing on their own. For example,Norwegian fertilizer company Yara began laying thefoundation for fertilizer sales to smallholder farmers inTanzania through private initiative to strengthen theinclusive business ecosystem – engaging in public policydialogue, funding outreach to farmers, and makingmulti-million dollar improvements to portinfrastructure. The company quickly realized thatfertilizer sales were vulnerable to weak links throughoutthe agricultural value chain, and at the governmentpolicy level as well. It played a major role in setting upthe SAGCOT platform in response. At the same time,the company is working to improve smallholderproductivity while minimizing environmental impactthrough a project-based alliance with fellowagricultural input company Syngenta and donorsDFID and Norad.

More research is required to understand how companiescombine the different structures, and theinterdependencies among the different structures overtime. It is also critical to understand how other playerscan help enable, facilitate, and implement them. Bothquestions will be explored through in-depth case studiesin the next phase of our research.


This framing paper has suggested that to tackle thebarriers to scale, companies need to strengtheninclusive business ecosystems just as deliberately

and strategically as they develop their inclusive businessmodels. It has shown that companies are already playingpowerful leadership roles in this regard, and presentedthe strategies and structures they are using to do it.

Yet we are in the early stages of building the knowledgebase, and corporate leadership at the ecosystem level isnot yet as widespread as it needs to be given the extentof the business opportunity and development impactthat hang in the balance. Companies interested instarting and scaling inclusive business models must findways of looking beyond their core business operationsand value chains, and use longer-term, market-creatingapproaches. We recommend that such companies:

• …take an ecosystem view. When starting to dobusiness in the context of poverty, ask yourself howthe landscape needs to change for your business togrow and achieve widespread impact. In areas wherethere is no business case yet, ask yourself what wouldneed to change to create it. Don’t assume currentconditions as given.

• …develop the skills, staff roles, and organizationalarrangements needed to execute ecosystem-strengthening strategies. BOP awareness-raising andcapacity-building, research, information- sharing,public policy dialogue, and creating neworganizations may not be “business as usual” for yourcompany. Provide your staff with opportunities toacquire relevant skills before and while implementinginclusive business projects. Think about new staffroles and organizational arrangements that wouldmake strategies to strengthen inclusive businessecosystems easier to implement next time around.Do you need a long-term business development ormarket creation manager? An internal venture capitalor philanthropic challenge fund? A dedicatedinvestment review process or set of metrics forlonger-term plays?

• …learn to identify the right ecosystem-strengthening structures at the right times. Do youreally need a project-based alliance, or could you drivechange through your business? Is a project-basedalliance the best to lay the foundations for aninclusive business model, or do you need a platformto pool knowledge or create shared marketinfrastructure? As your needs change, consciouslymanage the transition from one structure to the next.Learn to manage different structures simultaneously,and the interdependencies between them.

The inclusive business ecosystem concept hasimplications for donors, governments, and civil societygroups too. There is much that other players can do toencourage companies to participate and take leadershipin ecosystem-strengthening initiatives. For example,donors can provide catalytic financing and other formsof support that help companies engage in newer, riskier,and/or longer-term activities. They can intensify theirsupport for platforms, recognizing the enormous valueof intermediation in making ecosystems work better.Bilateral and multilateral donors, specifically, can linktheir efforts to support inclusive business models moreclosely to the policy work they are doing withgovernments. Governments can create open, transparentforums for public policy dialogue with companies oninclusive business issues.

The research conducted for this framing paper hasshown us that there is a richness of experience to betapped, documented, and distilled to develop practicalguidance for companies – and other players – interestedin strengthening inclusive business ecosystems. Movingforward, the CSR Initiative will be conducting in-depth,primary research into the strategies and structurespresented here. It is our hope that more practicalguidance on strengthening inclusive business ecosystemswill make it easier for companies to address gaps inbase-of-the-pyramid market environments and, as aresult, take their inclusive business models to scale. Thatscale is still badly needed – not only to build new areasof growth in an era of global recession, but also to createeconomic opportunity and better standards of living forfour billion people living in poverty worldwide.

