10 misconceptions about inclusive business
Some 30,000 children are expected to benefit from nutritious foods in low-income areas of Jakarta from the BCtA initiative by global science-based health and nutrition company, DSM. Photograph: DSM
By Suba Sivakumaran
Many believe inclusive business is just philanthropy and only for big corporates,Suba Sivakumaran busts some of the myths
What is an inclusive business model? Business Call to Action (BCtA) uses the UNDP definition that says it is a commercially viable model that benefits low-income communities (those who live on less than $8 a day) by including them in a company's value chain on the demand side as clients and consumers, and/or on the supply side as producers, entrepreneurs or employees.
The concept was first formalised in a 2008 United Nations Development Programme report (PDF) called Creating Value for All.
In our five years of experience, we've found that there are many misconceptions about what inclusive business is.
1. Inclusive business is the same as corporate philanthropy
Unlike corporate philanthropy or sometimes, corporate social responsibility, inclusive business transforms core business activities; supply chains, distribution chains, workforce operations in order to include those who live on fewer than $8 dollars a day. So while it's not charity, it can and does exist alongside corporate philanthropic and social responsibility initiatives.
2. It's about selling to the poor
Inclusive business is not just about selling large volumes of small unit products to the poor. While the poor have considerable market-based demand and purchasing power; they also have enormous skills, capacities and entrepreneurial power that are being tapped by leading companies such as IKEA by incorporating them into their workforce and supply chains. Also, many companies find that they can't simply 'tap' into the markets of the poor, but instead have to often 'build' markets by removing constraints.
3. Inclusive business is only for large companies who can take risk
Some think that companies must have large reserves of cash in order to experiment with inclusive business model innovation within their companies. But many small and medium enterprises can and do create business models that intentionally and explicitly include the poor; from Waste Ventures in India, to Pupa in Brazil, to Envirofitin Kenya.
4. Does this mean I have to go out and start something new?
While inclusive businesses can be social enterprises, the type of entrepreneurship required in inclusive business also involves intrapreneurship where companies modify their existing operations and processes with transformative inclusive practices. The 'cult' of the entrepreneur is no longer the dominant paradigm of business and development; and often, more scale and sustainability is achieved by employees working internally to change the way business is done.
5. There is a formula for inclusive business
Unfortunately, like the rest of life, there is no standard formula to success and sustainability in inclusive business. However that's not to say that there are not lessons to be learnt from the experiences of other pioneers. Resources exist; from the BCtA case study library, the Growing Inclusive Markets case studies and database, the Practitioner Hub for Inclusive Business for sector-specific insights and many others. Learning from peers in these frontier markets is the best way to find out what works and doesn't work. And many companies have found that simply replicating their existing business model in these markets doesn't work.
6. Profitability is impossible in inclusive business
Actually, both short and long term profitability are reported by BCtA companies, a majority of which are at the very least at break-even profitability. And research also indicates that shareholders value a company's sustainable/inclusive business practices, leading to increases in stock prices. Sometimes depending on the market, inclusive business models do require rethinking of traditional profit horizons; but gains in market share and consumer loyalty, like any business, result in enhanced returns on investment.
7. I have to concentrate on growth and this is a tradeoff I can't afford to make
Actually, companies can't afford not to have inclusive business practices. Finding ways to tackle health deficiencies in poor labour forces, or developing products that improve the wellbeing of the poor will result in increased market efficiencies, and translates into cost savings, revenue growth and improved profitability. Sustainable ecosystems create robust and stable communities and markets. It takes commitment and innovation as the solutions are not easily found; but businesses all over are finding that both economic and social returns can be simultaneously optimised.
8. I can do it alone
Research from BCtA indicates that many inclusive businesses create innovative partnerships, whether between them and governments, NGOs or other non-traditional partners that underpin their value chains. Whether it's NGOs providing technical assistance to smallholder farmers resulting in improved yields for buyer corporations, or governments that act as anchor buyers for inclusive businesses and/or create pro-poor business policies, collaboration between the public and private sector now is the norm rather than the exception.
9. OK, social impact is important but it's too hard for me to measure
What gets measured gets done. And there are a plethora of frameworks, from the BCtA Reports Resulting Framework, to IRIS, WBCSD's Measuring Impact, the Oxfam Poverty Footprint, and the BIF M and E system. However, the proliferation of methodologies has not quite kept pace with the amount of results being reported by inclusive businesses.
The goal of measurement is not to maximise the amount of data collected, but to get the right data and institute the right processes that will use that data internally to refine the business model for the better. At BCtA we advocate companies to find the right set of questions that are relevant to their operational (including social impact) performance, recognising that there is no one-size-fits-all approach to impact measurement.
10. Yadda, yadda, yadda - but I still don't know where to start
Well, there are plenty of resources if you need it; to map your operations and find opportunities, to scenario-build, to design, test and pilot initiatives, and to scale initiatives too. At the risk of a shameless plug, BCtA can also help in developing linkages and learning from other companies and industry leaders in the field, as well as with knowledge resources, and impact measurement assistance. A journey of a thousand miles begins with a single step, and we look forward to your progress!
Suba Sivakumaran is the Team Lead for Impact Measurement, Knowledge and Capacity Building at the Business Call to Action
Content on this page is provided by Business Call to Action, and originally appeared on the The Guardian Business and the Sustainable Development Goals Hub