Review of the Business Innovation Facility Project Portfolio: Year 2 of the three year pilot

The Business Innovation Facility helps inclusive businesses to develop and thrive. It supports a diverse portfolio of business ventures in five countries – Bangladesh, India, Malawi, Nigeria and Zambia – with the aim of catalysing successful businesses that deliver both commercial return and social impact.

With two years of operation just completed, 33 projects have been selected for substantive technical input from the Facility. This is therefore an important time to review the portfolio and the direction of progress.

This Review This review is intended to provide a clear picture of the range of projects that are being supported by the Business Innovation Facility. What type of organisations are we working with – start-ups, domestic firms and/or multinational corporations? Who are they targeting at the base of the economic pyramid – producers or consumers? Do projects face common constraints?

It is also intended to give us an idea, albeit preliminary, of how the projects are doing, both in terms of commercial success and their development impact. Although for some projects, particularly those recently selected for support, it is too early to tell, the information that we are gathering offers some guidance on what we may expect in the remaining year of the programme – and beyond.

Finally, this review offers a better understanding of the support that has been provided – highlighting specific phases or tasks where it has most often been required. It considers how valuable this support has been and poses the question “did this support make a difference?”

SNAPSHOTPortfolio

AUGUST 2012

The review covers the 33 inclusive business projects selected so far for substantive support from the Facility (three to 24 months), particularly the 24 for which we have baseline data. It does not cover the 46 shorter-term projects so far selected for small inputs (up to 20 days).

The assessment is both quantitative and qualitative. Data provided by companies, particularly at the baseline stage, is combined with perspectives of team members that work with the companies. Subjective scoring clearly has limitations but nevertheless provides a useful basis to understand the overall portfolio and how it may evolve.

Portfolio Snapshots provide real-time information on the project portfolio of the

Business Innovation Facility.

The PortfolioThe portfolio is diverse, and intentionally so.

Location: The projects are spread relatively evenly across the five pilot countries.

Lead organisations: The majority of lead organisations are medium or large (based on employee numbers) although the inclusive business venture that they are establishing may still be small. Two thirds of the projects are led by domestic companies (mainly medium and large) and one third by international companies. Seven projects are led by multinationals, while five projects are led by non-profit organisations that are catalysing a business. The majority are established companies but there is a sprinkling of start-ups. We can group most projects into one of two categories:

• A large conventional company that is developing a business model that is inclusive (55% of the current portfolio)

• A small company whose core business is inclusive and is growing (33%).

Phase of development: The review defines four phases of inclusive business development from ‘design’ to ‘preparing for scale’. Projects are spread across all four, though with the main cluster at the ‘early operation and validation’ stage.

Beneficiaries: Just over half of the projects in the portfolio seek to mainly engage people at the base of the pyramid as consumers, selling them appropriate and affordable products and services. Just under half engage them as producers or entrepreneurs in their value chain, providing income and market opportunities. There is, however, a significant difference between the pilot countries reflecting different economies: in southern Africa the focus is mainly on producers, whereas in India all of the projects are focused on low-income consumers.

Commercial success?Commercial viability is fundamental to inclusive business success. So although only five projects have already reached break even, the review focused on a core question “What is the likelihood of each project reaching commercial viability?”. The time frame was the end of 2013 (the end of the Facility programme) and 2015 (a more realistic and relevant timeline for many projects).

Financial records and projections were not sufficiently robust to answer this question yet. So a number of additional indicators were analysed. These indicators were based on questions such as:

• Does the business have a business plan?

•Is there evidence of strong leadership within the project and company?

• Is it on track against its own targets?

• Does it have access to sufficient external leverage, particularly finance?

Most projects would be expected to have ‘medium’ viability at the start of Business Innovation Facility engagement – not so high that Facility input is unnecessary, not so low that it is pointless. A sprinkling of commercial failures would also be expected, particularly given the appetite for risk. As of mid 2012, the majority are still considered as medium viability – broadly on track for commercial success. In particular, leadership commitment is almost universally high. Six projects already score high for commercial viability – equally, another six are currently seen as having low chances of viability by 2013 or 2015.

Development Impact?The other important measure of success for an inclusive business project is its impact on development. In simple terms this can be measured by the number of low-income people who benefit. However, this review drew an important distinction between low-income producers and entrepreneurs (who gain livelihoods and income) and low-income consumers (who gain access to goods and services). Inclusive businesses tend to reach many more consumers than producers, so these totals cannot simply be added together or compared like-for-like.

We also took other development results into account. These include: the significance of the impact to beneficiaries (life-changing, livelihood-enhancing and livelihood-supplementing); the likelihood that an inclusive business model would be replicated by others; whether it is likely to have other positive impacts on the wider market system, and any environmental benefits it might have.

Distributors 1

Consumers 15

Producers & Suppliers 17

6 (18%)

21 (64%)

6 (18%)

LowMediumHigh

Nigeria 5

Zambia 8

Malawi 6India 6 Bangladesh 8

Figure 2: The primary low-come beneficiaries of Business Innovation Facility projects

Figure 3: The commercial viability of projects: scored using the Business Innovation Facility Commercial Viability Index

Across the portfolio, projects currently reach 1.9 million people at the base of the economic pyramid – a number that could increase to 3.5 million over the life of the pilot programme. One project accounts for around 1.8 million of the 1.9 million and with that project taken out of the numbers the other projects are reaching 90,000 so far. The fastest growth and widest reach are found in consumer-focused projects.