Outlook


Endnotes

1 Prahalad, C.K. and Stuart L. Hart (2002).“The Fortune at theBottom of the Pyramid.”Strategy+Business 26: 54-6.

2 In 2010, the CSR Initiative and the International FinanceCorporation (IFC) used IFC investment due diligence andmonitoring data to document the potential for businessgrowth and development impact of 14 IFC investment clients’inclusive businessmodels. See resulting case studies inJenkins, Beth, Eriko Ishikawa, Alexis Geaneotes, and John Paul(2010).“Scaling Up Inclusive Business: Advancing theKnowledge and Action Agenda.”Washington, DC: IFC and theCSR Initiative at the Harvard Kennedy School. Another 17such case studies can be found in IFC (2011).“AcceleratingInclusive Business Opportunities: IFC Client Case Studies.”Washington, DC: IFC.

3 This has been observed in the literature by a range ofinclusive business thought leaders, including AllenHammond of Ashoka, Erik Simanis of Cornell University,Ashish Karamchandani andMichael Kubzansky ofMonitorGroup, and others.

4 More than 170 of the cases identified by the UNDP areavailable at www.growinginclusivemarkets.org. See alsoKaramchandani, Ashish, Michael Kubzansky, and PaulFrandano (2009).“EmergingMarkets, EmergingModels:Market-Based Solutions to the Challenges of Global Poverty”and Kubzansky, Michael, Ansulie Cooper, andVictoria Barbary(2011).“Promise and Progress: Market-Based Solutions toPoverty in Africa.”Monitor Group.

5 Prahalad, C.K. (2004). The Fortune at the Bottom of thePyramid: Eradicating Poverty Through Profits. Upper SaddleRiver, NJ:Wharton School Publishing.

6 Ibid., p. 60.

7 Hammond, Allen L. (2011).“BOPVenture Formation for Scale.”In Hart, Stuart L. andTed London (eds). Next GenerationBusiness Strategies for the Base of the Pyramid: NewApproaches for BuildingMutual Value. Upper Saddle River,NJ: Pearson Education. Page 197.

8 Ibid., p. 197.

9 UK Department for International Development (DFID) andthe Swiss Agency for Development and Cooperation (SDC)(2009).“A Synthesis of theMakingMarketsWork for the Poor(M4P) Approach.”

10 See inside back cover for a list of relevant CSR Initiativepublications; full text versions of all can be found athttp://www.hks.harvard.edu/m-rcbg/CSRI/

11 United Nations Development Programme (UNDP) (2010).“TheMDGs: Everyone’s Business.”NewYork, NY: UNDP; UNDP

(2008).“CreatingValue for All – Strategies for Doing Businesswith the Poor.”NewYork, NY: UNDP; Gradl, Christina, SahbaSobhani, Afke Bootsman, and Austine Gasnier (2008).“Understanding themarkets of the poor – amarket systemsapproach to inclusive business”in: P. Kandachar andM.Halme (Eds.) Sustainability Challenges and Solutions at theBase-of-the-Pyramid: Business, Technology and the Poor.London: Greenleaf.

12 United Nations Global Compact (2011).“Co-creating NewForms of UN-Business Partnerships: Increasing Scale &Impact.”Executive Summary – 26 January 2011. Online athttp://www.unglobalcompact.org/docs/news_events/9.1_news_archives/2011_01_28a/UN_Bus_ExecSumm_Davos_28Jan11.pdf (accessed August 16, 2011).

