So far in Nigeria, the term “inclusive business” is not well known since most have come into it quite by accident. In trying to create local sourcing strategies for raw materials such as agricultural produce, following restrictions on import of such commodities, many companies have now set up business models with the poor as producers and in the food and beverage industry particularly, they have also adopted models with the poor as consumers. For even the largest players, this is not an area where they have a great deal of experience.
There are also those who have recently come into inclusive business rather deliberately – Nigerian entrepreneurs are finally reasoning it out that with 92.4% of the population living on less than $2 a day, at least according to UNICEF, any business with a chance to succeed must include the poor as producers, consumers, employees, distributors, retailers, shareholders and so on. In this blog, we share a view of what we believe such businesses will have to cover in 2018 and beyond to survive and grow.
As many of these companies are realising, the inclusion of the poor in their business models requires a very different approach to business than what they are used to – a lot more testing and proving is required. In a country like Nigeria, where many aspects of markets do not work well for the poor, identifying, and deploying innovations to fix root causes of a hierarchy of constraints, layer by layer, is key to establishing an effective and scalable business model. It suggests starting small, proving constraints can be overcome by the innovations, learning from successes and failures and then revising the business models in line with the new insights before moving on to conquer the next set of constraints. This iterative process helps them get progressively better at identifying and exploiting opportunities to serve their core markets well. Sadly, many companies only manage to test models and deploy limited pilots but fail to scale those models up successfully. This is going to be the main task for inclusive business models in Nigeria in 2018 – getting to scale!
Inclusive business often involves high volumes of low priced goods and services being delivered to, through, with or by the poor and therefore is only commercially viable when it achieves certain economies of scale. Getting to scale means that companies must grapple with the inefficiencies and high transaction costs inherent in dealing piecemeal with smallholders and with the poor as individuals. Models that work well for reaching a few tens and hundreds will not necessarily work well without modification, for reaching tens or hundreds of thousands, or even millions. The coordination, logistics and financing costs rise exponentially with attempts to scale up and companies have to realise that what is meant by scale is not necessarily a lot more of what has worked in a pilot. Often, standing between a successful pilot and successful scale up are a new set of constraints which require a new round of innovation and adjustments before these can be overcome. Companies will have to find and learn how to use scale agents.
Scale agents are simply points, ways and means of aggregating large numbers of smallholders to make engaging with them less costly per transaction, and the effort of coordination and organising logistics or other transactions, more manageable. Deployment of technology that makes it possible to receive feedback from or communicate with millions of people in one go provides an example of a scale agent as does radio or other means of mass communication. Federations of agricultural cooperatives when they work effectively can also act as scale agents for companies seeking to contract farmers rather than attempting to deal with each one individually. Plugging services into the value chain of processor companies already engaging large numbers of smallholder farmers could turn the processor company into a scale agent and so on.
Finding a scale agent might already prove a challenge for those seeking to scale up adoption of their market innovations but in 2018, the real work won’t be this aspect at all. The main challenge that companies would have to overcome in reaching scale is more likely to be from their lack of internal readiness for business at this new scale. Scale will require companies to have the processes in place to keep listening to that volume of market participants and be able to speak to them in a way that is meaningful – their marketing skills (ability to identify the needs, wants and values of their target markets and satisfy these more effectively and efficiently than their competitors) will be tested to the limit as they will need to keep aware of what works and translate those lessons into fine adjustments of what is and how it is offered. They will need systems that enable them to record quite accurately who needs what where, when, how, why and in what form as well as who is served what, where, when, how and in what form. They need to know who is reached, who benefits and the impact of their offerings. The analysis of this data is what they will need to control their business and retain their agility and flexibility – alias, competitive edge. Inclusive business at scale requires the ability to handle and properly use big data.
What does 2018 have in store for inclusive business in Nigeria? There will be a very loud call for the approach to fully come of age.