The ultimate ambition is that a handful of projects will truly go to scale in years to come, reaching many thousands of low-income producers or millions of consumers. At this point, 18 of the projects have been identified as having strong potential to reach those at the base of the economic pyramid at scale, if and when commercial viability is assured.

Taking into account reach to the base of the pyramid, significance per person, replication and systemic results, at least four projects have truly substantial potential development impact. Five score low on this index.

Combining Commercial Success with Development ImpactIt might be expected that projects scoring high on commercial viability score low on development impact, and vice versa. While this may apply to one or two projects, fortunately, this is definitely not the overall picture.

As this diagram shows, the portfolio contains three projects that already rank highly in terms of both commercial viability and development impact. One determinant of the overall achievement of the Facility will be whether these three can deliver that potential. The majority of projects are currently in the middle: they have ‘medium’ commercial viability and ‘medium’ development impact. Another key determinant shaping the overall success of the Business Innovation Facility portfolio will be the direction in which they move.

Does the Business Innovation Facility make a difference?In financial terms the input from the Facility is small: technical assistance worth around £30,000 or £50,000 into a project that may be built with company investment running into millions. The impact of the technical assistance cannot be isolated from the on-going business development that is driven by the company. Nevertheless, anecdotal feedback from projects and service providers (who provide the technical assistance) so far paints a clear picture of high-value, technical input with strong additionality – creating changes in the business model or path of development that would not have happened without the input.

The main type of input across the portfolio is in business planning. This results in a business model that is better, more robust, more investable, and more likely to ultimately reach viability and sustainability. Support has often come at a point where a project has become ‘stuck’ and needs an extra impetus to move it forward. The role of the external catalyst can be timely and invaluable.

Figure 5: Primary type of input from the Business Innovation Facility The Business Innovation Facility has only completed its input for a few projects. However, in those few, technical input is generally seen, by the company and service provider, as “core to business effectiveness” – and in some cases as “critical to survival” of the inclusive business initiative.

“In the absence of Business Innovation Facility [...] support the project would, in my view, have continued to stagnate and eventually would have died. It now has been given a real chance to succeed.”Service provider feedback, Bangladesh

Figure 4: Commercial vs. Developmental Index: producer, consumer and distributor-focused projects

Key: Producer Focused | Consumer Focused | Distributor Focused

Dev

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ent

Ind

ex

Commerical viability Index

Low

Hig

hM

ediu

m

Low HighMedium

0

Setting up a pilot 1

1

2

2

3

4

5

14

Demand/market/customeranalysis

Stakeholder management

Identify sources offunding investors

Technical development

Organisational development/governance

Supply chaindevelopment/procurement

Business planning,financial modelling

3 6 9 12 15

The Business Innovation Facility (BIF) is a pilot project funded by the UK Department for International Development (DFID). It is managed for DFID by PricewaterhouseCoopers LLP in alliance with the International Business Leaders Forum and Accenture Development Partnerships. It works in collaboration with Imani Development, Intellecap, Renaissance Consultants Ltd, The Convention on Business Integrity and Challenges Worldwide. The views presented in this publication are those of the author(s) and do not necessarily represent the views of BIF, its managers, funders or project partners and does not constitute professional advice.

We welcome feedback on our publications – please contact us at enquiries@businessinnovationfacility.org

For further information on the Business Innovation Facility projects and to access other publications, go to: Practitioner Hub on Inclusive Business: www.businessinnovationfacility.orgThe detailed 2012 Portfolio Review can be found at: http://bit.ly/portfolio-review-full-yr2 Last year’s Portfolio Review can be found at: http://businessinnovationfacility.org/forum/topics/bif-portfolio-review-2011

Contact: Caroline Ashley, Director, Inclusive Business Results: caroline.ashley@businessinnovation.org Carolin Schramm, Monitoring and Evaluation Manager: c.schramm@uk.pwc.com

ConclusionsThe data that we have gathered for this review reinforces the expectation that the Business Innovation Facility’s portfolio of projects will include some that fail, some that survive and some that will truly thrive to reach scale and impact. At this point, the majority are in the middle category, although further change is likely over the coming year.

The portfolio as a whole is likely to be able to report high numbers of people reached at the base of the economic pyramid but the more in-depth analysis shows a great variation in the type of development impact that is expected. Numbers reached, the significance to the lives of those involved, the likelihood of a model being replicated and the effect it has on the wider economic system will all be important to different projects.

The consumer-focused projects look set to have faster growth and reach to those at the base of the economic pyramid and possibly have a slightly greater prediction of viability. However, high rankings on other indicators are spread across all types of projects.

While there are a few high potential ‘stars’ already emerging (high on both viability and development impact) they do not follow a noticeable pattern. They include an NGO, which has been commercialised, a multinational corporation and a large domestic company. There is a great deal of diversity by the type and size of project and the nature of the lead organisation and inclusive business ‘model’. This reinforces our starting assumption that successful inclusive business is not defined by type of company or sector, but by innovation combined with opportunity and leadership.

This review is a snapshot at a specific point in the journey of these projects. In order to fully understand this portfolio, it highlights the need to look beyond 2013, and the life of the Business Innovation Facility pilot, to see where this journey ultimately takes them.