Serving the Bottom of Pyramid


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Some lessons from BRAC, the world\'s largest NGO on how to alleviate poverty through the power of creating economic activity for people at the Bottom of the Pyramid

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Serving the Bottom of Pyramid

  1. 1. Serving the Bottom Of Pyramid BRAC Business Study Mission, Bangladesh, March 13 – 16, 2011 Organized by & BoP Hub© Eugene Chang, 2011
  2. 2. DisclaimerThe following analysis is of my own and based on field observations of various BRAC businesses; informalinterviews with beneficiaries, volunteers, employees and management that we had the privilege of meeting; longdiscussions with fellow participants whilst traveling on overcrowded roads; as well as whatever otherinformation that was made available to me during this short period. These constitute my personal notes and Ishare them freely without making any additional effort to verify and cross check the accuracy of the contentsherein. This document does not represent the views of my employer or any organization I am affiliated with.© Eugene Chang, 2011
  3. 3. Understanding BOP Money Flows After 39 years, C.K. Prahalad’s “fortune at the bottom of the pyramid” is not yet a reality for BRAC $$$$$$$$$$ money flow TOPproducts & $$services flow $ insufficient BOP txn within BOPSolution: Exploit Middle/upper segment to subsidize rural developmental programs•  Link rural and urban markets to access money flow•  Create compelling services for middle/upper customers who can afford them•  With proper systems, BOP can provide access to quality, low cost input/supply advantage•  Stimulate economic activity with sustainable market-driven commercial solutions © Eugene Chang, 2011
  4. 4. Market Segmentation & Strategic Targeting BRAC understands that there is a DOUBLE poverty line and targets the appropriate segment TOP 1ST POVERTY LINE 99% graduate MFI Target Segment Bottom The Poor (50%) Of Charity Programs Pyramid (too poor for MFI) Ultra Poor (50%) (BOP)BRAC runs development programs for the Ultra Poor to help them “graduate” out of extreme poverty. Theirown community picks the poorest of the poor to receive help in the form of free chickens and other grants.They are too poor to even qualify for micro financing. The good news is that 99% of them do get into a positionwhere they can receive MFI aid and can then start to enter into the mainstream economy.BRAC’s MFI activity are targeted at the Poor (those who earn about USD2 per day and have a fixed address).These people form the customers for their MFI and other social enterprises. © Eugene Chang, 2011
  5. 5. Your Vision/Mission Drives Strategy “Our mission is to empower people and communities in situations of poverty, illiteracy, disease and social injustice. Our interventions aim to achieve large scale, positive changes through economic and social programmes that enable men and women to realise their potential.”A note on culture: It is clear the entire BRAC organization is united behind one singular purpose;BRAC devotes much resource towards building a culture and passion with internal brandcommunication and engagement a major part of their effectiveness. We have observed fromvolunteer field staff all the way to the founder that this “greater than I” aspirational vision (the“why”) has helped it to maintain strategic focus and alignment, improve talent management andand encourage widespread initiative necessary to operate well in a distributed environment. © Eugene Chang, 2011
  6. 6. 100% For-Profit – we just have a different starting point “A social enterprise does not pursue profit exclusively- it looks for the ‘triple bottom line’ (profit, people and planet) that must be considered if the business is to be judged a success. BRAC’s Social Enterprises have evolved to support its core programs. They enable BRAC to attain its vision and mission statements by sustaining the development interventions and creating job opportunities- thereby contributing to poverty alleviation. The surplus funds that BRAC Enterprises generate fuel most of BRAC’s non-income activities such as health and education programs.”SOCIAL MISSIONDEFINES OPERATING Core Programs in the BOP SpaceENVIRONMENTFOR-PROFIT FOCUSASSURES SURVIVAL Social Enterprises and Donor FundsWITHIN OPERATING Investments / JVs (2009: 27%)ENVIRONMENTManagers in each social enterprise repeatedly told us of their for-profit motives – they neededto be so to survive in a competitive environment. It appeared that BRAC HQ defined their areaof OPs (e.g. serving a particular segment) and left them to create a sustainable business withinthis space. It was less of an issue of balancing “this” OR “that” but 100% serving the poor. © Eugene Chang, 2011
  7. 7. Commerce as a weapon against povertyUnderstanding•  Market failures prevent efficient, vibrant economic activityPremise:•  Economic activity will create jobs and increase wealth; if the poor are brought into participate in the real economy, sustainable poverty alleviation can result.Situation:•  Gaps or choke points exist to prevent economic activity (flow of goods/services to market)Solution:•  Create focused enterprises to complement (not complete against) private or government players that create a smooth flow throughout the value chainBRAC Insight:•  Enter the market where BRAC can achieve monopoly power (pre-condition?)•  Use monopoly position to achieve scale efficiencies quickly•  When there’s money to be made and private/government players enter… •  exit to allow efficient players to takeover and reallocate resources to another project; or •  remain to provide efficient competition and keep prices down © Eugene Chang, 2011