13 Much of this work on inclusive businessmodels has beenconducted by CSRI and the authors individually inpartnershipwith IFC and UNDP. See inside back cover for a listof relevant CSR Initiative publications; full text versions of allcan be found at http://www.hks.harvard.edu/m-rcbg/CSRI/.Other relevant publications written by the authors include,inter alia, UNDP (2008).“CreatingValue for All: Strategies forDoing Business with the Poor.”NewYork, NY: UNDP; Gradl,Christina, Sahba Sobhani, Afke Bootsman, and AustineGasnier (2008).“Understanding theMarkets of the Poor: AMarket Systems Approach to Inclusive Business.” In P.Kandachar andM. Halme (eds.) Sustainability Challenges andSolutions at the Base-of-the-Pyramid: Business, Technologyand the Poor. London: Greenleaf; UNEP (2009).“TowardsTriple Impact –Toolbox for Analysing SustainableVentures inDeveloping Countries.”Paris: UNEP; Gradl, C., Krämer, A. andAmadigi, F.“Partner Selection for Inclusive BusinessModels:The Case of CasaMelhor.”GreenerManagement International,Issue 56, May 2010; Gradl, Christina (2009).“TheWomens’Health Initiative as a BusinessModel for Poverty Alleviation.”InMartinaTimmermann andMonika Kruesmann (eds.)Partnerships forWomen’s Health – Striving for Best Practicewithin the UNGlobal Compact. Tokyo: United NationsUniversity Press; Jenkins, Beth, Eriko Ishikawa, AlexisGeaneotes, and John Paul (2010).“Inclusive Business:Expanding Opportunity and Access at the Base of thePyramid.”Washington, DC: IFC; UNDP (2010).“TheMDGs –Everyone’s Business.“ NewYork, NY: UNDP; GIZ/BMZ (2011).“Fast Growth and Big Impacts: How EmergingMarketMultinationals are Advancing Sustainable Development.”Berlin: BMZ; Bertelsmann Stiftung (2011).“Partners inDevelopment – HowDonors Can better Engage the PrivateSector for Development in LDCs.”Güthersloh: BertelsmannStifting; and IFC (2011).“Accelerating Inclusive Business


Opportunities: BusinessModels thatMake a Difference.”Washington, DC: IFC.

14 Moore, James F. (1996). The Death of Competition: Leadership& Strategy in the Age of Business Ecosystems. NewYork:HarperBusiness. Page 3.

15 UNDP (2008). CreatingValue for All: Strategies for DoingBusiness with the Poor.”NewYork, NY: UNDP.

16 DFID and SDC (2008), pages 28-29.

17 International Finance Corporation (IFC) (2011).“AcceleratingInclusive Business Opportunities: BusinessModels thatMakea Difference.”Washington, DC: IFC. Also see Karamchandani,Ashish, Mike Kubzansky, and Nishant Lalwani (2011).“Is theBottom of the Pyramid Really forYou?”Harvard BusinessReview 2011, Volume 3.

18 Karamchandani et al (2009).

19 IFC (2011).

20 Moore (1996), page 26.

21 Many of these strategies are discussed in earlier CSR Initiativework on the role of companies in strengthening the systemsthat offer economic opportunity to the poor, which focusedon four primary and complementary approaches: creatinginclusive businessmodels, developing human capital,building institutional capacity, and optimizing the“rules ofthe game.”See Jenkins, Beth (2007).“Expanding EconomicOpportunity: The Role of Large Firms.”CSR Initiative ReportNo. 17. Cambridge, MA: Harvard Kennedy School.

22 Almost all major publications on inclusive businessemphasize the need for awareness-raising andcapacity-building among the BOP suppliers, distributors, andretailers, companies hope to engage. Among others, see IFC’sdiscussion of tactics for“changingmindsets and behaviors tounlock demand,”including aspirational marketing, valuedemonstration, community networks, and training in Jenkins,Beth, Eriko Ishikawa, Alexis Geaneotes, and John Paul (2010).“Inclusive Business: Expanding Opportunity and Access at theBase of the Pyramid.”Washington, DC: IFC. UNDP (2008)contains a discussion of the need to engage in public policydialogue around inclusive businessmodels.

