Archive for the ‘Scarcity’ Category

Innovation, Ingenuity and Opportunity under Conditions of Scarcity (Download PDF)

coverIn July 2009, I was inspired by working in the Research wing of the Aalto University’s Design Factory in Espoo, Finland, to launch a group blog called REculture: Exploring the post-consumption economy of repair, reuse, repurpose and recycle by informal businesses at the Base of the Pyramid*.

Within a year, this research interest evolved into a multidisciplinary look at the culture of innovation and invention under conditions of scarcity and it’s lessons for sustainable manufacturing and industry for us in the context of more industrialized nations.

reculture research bed

Emerging Futures Lab, July 2010 (Aalto Design Factory)

As a preliminary exploration, my research associate Mikko Koskinen and I timed our visit to Kenya to coincide with the Maker Faire Africa to be held on the grounds of the University of Nairobi in August 2010.

This photographic record of our discoveries (PDF 6MB) among the jua kali artisans and workshops of Nairobi, Nakuru, Thika, and Kithengela, guided by biogas inventor and innovator Dominic Wanjihia captures the essence of the creativity and ingenuity it takes to create without ample resources and adequate infrastructure.

A synopsis of our analysis is available here.

 

* The publishing platform, Posterous, died a short while later and we lost years of work. I’m looking into reincarnating REculture on Tumblr soon.

 

Analysis of the mobile phone’s impact on cash flows and transactions in the informal sector

As we saw, Mrs Chimphamba needs to juggle time and money as part of her household financial management in order to ensure that expenses can be met by income. We also saw that the mobile phone was made viable and feasible by the availability of the prepaid business model that gave her full control over timing and the amount required to maintain it — how much airtime to purchase? when? how often? — all of these decisions were in her hands, within the limits of the operator’s business model. Now, we’ll take a closer look at the impact of the mobile on her domestic economy.

Readily available real time communication has helped Mrs C by speeding up the time taken for a decision on a purchase or a sale. That is, the transaction cycle has been shortened. As the speed of information exchange increases, it increases the speed of transactions — it shortens the duration of time taken to execute them from inception to completion. This, in turn, implies that more transactions can now take place in the same amount of time thereby increasing the frequency and the periodicity. When mobile money is present, one can see that as both quantity and frequency of transactions speed up, so does the cash flow. We’ll come back to this factor.

To explain using a real life example, Mrs Chimphamba does not need to sit at her homestead wondering if today someone will pass by to purchase a bottle of wine. Similarly, Mrs C’s customers do not need to go out of their way to pass by her homestead to see if the wine is distilled and ready for sale, or whether it will still take another day or two for the next batch to be ready. Further, the uncertainty of whether they’ll have cash on hand on that future day, or if they’ll return as promised are all elements that real time communication have minimized.

Now, Mrs C is able to let her regular customers know that she’s making a new batch for sale and do they want to reserve a bottle for purchase? It allows her customers to put aside cash for this purchase. She is even able to accept and execute larger orders for some future date, and even accept some cash advances if her operating environment includes the presence of a mobile money transfer system such as those more prevalent in East Africa. This in turn changes her purchasing patterns and decision making as the pattern of cash flows — timing and amount — changes. She isn’t making do anymore on an unknown and predictable sale based on sitting and waiting for someone to show up to buy her wine.

Real time communication has improved the decision making cycle for both buyer and seller in a transaction as it counteracts uncertainty and information asymmetry even while speeding up the time take for a decision.

As the quantity and frequency of transactions increase— first, in cash conducted face to face, and then later, remotely by mobile money, regardless of the size of each transaction — the change in cash flow patterns begins to smooth out the volatility (the uncertainty factor has changed completely) between incoming and outgoing, as well as the decisionmaking involved. That is, the gap between income and expense starts becoming less in terms of both timing and amount — there is the possibility of a steady stream in the pipeline. Calculus offers hints of how the curve can begin to smoothen out as frequency and periodicity of transactions begins to accelerate.

Size of transactions thus begin to matter less in that the incoming amount now does not need to be so large as to cover expenses for an unknown duration of time before the next incoming payment; nor do expenses have to be tightly controlled constantly due to the uncertainty of the duration of time before the next payment, and the types of expenses incurred during this unknown period of time.

So the boost in decision making — how long it takes to complete a transaction, how often can transactions be completed — enabled by the real time communication facilitated by the mobile phone; plus the attendant immediacy of receiving payment via the same platform is the root of the improvement in the hyperlocal economy and consumption patterns among the informal sector actors. This is why large established traders (with sufficient financial cushion) were heard to observe that both purchasing power and consumption patterns had changed in their market town (Busia, Kenya Jan 2016) in the past 10 years since first the mobile phone, and later, mPesa, were introduced into their operating environment.

Uncertainty and information asymmetry that have long characterized the fragile and volatile nature of the informal sector operating in inadequately provided environments with unreliable systems and scarce data. In the next chapter we’ll step back and take a broader look at communication, connectivity, and commerce in the informal economy starting with the description of the operating environment’s characteristics regardless of continent.

