This is a special week – emerging futures lab celebrates its 10th year!
Follow the tag EFL10 for a retrospective of work over the past decade.
This is a special week – emerging futures lab celebrates its 10th year!
Follow the tag EFL10 for a retrospective of work over the past decade.
My talk given at the TEDGlobal conference in Arusha, this August, went live on Ted.com at some point during the night a couple of days ago. At that very moment, I was on a Finnair flight from SIN to HEL, so with a wee bit of delay, here’s the link to the video of the talk. Also available is a recommended reading list I curated, along with footnotes.
I just want to add that its high time we considered the informal sector as a commercial operating environment in its own right. This change of perspective will transform the way we think about poverty, it’s alleviation, and, importantly, open the doors to innovating products and services that can help boost productivity and revenues for micro, small, and medium sized businesses across the developing world, but particularly in Africa and India.
By doing so, we can recognize the economic contribution and value creation by women who make up the majority of such entrepreneurs, and put dollar values to their investment capacity and growth opportunities. As long as they’re lumped together under the umbrella term “informal sector”, with its unquestioned assumptions of low skill and low productivity, they’ll remain invisible, and solutions meant to support their development will never reach them.
This topic is being shared in the form of a collection of essays on the following themes, each becoming hyperlinked on completion. Do bookmark this page for regular updates.
Introduction to Background and Context, some caveats apply
Fundamental Elements of Informal Sector Commercial Activity
Rural household financial management as a foundation
Linkages and Networks span Urban and Rural Markets
Underlying Principles for Financial and Social Contracts in the Informal Economy
Informal Sector Business Development Strategies and Objectives
Why A Blanket Approach to Formalization is not a Panacea
Disaggregating and Segmenting the Informal Sectors
The Journey to Formalization Cannot be Leapfrogged
Creating Economic Value by Design (John Heskett, IJD 2009)
Financial Behaviour Patterns Observed Among Households in Rural Informal Economy (IDRC, 2009)
“More or Less: The Fundamental Principle of Flexibility” Slides (Informal Economy Symposium, 2012)
A Comprehensive Analysis of the Literature on Informal Cross Border Trade in East Africa (TMEA, 2016)
This is an extract from the Introduction to John Heskett’s seminal paper, “Creating Economic Value by Design”
The work of Herbert Simon, Nobel Laureate in Economics in 1978, is a rare exception of design being considered as a factor in economic theory. His starting point was acknowledging that the world we inhabit is increasingly artificial, created by human beings. For Simon (1981), design was not restricted to making material artefacts, but was a fundamental professional competence extending to policy-making and practices of many kinds and on many levels:
Everyone designs who devises courses of action aimed at changing existing situations into preferred ones. The intellectual activity that produces material artifacts is no different fundamentally from the one that prescribes remedies for a sick patient or the one that devises a new sales plan for a company or a social welfare policy for a state. Design, so construed, is the core of all professional training; it is the principal mark that distinguishes the professions from the sciences. (p.129)
Implicit in Simon’s reasoning is an emphasis on design as a thought-process underpinning all kinds of professional activities; yet the varied skills through which design is manifested are not discussed. He did indicate, however, why design is so rarely considered in economic theory. Economics, he stated, works on three levels, those of the individual; the market; and the entire economy (p. 31). The centre of interest in traditional economics, however, is markets and not individuals or businesses (p. 37). A serious problem is thereby raised at the outset: two important considerations relating to design—how goods and services are developed for the market place and how they are used—receive scant attention.
I was lucky enough to both work with him as a colleague as well as attend his classes in Design Policy and Design Planning & Market Forces as his student. I’ve been diving into my notes and his lectures of late as I wrestle with my theorizing on what I’ve been calling Biashara Economics, whose earliest avatar was the prepaid economy project of 2008/9.
Today, I want to explore the concept further to evaluate its potential as a framework for incorporating the concurrent shift in development thinking towards Value for Money (DFID) principles, in addition to designing for best fit.