  8. 8. Scan for relevant opportunities Example: Agriculture Sector Dairy Industry Poor Sericulture Industry RURAL Poultry Industry Fish/Prawn IndustryChallenges:•  Low literacy & skills•  Hard to reach, dispersed•  Poor infrastructure Sector Characteristics: •  Good market demand (profit potential)Strengths: •  Suited for Rural Communities•  Low cost, unlimited labor •  High labor requirements = employment•  Strong community mindset •  Opportunities for low tech/low cap ventures•  Lots of land (soil conditions differ) © Eugene Chang, 2011
  9. 9. Identify the “gaps” / causes of market failure Dairy Industry Retail Poor Formal Consumer RURAL Trade URBAN UNTAPPEDGaps: DEMAND•  Supply procurement issues including reliability, quality and safety•  Logistics issues including need for cold-chain transport & storage•  Cost of sourcing and processing milk is high © Eugene Chang, 2011
  10. 10. Connect/unchoke the value chain Startup Interestingly, BRAC always started on the supply side BUT this was in response Capital to an actual market need. They solved one problem at a time and slowly connected their stakeholders to the TOP market place. MFI Milk Retail Chilling Mfg Formal Consumer Farmer Trade Centers Plant URBAN RURAL SUPPLY SUPPLY-CHAIN DEMANDCAPACITY COORDINATION CREATIONCREATION© Eugene Chang, 2011
  11. 11. Control the process well Startup Training *VO = Village Organizations. Where 4 – 5 million MFI customers Capital & support meet EVERY week! Volunteers are recruited optimally from the same village as they already have established relationships MFI VO Milk Retail Chilling Mfg Formal Consumer Farmer Trade Centers Plant URBAN RURAL SUPPLY SUPPLY-CHAIN DEMANDCAPACITY COORDINATION CREATIONCREATION© Eugene Chang, 2011
  12. 12. Control the process well Startup Training Quality *CC = Chilling Centers serve as a collection point as well Capital & support Control as stringent testing of the product quality. Milk is rejected near the source to prevent problems further down the supply chain MFI VO CC Milk Retail Chilling Mfg Formal Consumer Farmer Trade Centers Plant URBAN RURAL SUPPLY SUPPLY-CHAIN DEMANDCAPACITY COORDINATION CREATIONCREATION© Eugene Chang, 2011
  13. 13. Value-add to extract more value for customers Startup Training Quality New product •  various milk flavors Capital & QC Control Development •  butter & ghee •  various yoghurt drinks MFI VO CC R&D Milk Retail Chilling Mfg Formal Consumer Farmer Trade Centers Plant URBAN RURAL SUPPLY SUPPLY-CHAIN DEMANDCAPACITY COORDINATION CREATIONCREATION© Eugene Chang, 2011
  14. 14. Value-add to extract more value for customersCorporate Strategy: BRAC facilitates by unblocking the BRAC stays out ofsupply chain and providing value-add activities; activities where privateremaining focused on their social mission and not sector is already servingopportunistic to earn more profit. Where possible, they the market well.exit the market to avoid duplication and redeployresources to a more needy area. Milk Retail Mfg Formal Farmer Consumer Plant Trade RURAL URBAN SUPPLY SUPPLY-CHAIN DEMAND CAPACITY COORDINATION CREATION CREATION © Eugene Chang, 2011
  15. 15. Remember who your REAL customer isBRAC has their eye right and center on their stakeholder which are their “real customers”. The REAL Customer (Not Here!) Milk Retail Mfg Formal Farmer Consumer Plant Trade RURAL URBANProtect/Increase: Maximize/Raise:•  Jobs (versus automation) •  Value (versus commoditizing)•  Margins (versus cost cutting) •  Margins (versus price cuts) One reason why BRAC is successful today in creating social impact for the poor © Eugene Chang, 2011
  16. 16. So, HOW does BRAC Scale? “Pilot to learn the details of the business model, then scale and mentor others on learning.” - Sir Fazle Hasan Abed Chairperson and founder, BRAC 3 STEP PROCESS 1. Be EFFECTIVE Innovate and test all avenues. If it works, “routinize” essential tasks and discard 2. Be EFFICIENT non-essential ones Only when 1 & 2 are achieved, increase 3. Then SCALE capacity to recruit, train, audit etc as you expand operationsNote on HR excellence: BRAC is truly a learning organization. It understands empowermentthrough proper training and education programs is the only way to achieve the efficiency andcompetitiveness it requires to work at the BOP. BRAC recruits motivated AND well qualifiedpeople (we met many pursuing their post-grad education on staff, as interns or attending the BRACUniversity). At any one time they have 3000 people in residence undergoing training in all theirfacilities. They also recruit people from the corporate sector as BRAC uses a lot of corporate bestpractices. Finally, Sir Abed also believes in giving good people space to do their job with initiative –not micromanaging but putting an emphasis on monitoring results instead. © Eugene Chang, 2011
  17. 17. Efficiency as a prerequisite It is important to note that EFFICIENCY has been fundamental for operating at the BOP where margins are thin and a volume model is in play. Witnessing the efficiency and cost- effectiveness of BRAC’s operations is one of the most impressive displays of good management and resource use. Donors have also found this as one of the most compelling reasons to step forward to fund BRAC’s core programs as no one can claim to deliver these services as effectively dollar-for-dollar.© Eugene Chang, 2011