This is part of a newly launched Medium where I will write in detail on economic behaviour and its drivers in the informal economy. Much of it draws upon the original research in the field from 2008-2009 which was shared on the prepaid economy blog. I found that time had passed and increased my understanding and I wanted to explore those discoveries in writing. Much of this is the foundation for recent works on ‘Mama Biashara‘.

Innovation, under conditions of resource scarcity

When Mkulima Young, a social media community for young farmers in Kenya tweeted this photograph of a motorcycle modified to pump water, I was delighted. It had been a long time since I’d seen such an excellent example of innovative product development under conditions of resource scarcity.

REculture, the group blog hosted by the now defunct Posterous is gone, though Makeshift magazine still keeps the spirit alive. Afrigadget rarely updates these days, and I, too, have moved on in my interests in the past 5 years since Mikko and I first went to Nairobi for Maker Faire and research.

 

Global consumer data shows demographics have changed completely

The past half decade‘s worth of financial crises and increasing scarcity of resources have led to an increasing equalization in the global water level. Instead of the high tide that would lift all boats, the leveling off of growth is leading to an entirely different equation of purchasing power parity. Tomorrow’s equilibrium seems to imply a more frugal world. ~ Niti Bhan, 2012

I wrote this concluding paragraph just over 3 years ago. Today, I look at research from Pew that informs me the great American middle class has declined by half. An article on the Indian middle class claims they’re actually the world’s poor. And the mythical African middle class emerges, floats and sinks, sometimes all at once in the same article.

Water has found its level, and its barely staying afloat.

If indeed the global demographics are changing such that what was formerly considered the “middle class” by the metrics of the day do not apply anymore, would it not make more sense to rebase and then assess who is in the middle than to go chasing the golden children of the boom years long past?

Or, one could just stop looking for these unicorns everywhere and take the trouble to study the people who are the majority in these markets.

Either way, what was is over and what’s emerging is more frugal world with thinner wallets, fewer bank accounts and propensity to pinch their pennies. The data demonstrates it clearly enough.

Also published as The end of the global middle class: Frugality awaits us

Welcome to the new home of The Prepaid Economy blog

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Instead of two separate locations, all my research, fieldwork, analysis and synthesis as well as news snippets covering all aspects of The Prepaid Economy project, systeme D, the informal and rural cash based markets of the developing world will now be available here together with the original Perspective blog.

The Research category will pull up all The Prepaid Economy posts going back to January 2009 while the Perspective category will cover my other interest areas in business, design and the emerging future.

Welcome.

David is a maker; he sees his creations in his dreams

David with his combine harvester, Karantina, Kenya 15 April 2013

David is a maker. An artisan and craftsman who makes furniture as a carpenter in his day job, he’s nonetheless driven by visions of what he sees in his dreams to build these toys made out of scraps of wood, metal and plastic. That green combine harvester is coming home with me.

Vignettes from Singapore’s past: Independent Women

Look up more on Samsui women , pioneering globe trotting. independent employment for women.

The Samsui women were a proud and independent lot. Prostitution, opium peddling and various vices were common with other women mired in poverty. However, Samsui women chose to be engaged in hard labour with little pay instead of being lured into vices even if they paid more. They found employment in tin mines, rubber estates, on construction sites and as amahs or “domestic servants”. They were hired extensively at construction sites in the 1950s. They carried rocks, dug holes and conducted menial work that defied their small physical stature.

They wore a red head dress which became their trademark feature. The red head dress was a square piece of blood-red cloth folded in a way that it sat like a fairly large rectangular roof on their heads. Their hair was combed into a bun or “pigtail” or towchang and tucked under the red cap. The towchang was a mark of their spinsterhood. They dressed in a stiffly starched black samfoo (sometimes spelt samfu), a tunic-and-trouser suit, protected by an apron. The sandals they wore were pieces of rubber cut out from used tyres and fashioned on their own with a strap. 

Mainstreaming REculture into the materials supply chain

In July 2009, I was inspired by my then working space in the Research wing’s open office at the Aalto University’s Design Factory in Espoo, Finland, to launch a group blog called REculture: Exploring the post-consumption economy of repair, reuse, repurpose and recycle by informal businesses at the Base of the Pyramid

In a post titled RE culture: The BoP innovator’s/entrepreneur’s biggest opportunity space is post consumption, I explained my concept so:

Stepping back, if you take the broad space of REuse, REpurpose, REpair and REcycle (though I’m still debating whether that last quite applies in the same context as we’d expect it to mean in the developed world) – its the low hanging fruit for the BoP entreprenuer’s opportunities for income generation. […]

… it seems at first glance that they look to be more or less the same thing i.e. how different is it to reuse a plastic bottle to contain some liquid from recyling it? particularly if the manufacturer had intended for it to be a disposable container?