Value for Money as a Process Driver
Value for Money (VfM) is not the same as traditional monitoring and evaluation which seeks to measure impact of a project, and occurs usually after the fact. In many large scale projects, this may not happen until years after inception.
Instead, VfM is defined by the UK’s National Audit Office as ‘the optimal use of resources to achieve intended outcomes’, which in turn, the DFID document contextualizes for their aid programming investments as “We maximise the impact of each pound spent to improve poor people’s lives.”
If this applies to all investments in aid related programme development, then it follows that it must also apply to earliest stage of discovery and exploration that leads to problem framing i.e. the necessary groundwork to write a comprehensive and inclusive design brief for future programming.
Thus, the conceptual approach that I introduced at the beginning of this post, which is taken from the discipline of Operations Research, and seeks to solve the challenge framed so – what is the optimal solution that minimizes resources (inputs) for maximum outputs (value creation) – fits as a potential framework that can theoretically apply from the earliest stages of implementing development strategy, even before inception of any related projects, including early stage research and feasibility studies. After all, the function of Linear Programming is optimization.
Note: Here I will only consider the theoretical aspects from the point of view of programme design research and development, and not the mathematics. That will have to wait until I have gathered enough data for validation.
Design Research for Programme Design Purposes
In this context, the primary function of such an exploratory project is to identify the opportunity spaces for interventions that would together form an integrated programme designed to effect some sort of positive change in the ecosystem within which it would be implemented, and offer a wider (more inclusive) range of cross-cutting benefits.
In the language of product development, we are attempting to build a working prototype. We cannot build and test first prototypes to see if they work, directly, because our room for failure is much less spacious for experimenting with aid related programming, ethically speaking. This is not a laboratory environment but the real world with enough challenges and adversity already existent.
Programmes are not the same as consumer products, nor are they meant to be designed and tested in isolation before being launched for pilot testing in the market. Their very nature is such that innocent people are involved from the start, often with a history of skepticism regarding any number of well meant donor funded projects aimed at improving their lives. This changes the stringency of the early stage requirements for design planning.
At the same time, the nature of the task is such that no first prototype can be expected to be the final design. So, from the very beginning, what we must do is set the objective of the outcome as a Minimal Working Prototype (MWP) that meets all the criteria for an optimal solution, and NOT a Minimal Viable Product (which may or may not work wholly as intended until tested in the field for iteration.)
That is, the first implementation of the iterative programme design must fall within the bounds of the solution space – that which is represented by the shaded area in the diagram above.
The Optimal Solution is the Iterative Programme Design
Thus, what we must be able to do at the end of the discovery phase of research necessary to write the design brief, is tightly constrain the boundary conditions for the solution space within which the MWP can then be iterated. This minimizes the risk of utter failure, and maximizes the chances of discovering the best fit, and all of this within the definitions of Value for Money and it’s guidelines.
There are numerous ways to set the goals for optimization – one can minimize resources and maximize constraints, or minimize risk and maximize return on resources invested. These will guide our testing of this framework in field conditions to validate the robustness of this theoretical approach.
In this way, we can constrain our efforts to discover best fit within predefined limits of tolerance, while retaining the flexibility to adapt to changing real world circumstances and progressive transformation of operating conditions.
Best fit, then, becomes less a matter of experimentation without boundary conditions and more a discovery of which of the many right answers – if we take the entire shaded area as containing “right answers” to the problem at hand – help us meet the goals of intervention in the complex adaptive system in an optimal manner.
The point to note from this conceptual framework is that there is never any ONE right answer, so much as the answer will be that which we discover to the question “What is needed right now for us to meet our goals, given these changes since we last looked at the system?”
It is this aspect that loads the burden of a successful outcome on the front end of the entire research and development process, given that framing the problem correctly at the outset is what drives the research planning and steers the discovery process in the direction of relevant criteria, conditions, constraints, and user needs that will not only form the bounds of our solution space, but also act as waymarkers for monitoring change and evaluating its progression.