23 “Private initiative“ structures are typically subsumed underinclusive businessmodels, where no difference ismadebetweenmodels that take an ecosystem approach andothers that take amore conventional, core business-focusedapproach.“Project-based alliances“ are discussed in thebroader literature on partnership, which covers collaborativeapproaches ofmany different types formany differentpurposes – including organizing inclusive businessecosystems.“Platforms“ are discussed asmulti-stakeholderpartnerships or networks, which can again serve a variety ofpurposes, amongwhich ecosystem-strengthening is just one.

24 The Economist (2007).“Mobile Banking: A Bank in EveryPocket?”Online athttp://www.economist.com/node/10133998 (accessedAugust 13, 2011). Also see UNDP (2008), page 96.

25 Gaye, Mamadou (2007).“Tiviski Dairy: Africa’s First CamelMilkDairy Improves the Livelihoods of Semi-Nomadic Herders inMauritania.“ NewYork, NY: UNDPGrowing InclusiveMarkets.

26 Kothandaraman, Prabakar andVidyaVishwanathan (2007).“Sulabh International: Amovement to liberate scavengers byimplementing a low-cost safe sanitation system.”NewYork,NY: UNDPGrowing InclusiveMarkets.

27 Hergnyan, Manuk (2009).“Begeli and Elkana: BIOtiful lifethrough organic products and biodiversity.”NewYork, NY:UNDPGrowing InclusiveMarkets.

28 The inclusive business literature providesmany examples ofcompanies executing one ormore of these strategies as partof starting and scaling their inclusive businessmodels.Particularly good repositories of case studies can be found onUNDP’s Growing InclusiveMarkets website(www.growinginclusivemarkets.org) and in IFC (2011).“Accelerating Inclusive Business Opportunities: IFC ClientCase Studies.” Washington, DC: IFC.

29 Endeva (2010).“Inclusive Business Guide – How to dobusiness and fight poverty.“ Berlin: Endeva.

30 Conservation International and Starbucks Coffee Company(2007).“The Conservation Coffee Alliance – Annual and FinalReport 2004-2007 to the United States Agency forInternational Development.”

31 Jenkins, Beth, Eriko Ishikawa, Alexis Geaneotes, and John Paul(2010).“Inclusive Business: Expanding Opportunity andAccess at the Base of the Pyramid.”Washington, DC: IFC.

32 GAINwebsite (www.gainhealth.org)

33 Southern Agricultural Growth Corridor of Tanzania (SAGCOT)(2011).“Investment Blueprint.”

34 Bertelsmann Stiftung (2011).“Partners in Development –HowDonors Can Better Engage the Private Sector forDevelopment in LDCs.”Gütersloh: Bertelsmann Stiftung.


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A to Z TextilesTanzaniaPrivate Initiative

BegeliGeorgiaPrivate Initiative

Better Cotton Initiative(Tesco, IKEA, Adidas, Gap, H&M, SIDA,SECO, ICCO, WWF, Solidaridad,CottonConnect, Abrapa)Brazil, India, Pakistan andWest & CentralAfrica (Benin, Burkina Faso, Cameroon,Mali, Senegal, Togo)Platform

Conservation Coffee Alliance(Starbucks, USAID, ConservationInternational)Costa Rica, Panama, MexicoProject-Based Alliance

eChoupal(ITC Ltd)IndiaPrivate Initiative

EDF Energy Access Program(EDF, Total, World Bank, UNDP, UNEP,bilateral donors and NGOs)Argentina, Mali, Morocco, South AfricaPrivate Initiative

Global Alliance for ImprovedNutrition (GAIN) (GAIN, GatesFoundation, CIDA, USAID, Children’sInvestment Fund Foundation, and 600+companies)GlobalPlatform

• Sell insecticide-treated bednets

• Create a market for organic foodproducts

• Promote measurable improvementsin the key environmental and socialimpacts of cotton cultivationworldwide to make it moreeconomically, environmentally, andsocially sustainable

