Session Title:
Managing Business at the BOP
Managing Business at the BOP
Date of talk or publication:
2005
2005
Speaker Name / Title:
Chris Beshouri, Gerardo Ablaza, Jr., Antonino Aquino
Chris Beshouri, Gerardo Ablaza, Jr., Antonino Aquino
Organization:
McKinsey Philippines, Globe Telecom, Manila Water Company
McKinsey Philippines, Globe Telecom, Manila Water Company
Description:
An analysis of the business models of firms that have as their core business the delivery of products or services to low-income segments including the poor was undertaken in a effort to understand what it takes to profitably run businesses that serve these segments and determine whether there are common, exportable principles and key success factors that might be relevant to companies operating in other industries and geographies. The motivation for this analysis was three-fold. First, because low-income communities represent an enormous potential revenue pool, it is in the interest of corporations to find viable ways to serve them. Second, private sector capital and skills are critical to developing key infrastructure and institutions. Third, breakthrough business models for core products and services can have enormous developmental impact.
Three arguments are advanced regarding the viability of business models that focus on low-income consumers. First, unique insights into the distinct characteristics of the low-income segment must be developed and translated into actionable business models. Second, crucial and common to all the business models examined is the use of “community-based agents,” individuals or groups drawn from the communities themselves to help businesses align incentives and promote the partnerships required to meet the challenges of serving the low-income segment. This model works for a wide range of principal-agent problems such as those that arise from, or are associated with, low disposable income, asymmetric information, or security. It also provides a critical web of relationships and support structures at the micro-market level. Third, there are natural limits to CSR initiatives. Firms will not build social initiatives into their strategies simply out of a desire to “do good.” Sustained investment in social causes will occur when firms see these causes as central to strategy. Firms do not, however, always recognize when this is the case. Too often, firms neglect emerging topics or trends in the social sphere that are shaping the competitive environment in which they operate and fail to recognize that investing in social initiatives can directly improve performance and profitability. Collectively, the findings of this analysis have a provocative implication: that addressing social issues is not adjacent, but central, to strategy.
The analysis employed a case-based approach and standard, objective measures of financial performance. A basic framework was developed to surface key characteristics with which businesses serving the low-income segment must contend. Some are familiar in type (e.g., income level) but distinct in form (e.g., day laborers with low-quantities of disposable income at any one time), others are unique to a low-income demographic (e.g., culture, geography). Globe Telecom and Manila Water were examined with respect to how they adapted their approaches to reflect the familiar and unique characteristics of the low-income segment. “Community-based” solutions and how the subject firms used them to address the “unique” characteristics of the low-income segment are closely examined. The effectiveness of the broad principles derived from this work in serving both business and community is assessed and the findings placed in the broader context of the CSR dialogue.
An analysis of the business models of firms that have as their core business the delivery of products or services to low-income segments including the poor was undertaken in a effort to understand what it takes to profitably run businesses that serve these segments and determine whether there are common, exportable principles and key success factors that might be relevant to companies operating in other industries and geographies. The motivation for this analysis was three-fold. First, because low-income communities represent an enormous potential revenue pool, it is in the interest of corporations to find viable ways to serve them. Second, private sector capital and skills are critical to developing key infrastructure and institutions. Third, breakthrough business models for core products and services can have enormous developmental impact.
Three arguments are advanced regarding the viability of business models that focus on low-income consumers. First, unique insights into the distinct characteristics of the low-income segment must be developed and translated into actionable business models. Second, crucial and common to all the business models examined is the use of “community-based agents,” individuals or groups drawn from the communities themselves to help businesses align incentives and promote the partnerships required to meet the challenges of serving the low-income segment. This model works for a wide range of principal-agent problems such as those that arise from, or are associated with, low disposable income, asymmetric information, or security. It also provides a critical web of relationships and support structures at the micro-market level. Third, there are natural limits to CSR initiatives. Firms will not build social initiatives into their strategies simply out of a desire to “do good.” Sustained investment in social causes will occur when firms see these causes as central to strategy. Firms do not, however, always recognize when this is the case. Too often, firms neglect emerging topics or trends in the social sphere that are shaping the competitive environment in which they operate and fail to recognize that investing in social initiatives can directly improve performance and profitability. Collectively, the findings of this analysis have a provocative implication: that addressing social issues is not adjacent, but central, to strategy.
The analysis employed a case-based approach and standard, objective measures of financial performance. A basic framework was developed to surface key characteristics with which businesses serving the low-income segment must contend. Some are familiar in type (e.g., income level) but distinct in form (e.g., day laborers with low-quantities of disposable income at any one time), others are unique to a low-income demographic (e.g., culture, geography). Globe Telecom and Manila Water were examined with respect to how they adapted their approaches to reflect the familiar and unique characteristics of the low-income segment. “Community-based” solutions and how the subject firms used them to address the “unique” characteristics of the low-income segment are closely examined. The effectiveness of the broad principles derived from this work in serving both business and community is assessed and the findings placed in the broader context of the CSR dialogue.