Going back to first principles has been a refreshing exercise. Even as our work has taken us into some wholly new places, there’s comfort in knowing that others have thought deeply about the concepts, though not in our context. I’m a firm believer in not re-inventing the wheel. Consider it a working prototype to be tested in a new environment, rather like I’ve been doing with Vijay Kumar’s innovation methods.
Here’s the context of the thinking I’d been doing on iterative programming for complex, adaptive systems – that is, taking on the wicked problem space of international development where the operating environment is rather greatly different from the predictable regularity of the developed world:
People-centered systems design thinking for complexity
Pivoting from “best practice” to “best fit”: An interdisciplinary perspective (Intro)
An Interdisciplinary Approach to “Best Fit” for International Development: Process and Tools (Part 1)
Enabling development’s paradigm shift from ‘best practice’ to ‘best fit’(Part 2)
Thus, it was with pleasure that I dived into exploring Peter Jones’ publications on social transformation. Two, especially, caught my attention.
The first lays the groundwork in the work of bringing together the two disciplines – systems thinking and design. From the abstract of his Systemic Design Principles for Complex Social Systems:
Systems theory and design thinking both share a common orientation to the desired outcomes of complex problems, which is to effect highly-leveraged, well-reasoned, and preferred changes in situations of concern.Systems thinking (resulting from its theoretical bias) promotes the understanding of complex problem situations independently of solutions, and demonstrates an analytical bias. Design disciplines demonstrate an action-oriented or generative bias toward creative solutions, but design often ignores deep understanding as irrelevant to future-oriented change.While many practitioners believe there to be compatibility between design and systems theory,the literature shows very few examples of their resolution in theoretical explanation or first principles. This work presents a reasoned attempt to reconcile the shared essential principles common to both fundamental systems theories and design theories, based on meta-analyses and a synthesis of shared principles. An argument developed on current and historical scholarly perspectives is illuminated by relevant complex system cases demonstrating the shared principles. While primarily oriented to complex social systems, the shared systemic design principles apply to all complex design outcomes, product and service systems, information systems, and social organizational systems.
And once I noted there was a bit of an overlap between the references I’d drawn on for my initial exploration of design planning as the discipline from which to source methods to address the challenge of complex, adaptive systems as currently explored in the development space, I was relieved to see that I was on the right path for our own theoretical evolution.
This paper is a great starting point for our methods development for the context of the informal sector in the East Africa, particularly outside the urban centers. And, a second paper by Jones – Design Research Methods in Systemic Design validates many of our assumptions while working with only the methods and systems thinking from one school of thought – the Institute of Design’s philosophy and approach.
In future blogposts, I will attempt to triangulate the thinking from all of these disciplines – design planning, human centered design, systems thinking, and international development. There’s a paper I’m hoping to write by the Autumn, if all goes well and the abstract accepted for a conference at the end of the year.
As Kenya joins Zambia and Zimbabwe in ratifying a Movable Property Security Rights Act, there’s a sense that the floodgates to innovation in access to finance might be taking place in rural Africa, south of the Sahara and north of South Africa.
Kenya’s law also goes beyond the cows and goats and allows a borrower to collateralise future receivables arising from contractual relationships.
How it ends up being implemented will set the stage for the next big disruption in financial inclusion. In the meantime, let’s take a closer look at the opportunity space for innovation in the informal and rural economy that dominates these operating environments.
1. A whole new bank, designed to meet the needs of rural Africa
The very fact that contemporary thoughtleaders in the Kenyan banking industry are unable to take the concept of livestock as collateral for loans seriously, taken together with the deeply embedded assumptions of the formal economy’s financial structure leaves the door wide open to disruption.