• Promote sustainable coffee-farmingpractices that fairly compensategrowers, restore and protect rainforests, and supply a growing marketfor quality coffee beans

• Strengthen the supply chain andimprove prices both for ITC and forfarmers

• Provide energy in developingcountries, improve rural andperi-urban development, andpromote renewable energytechnologies

• Reduce malnutrition throughsustainable strategies and innovativepartnerships aimed at improving thehealth and nutrition of populations atrisk, particularly women and children

• Produces 30million nets per annum• Employs around 7,000 people, most ofwhom are women, whose wages areestimated to support approximately25,000 dependents

• 400 farmers sold directly to Begeli as of2008, earning higher incomes from areliable market

• Turnover of $33,500 in 2008

• 68,000 farmers grew“better cotton”during the 2010-2011 season in India,Pakistan, andMali

• In 2007, approximately 140,000participating small farms benefited fromincreased coffee prices

• More than 820,000 workers hadbenefited from social best practices

• Starbucks committed to apply C.A.F.E.standards to all coffee purchasing by2015

• 6,500 eChoupal kiosks reach over 4million farmers growing a range of cropsin over 40,000 villages in 10 states

• Farmers access a variety of services viathe kiosks, from agricultural inputs toinsurance

• In Morocco, 24,800 rural householdstotaling 170,000 people with access tosolar electricity in Morocco as of June2007

• In Mali, 24 villages totaling 40,000people with access to electricity as of2006

• 400million people in 25 countriesreached with GAIN products

Initiative (regional focus,dominant structure)

Objective Results

Appendix: Examples reviewed in depth for this paper


Mars Partnership for AfricanCocoa-Communities of Tomorrow(iMPACT)(Mars,Africare, InternationalCocoa Initiative,International Foundation for EducationandSelf-Help, RainforestAlliance, SustainableTreeCropsProgram,GIZ)Ghana, Cote d’IvoireProject-Based Alliance

Project Nurture(The Coca-Cola Company, Coca-ColaSabco, the Gates Foundation,TechnoServe)Kenya, UgandaProject-Based Alliance

Smart CommunicationsPhilippinesPrivate Initiative

Southern Agricultural GrowthCorridor of Tanzania (SAGCOT)(local and global companies, government,development agencies)TanzaniaPlatform

Strategic Alliance for theFortification of Oils and Other StapleFoods (SAFO)(BASF, GIZ)Indonesia, Uzbekistan, Tanzania, Bolivia,BrazilProject-Based Alliance

SulabhIndiaPrivate Initiative

• Contribute to the development ofcocoa farming in Ghana and Côted'Ivoire as a profitable, sociallyrewarding and environmentallysustainable livelihood

• Double the fruit incomes of 54,000mango and passionfruit farmers inKenya and Uganda

• Provide mobile money services

• Catalyze agricultural development inthe Southern Agricultural Corridorregion of Tanzania

• Improve nutrition for 100 millionpeople in 8 target countries by 2011

• Improve health and hygiene whileproviding more dignified livelihoodsfor waste scavengers

• Better cocoa quality, significantlyincreased productivity, andconsequently higher incomes (up to30-40%)

• More than 70% of participatingsmallholders have adopted sustainableagricultural practices

• Improved living conditions forapproximately 40,000 people

• Published results information not yetavailable

• 24.2 million subscribers by the end of2006, mainly from the low-incomemarket

• At least US$50million remittances permonth as of 2008

• Cost of sending remittances 1.2-8%,down from 45%

• Secretariat established• Key financial commitments made forcatalytic fund

• Several million people buymicronutrient fortified products

• Installed 1.4 million household toiletsand operated 6,500 public pay-per-usetoilets by 2006, with 10millioncustomers

• Liberated 60,000 people from life as ascavenger

• Trained 19,000masons to buildlow-cost twin pit toilets using locallyavailable material