Yet, from the big picture perspective, one can say (and it has been said before) the whole concept of recycling is a cost in the OECD world whereas its actually a source of income, in a myriad ways, among the BoP. 
[…]
That is, the lower income market tends towards maintenance and extending the lifespan of the products (through repair or repurposing it) they purchase rather than disposing it for convenience or replacing it for a trendier style.
[…]
However, what’s interesting about this,  is the fact that these opportunities would
a) very rarely be spotted as one in mainstream consumer culture;
b) not be a gap per se due to a difference in mindset/worldview OR even
c) not be profitable enough, given the comparative cost of labour vs the price of the product involved.

These conditions for making money, and more so, making money that is deemed a valid ROI seem only to be available among the lower income demographic and in the developing world.
[…]
So, at this point, early stages of exploration though it is, one could say that the whole area of “post consumption” consumer practices – most of which have withered away like the appendix in the ‘rich’ world – forms one major basis for both products and services, with value addition to varying degrees, in the ‘informal economies’ of the developing world.

Earlier last week, however, I received the McKinsey Quarterly and the diagram below caught my attention. Take a closer look at their labels for each stage of the “Supply Circle”, formerly known as a supply chain:

Value is created by looping products, components, and material back in to the value chain after they fulfill their utility over the life of the product. Yes, indeed, the leaders in the field are exploring these hitherto unconsidered sources of inspiration for process innovation.

It was this basic insight that led us to the research project among the jua kali of Kenya in August of 2010. Innovation under condition of scarcity  capture our initial findings from the fieldtrip to observe, document and be inspired by the informal manufacturing ecosystem in the resource scarce parts of the developing world. My research associate Mikko Koskinen and I prepared this set of slides showcasing this informal industrial ecosystem whose practices, we believed, could conceivably inspire new ways of manufacturing and material use for a more sustainable future. You’ll note in the second last slide the table of research outcomes as they related to business, design and of course, engineering. After all, we were part of the Design Factory, an interdisciplinary experimental platform for innovation. You’ll find mention of REculture as a concept for sustainability and value creation here and here, based on my original work in Finland.

Today, the fundamental concept, that of being inspired by those who make do with so little, has gone comfortably mainstream. McKinsey states on their website:

This article offers a practical set of tools to help manufacturers and waste-management companies capture the resource-productivity prize. Manufacturers are likely to achieve the quickest impact if they start by focusing on their areas of core competency. But to secure the full value of their efforts, companies must optimize their operations for resource productivity in four broad areas that cut across their business and industry: production, product design, value recovery, and supply-circle management. By taking a comprehensive approach to resource productivity, companies can improve their economics while strengthening their value propositions to customers and benefiting society as a whole.

Time to plan the obsolescence of consumerism

Consumers did not exist prior to WW2. People did.

It was after the postwar boom in the United States that a variety of existing professions evolved and morphed to meet the needs of Big Business as industrial production and wealth increased. Consumers were created to meet the unmet needs of the producers.

The Waste Makers, published in 1960, states that inventories in post war industrial America were piling up as the durable goods, cars and services were saturating markets even as people were not buying or replacing their possessions that frequently. They’d not thought of entering other markets yet. That would wait for another 20 years before Theodore Levitt wrote his “Globalization of markets”.

Advertising, marketing, promotions and products were all swept up in an integrated national attempt to encourage the American consumer to buy more. [BusinessWeek 1955 cover story on Planned Obsolescence in the auto industry broke the news!] The industrial designer Brookes Stevens coined the term “planned obsolescence” where products would be designed to go “out of style”. This concept spread widely amongst the giant manufacturing sectors of automotives and white good in the fifties. Even in the 30′s and 40′s GE had specified that their bulbs be designed to burn out hundreds of hours sooner than could actually be designed and built.

“Consumer culture” and “the good life” and its specifications built on consumption of goods and services spread outwards from the US but its reach and thinking not as embedded in other parts of the world or restricted to the top 10-20% of the population. Or, in the case of countries with large numbers of the underprivileged, there was always someone who could use an old pair of shoes or would buy your empty bottles from you along with the newspapers for recycling.

This cycle of consumption, dispose or throw away, buy anew, rinse repeat refresh has gotten shorter and shorter, and not entirely due to Wall Street’s insistence on monthly and quarterly earnings reports. Its also heavily conditioned society in three or more generations of exposure to mass media on the largest scale around the world in recorded history.

Giles Slade wrote the book on the history of planned obsolescence “Made to Break” in 2006, where he said:

“This was a significant development in the history of product obsolescence,” he writes. “As a throwaway culture emerged, the ethic of durability, of thrift, of what the consumer historian Susan Strasser calls ‘the stewardship of objects,’ was slowly modified. At first, people just threw their paper products into the fire. But as the disposable trend continued, it became culturally permissible to throw away objects that could not simply and conveniently be consumed by flames.”

People started filling landfills with things like old vacuum cleaners so that, as time went on, “disposable” came to mean nearly everything, not just old paper collars.

Where are we today with regard the culture we are crafting anew, if at all? How does the conversation shift towards considering the triple bottomline of people, profit and planet if maximizing profit is still the underlying design principle of the existing system? Can we dispose of the now obviously “disposable”?