It would not be too difficult to conceptualize a rural, co-operative bank custom designed for the local operating environment. In Kenya, where the mobile platform provides clear evidence of the viability, feasibility, and desirability of innovative financial tools and services that work for irregular income streams and provide the flexibility, reciprocity, and negotiability inherent in the cooperative local economies, such a bank could change the social and economic development landscape overnight.
In fact, one could conceivably foresee this “bank for rural Africa” scaling far beyond Kenya’s borders.
2. Insurance sector must respond to banking disruption
The domino effect of disruption in the banking sector should kickstart the stagnant insurance industry that has been ineffectually attempting to scale outside of the formal economy’s neatly defined boundaries. Bankers willing to take livestock as collateral for loans will therefore require insurance on their movable asset as a surety against the risk of disease, or drought.
Current products tend to emerge from the international aid industry, seeking to insure smallholder farmers against the shock of losing their livestock to climate related disasters such as prolonged drought, or an epidemic of illness. There is a dearth of relevant and appropriately designed insurance products from the private sector targeting the needs of the rural economy. For all the talk of African urbanization, even the most optimistic projections show that East Africa’s rural population will continue to dominate.
3. Disrupting assumptions of Poverty and Purchasing Power
Whether it is Kenya’s significant non profit sector or the nascent consumer oriented markets, the redrawn lines defining assets, collateral, and the floodgates of access to finance will require a complete overhaul in the way the population is segmented and measured.
Once these hundreds of movable assets have been valued, insured, and registered officially, even the most reluctant banker must now count the pastoralist among his wealthiest local clientele, able to draw a line of credit against his true wealth to the tune of thousands of dollars without feeling the pinch.
4. Triggering a rural investment and consumption boom
From mabati for a new roof and simti for the backyard wall, to the latest model smartphone or pickup truck, the concurrent boom in investments and consumption provides an ample playing ground for new products and services tailored for the contextual needs upcountry. Finally, Farmer Joe can install that solar powered irrigation pump for his orange groves in time to reap the next big harvest. And Mama Mercy can think of building up a nest egg of investments faster from the income provided by her farmyard animals.
This might turn out to mean upgrading to a breed of high yield milch cows or being able to provide them with better quality feeds and medicines, but the financial bridge that a well designed strategy leveraging this movable assets bill and it’s timely implementation could mean the difference between the brass ring or treading water.
5. Trade and Commerce will open new markets
Given that the Kenyan Movable Property Security Rights Act 2017 goes beyond livestock to include other stores of wealth and value creation, there will be an undeniable impact on regional and cross border trade. No trader will give up the opportunity to leverage their existing inventory if it qualifies for additional credit that can be plowed back into the business.
Trader’s mindset and the documented biashara growth strategies already in evidence point clearly to the productive economic use of this access to finance rather than passive consumption alone. As their business grows, they will require a whole slew of tools and services tailored to their needs. This could be as simple as a basic book keeping app or as complex as customized commodity (assets, livestock, non perishable foodstuffs, grains and cereals) exchange platforms that integrate the disruptive new services percolating through the entire ecosystem.
These few steps outlined above are only the beginning of laying the foundation for disrupting the current social and economic development trajectory of small town and rural Kenya. I see immense potential for both direct to consumer as well as business to business segments for forward looking organizations seeking a foothold in the burgeoning East African markets.
We, at Emerging Futures Lab, would be pleased to offer you customized white papers on the opportunities for new products, services, and even business models, based on this emerging financial environment recently signed into law by President Kenyatta. Contact us for an exploratory conversation on the scope and scale of your particular industry’s needs. Our experienced team can help you maximize these opportunities from concept design and prototyping all the way through to path to market strategies.
Regardless of continent, it is now high time we accepted the informal economy (unformal or unrecognised or unorganized sectors) as a commercial operating environment in its own right.
The continued oversight is rapidly coalescing into a gaping void of hiccups and failures, by large companies, non profit institutions, and startups, alike. This issue goes far beyond “understanding the informal” or recognizing the fulltime professional status of the service providers that I’ve written about before.