Objective Results



Tiviski DairyMauritaniaPrivate Initiative

Waste ConcernBangladeshPrivate Initiative

• Sell camel dairy products and providea source of income for camel herders

• Contribute to sustainabledevelopment through waste recycling,renewable energy, and job creation forthe urban poor

• Created 200 direct jobs• 1,000 families supply camel milk• Sells 20 diary products at affordableprices

• Herders experience fewer losses thanksto veterinary support, improved animalfeed

• Generated 986 jobs for urban poorwho collect and process waste, 70%women

• Half a million customers across thecountry

• Organic fertilizers increase yields by 30-50%

• Reduced 17,000 tons of greenhousegases between 2001-2006


Objective Results



Christina Gradl is an expert on inclusive business, anapproach where companies include people living in povertyinto their value chains formutual benefit. She is a founder anddirector of Endeva, an independent think tank workingtowards business solutions for development. She is also astrategic advisor to the United Nations DevelopmentProgramme’s Growing InclusiveMarkets Initiative and a fellowat the CSR Initiative, Harvard Kennedy School.

From the beginning, Christina has taken a systemicperspective in herwork on inclusive business, considering theecosystems of actors involved, their individual incentives andhow those can be aligned. Christina has co-authorednumerous publications in this area.WithUNDP, she developed“Creating Value for All: Strategies for Doing Business withthe Poor,” “The MDGs: Everyone’s Business,” and “BusinessSolutions to Poverty: How inclusive business models createopportunities for all in Emerging Europe and Asia.” Otherpublications include Endeva’s “Inclusive Business Guide” and“Towards Triple Impact: Toolbox for Analyzing SustainableVentures in Developing Countries,”commissioned by UNEP.

Christina was the Kofi Annan Fellow on Global Governance in2006-07 and an associate with McKinsey & Company. Sheholds an MSc in Philosophy of Public Policy from LondonSchool of Economics and a Masters degree in InternationalBusiness and Regional Studies from the University of Passau,Germany. She is currently completing a PhD in economics atthe University of Halle-Wittenberg, Germany, on the businessmodel concept.

Beth Jenkins has spent more than 10 years researching andadvising companies on inclusive or base-of-the-pyramidbusiness models. She is a fellow of the Corporate SocialResponsibility Initiative at the Harvard Kennedy School and aconsultant to the International Finance Corporation’s InclusiveBusiness Models Group.

Before becoming a fellow, Beth directed the CSR Initiative’sEconomic Opportunity Program, analyzing, documenting,and disseminating inclusive business activity together withpartners such as the International Finance Corporation,United Nations Development Programme, World BusinessCouncil for Sustainable Development, and NGOs andcompanies around the world. She authored and edited eightreports in the CSR Initiative’s Economic Opportunity Series,including a cross-cutting analysis and seven industry studiesin the extractives, financial services, food and beverage,information and communications technology, health care,tourism, and utilities sectors. She has developed six inclusivebusiness reports with IFC and co-authored the UNDPpublication “Creating Value for All: Strategies for DoingBusiness with the Poor”with Christina Gradl.

Earlier in her career, Bethwas responsible for developing anddisseminating riskmanagement concepts and capabilities atBooz | Allen | Hamilton, with special emphasis on the strategicrisks companies face as a result of social, environmental, andinternational development issues. She also spent five yearsworking on base-of-the-pyramid business models inthe information and communications technology andhousing sectors at theWorld Resources Institute and Ashoka.She is a graduate ofYale University and the Harvard KennedySchool.

About the Authors


About the CSR Initiative at the Harvard Kennedy School

The Corporate Social Responsibility Initiative at the Harvard Kennedy School is a multi-disciplinary andmulti-stakeholder program that studies and enhances the public role of private enterprise. The initiativeexplores the intersection of corporate responsibility, corporate strategy, and public policy, with a focus onanalyzing institutional innovations that enhance governance and accountability and help to achieve keyinternational development goals. It bridges theory and practice, builds leadership skills, and supportsconstructive dialogue and collaboration among different sectors.