It’s about the problems created by continuing to assume every individual is poverty stricken and struggling to make a livelihood simply because a significant portion of their commercial activity operates outside what is rarely defined but is assumed to be the formal, structured economy held up as the pinnacle of economic development.
It’s why academics can barely conceal their flabbergasted surprise that a person has a better quality of life, and a reasonably viable revenue stream in [gasp] informal market trading, or even agricultural work.
It’s why @pesa_africa questions the continued transplantation of e-commerce business models directly from Seattle to subSahara given that they’ve tended to wither on the vines.
It’s why market women and traders pay the price of daily harassment and abuse by those given authority over their peace of mind.
And, it’s also why the freshest produce gets to you first thing in the morning in Nairobi or Cotonou or Kinshasa.
This is not meant to be a paean to the hardworking women and men who keep the engines of commerce and trade humming in the harshest of environments with scarce resources and inadequate infrastructure.
It’s the first step in acknowledging yet another holdover from a colonial past that decades later still hampers and hinders the social and economic development that should have happened by now, by all rights.
It’s also the necessary counterpart to the recognition of agency required for design interventions to succeed once donor funding ends.
This is a topic that has come up so often on Twitter that I thought to write it out once and for all. A link would be ever so much easier to argue with than to make the case for recognizing the agency of the end user – whether an intended customer or beneficiary – of an innovation.
At some point, I’ll get around to writing a much longer version with citations and links to contemporary research in iterative programming for complex, adaptive systems i.e. the ecosystem intended as the target recipient for the implementation of a socio-economic development program or project. For now, this short version will do.
The late John Heskett, professor in Design Planning and Market Forces at the Institute of Design, IIT, Chicago, once said in the classroom (notes, Spring 2003) that an invention could not be considered to be an innovation until it had been embraced by the end user. Witness the difference in adoption between Apple’s iPod and the Segway human transporter.
This metric of success for the novel – be it a product or a service, or even a business model such as the prepaid/pay as you go means of using mobile phones – requires that the customer (the end user or the beneficiary, as the case may be) be given the opportunity to choose, that is, to make a decision on whether to adopt, adapt, or reject the innovation in question.
In order to choose, and to decide, the user for whom such systems are designed must then be imbued with agency, rather than be considered passive recipients of the innovation.
This respect and recognition of the recipient’s agency forms the core of our work in innovation planning and concept design inspired by primary research in the informal markets of rural and urban sub Saharan Africa, South Asia, and the ASEAN. It has been informed by more than a decade of practical knowledge from experience in the field.
And it is this recognition of agency, which is that which empowers, that provides the foundation for our processes and systems, our methods and tools, and thus, our learning and teaching of how to think differently across the bridge of disparity, and inspires conceptual design of holistic solutions.
Without explicit acknowledgement of the individual’s agency or recognition of the diversity of circumstances, abilities, and aspirations in a community, any designs meant to effect positive change will remain lifeless attempts to intervene from the outside. Witness the number of pilots that fail to scale, or programmes that remain unsustained once external funding ends.
Last week’s issue of The Economist drilled down deeper to cover the retreat of globalization – at least in the most visible form, that of the multinational brands dotting cityscapes around the world. The retreat of the global company, they trumpet, the end of Theodore Levitt’s vision.
Credit Suisse takes a concise yet comprehensive look at these weak signals in their well-written report that frames the situation as a transitional tug of war between globalization and multipolarity – an inflection point, rather than a retreat. They make it sound like missing the turn at an intersection and having to come back to the traffic lights to figure out which way to go.
Duncan Green of Oxfam captured the essence well:
But the deeper explanation is that both the advantages of scale and those of arbitrage have worn away. Global firms have big overheads; complex supply chains tie up inventory; sprawling organisations are hard to run. Some arbitrage opportunities have been exhausted; wages have risen in China; and most firms have massaged their tax bills as low as they can go. The free flow of information means that competitors can catch up with leads in technology and know-how more easily than they used to. As a result firms with a domestic focus are winning market share.
In the “headquarters countries”, the mood changed after the financial crisis. Multinational firms started to be seen as agents of inequality. They created jobs abroad, but not at home. The profits from their hoards of intellectual property were pocketed by a wealthy shareholder elite. Political willingness to help multinationals duly lapsed.
Of all those involved in the spread of global businesses, the “host countries” that receive investment by multinationals remain the most enthusiastic.
The first thing to note is that the global MNCs being considered by The Economist are primarily the legacy ones – fast food chains like McDonalds and KFC (Yum Brands) – whose shiny logos used to represent the liberalization of the closed markets of India and China.
Even at powerhouses such as Unilever, General Electric (GE), PepsiCo and Procter & Gamble, foreign profits are down by a quarter or more from their peak.
or the few examples of emerging market brands that have gone global such as China’s Lenovo which purchased IBM’s Thinkpad and India’s Airtel which bought into the African market.
What’s being touted as their competition are regional brands, who aren’t as stretch out globally in terms of their supply chains, and less vulnerable to currency volatility. Further, the majority of these global brands are heavily dependent on their B2C marketing and sales – the question of whether they ever managed to understand their new markets is a topic for another post.
And so, we ask, what will this mean for the emerging economies of Africa, who are only now seeing the first fruits of FDI? Who will come and develop their consumer markets?
India and China apparently. And strategically – through unbranded affordable commodities and the acquisition of successful regional consumer brands – rather than the legacy MNC approach influenced by Levitt. Even Japan recognizes this, as they seek to piggyback on the Indian experience.The economics of scale that propelled the first rounds of growth for the manufacturers of washing machines and the automobiles never did make sense infrastructurally for the majority of the African consumer markets.
Instead, the patterns pointed out by The Economist and Credit Suisse imply that opportunities will lie among regional stars – Equity Bank of Kenya, for instance, whose regional footprint is surely but steadily creeping outwards across the East African Community and trading partners – or, the telcom brands such as Tigo (Millicom) who innovate for each of their local markets.
The jobs and exports that can be attributed to multinationals are already a diminishing part of the story. In 2000 every billion dollars of the stock of worldwide foreign investment represented 7,000 jobs and $600m of annual exports. Today $1bn supports 3,000 jobs and $300m of exports.
Godrej, for instance would be considered a regional Indian giant rather than a multinational in the conventional sense of a Unilever or P&G.
Where [MNCs] get constrained is, they are driven by lot of processes that are global. For a smaller organisation like us, we are completely empowered; decision-making is quick and we can initiate changes very fast. We are more agile and have an advantage over them.
Yet their expansion outside India shows a “pick and choose” strategy of markets they’re comfortable entering.
The group’s acquisition strategy hinges on identifying unlisted companies built by entrepreneurs looking for capital, picking up stakes and working with them to scale up their businesses.
At least two homegrown Kenyan FMCG brands – skincare by a global giant and cosmetics by private equity – have been acquired. As have snack foods, spices, dairy products, and other products that cater to local tastes. The best known being Fan Milk of West Africa. Private equity such as Abraaj make no bones about going after consumer driven opportunities.
Given these choices, sustainable African businesses who understand their consumer markets have an opportunity to establish their brands and grow – with the financial help that’s strategically becoming available.While Chinese imports make the market highly competitive and price conscious, fish and tyres are substitutable goods in a way skincare and cosmetics are not.
African consumer companies – formal, informal, or semi-almost there-formal – need to hustle right now.
The retreat of the MNCs offers a chance to exhale, and expand, and grow, but the advent of the East implies waking up to the need for serious strategic thinking about domestic comparative and competitive advantage – one of which is incomparable knowledge of local consumers, culture, and needs, and critically, experience of their vast informal sectors and cash intensive economies.