Related CSR Initiative Reports

2011Expanding Opportunity and Access: Approaches that harnessmarkets and the private sector to create business value anddevelopment impactJane Nelson

2010Scaling Up Inclusive Business: Advancing the Knowledge andAction AgendaBeth Jenkins, Eriko Ishikawa, Alexis Geaneotes, John H. Paul(CSRI with IFC)

Business Partnerships for Development in Africa: Redrawingthe Boundaries of PossibilityRichard Gilbert and Beth Jenkins (CSRI with Business Action forAfrica)

Unleashing the Power of Convergence to Advance MobileMoney EcosystemsPiya Baptista and Soren Heitmann (CSRI with IFC)

2009Corporate Partnerships for Entrepreneurship: Building theEcosystem in the Middle East and Southeast AsiaShannon Murphy

Accelerating the Development of Mobile Money EcosystemsJonathan Dolan (CSRI with IFC)

Developing Inclusive Business Models: A Review of Coca-Cola'sManual Distribution Centers in Ethiopia and TanzaniaJane Nelson, Eriko Ishikawa and Alexis Geaneotes (CSRI with IFC)

Business Linkages: Enabling Access to Markets at the Base ofthe PyramidBeth Jenkins and Eriko Eshikawa (CSRI with IFC)

2008Supporting Entrepreneurship at the Base of the Pyramidthrough Business LinkagesBeth Jenkins, Eriko Ishikawa, Marisol Giacomelli, and EmmaBarthes (CSRI with IFC and IBLF)

Developing Mobilef Money EcosystemsBeth Jenkins (CSRI with IFC)

2007Expanding Economic Opportunity: The Role of Large FirmsBeth Jenkins

The Role of the Extractive Sector in Expanding EconomicOpportunityHollyWise and Sokol Shtylla

The Role of the Financial Services Sector in ExpandingEconomic OpportunityChristopher N. Sutton and Beth Jenkins

The Role of the Food and Beverage Sector in ExpandingEconomic OpportunityRamya Krishnaswamy and Marc Pfitzer

The Role of the Health Care Sector in Expanding EconomicOpportunityAdeeb Mahmud and Marcie Parkhurst

The Role of the Information and Communications TechnologySector in Expanding Economic OpportunityWilliam J. Kramer, Beth Jenkins and Robert S. Katz

The Role of the Tourism Sector in Expanding EconomicOpportunityCaroline Ashley, Peter DeBrine, Amy Lehr, and HannahWilde

The Role of the Utilities Sector in Expanding EconomicOpportunityChristopher N. Sutton

Business Linkages: Lessons, Opportunities, and ChallengesBeth Jenkins, Anna Akhalkatsi, Brad Roberts, and Amanda Gardiner(CSRI with IFC and IBLF)

Building Linkages for Competitive and ResponsibleEntrepreneurship: Innovative Partnerships to Foster SmallEnterprise, Promote Economic Growth, and Reduce Poverty inDeveloping CountriesJane Nelson

2006Tanzania: Lessons in Building Linkages for Competitive andResponsible EntrepreneurshipTamara Bekefi

Viet Nam: Lessons in Building Linkages for Competitive andResponsible EntrepreneurshipTamara Bekefi

Business as a Partner in Overcoming Malnutrition: An Agendafor ActionJane Nelson (CSRI with The Conference Board and IBLF)

Business as a Partner in Strengthening Public Health Systemsin Developing Countries: An Agenda for ActionJane Nelson (CSRI with the Conference Board and IBLF)

Investing in Social Innovation: Harnessing the Potential ofPartnership between Corporations and Social EntrepreneursJane Nelson and Beth Jenkins

CSR InitiativeHarvard Kennedy School79 John F. Kennedy StreetCambridge, MA 02138USAwww.ksg.harvard.edu/m-rcbg/CSRI

inclusive business ecosystems

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