Posts Tagged ‘business model design’

Part 2: Enabling development’s paradigm shift from ‘best practice’ to ‘best fit’

Workshop I_end user in sight during evaluation

Programming in International Development jumps directly into the Design phase of the projects. This is the root of the challenge they face now as they seek to change the paradigm away from ‘best practice’ to putting the end users at the center of their strategies, with ‘best fit’. I identified this problem in the Autumn of 2012 whilst delving into the internal project development processes with civil servants at the Netherlands Ministries of Foreign Affairs and Economy during a customized internal workshop.

It should be mentioned at this point that while Robert Chambers has extensively promoted the participatory approach, there were issues in the process that were explored during our work, and can be covered in a separate article. Participatory design is not synonymous with user centered design, and neither approach includes a robust methodology for assessing the landscape of the operating environment in conjuction with solution development for ‘best fit’, particularly in the developing world context.

Before we can jump into the design of a project or programme – whether with or without the participation of the end users/beneficiaries, we need a structured approach to grasping the context of the challenge. Without a map of the landscape of the ‘wicked problem’, one cannot navigate the complexity (1). This so called landscape map of the ecosystem in which the development project will be introduced, should not only include understanding the people and their operating environment, but identify and frame the touchpoints for the design of ‘best fit’ interventions.

That is, there’s a need for framing the problem in a manner such that the outcome narrows down the solution space i.e. delineating the boundaries for ‘best fit’ prior to the inception of the design process. In the field of design, these boundary conditions can be known as design criteria and constraints, along with filters for assessing optimal solutions at the conceptual stage from the plurality available.

UCSD

These first three steps in the process BEFORE jumping into design are collectively known as Design Planning, and their outcome minimizes the wasteful experimentation of ‘suits to try’ for ‘best fit’ as the design phase begins with the ‘measurements’ necessary for a ‘bespoke suit’ tailored to fit, to stretch the analogy. Bespoke tailors do not expect their carefully measured suit to fit their client on the first try, and usually one returns two or three times for the final fitting. Similarly, customized programming may require tweaks and can be considered a working prototype (a pilot program, for instance, prior to scaling) where the kinks are worked out together with the participants.

This will require work upfront at the start of the multi-year programmes. There are no silver bullets to addressing complexity.

 

(1) Part 1: An Interdisciplinary Approach to “Best Fit” for International Development: Process and Tools

Customer-Centric Business Model Design for Financial Inclusion

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The Challenge

Digital financial services (DFS) seek to bridge the chasm between the structures, policies and institutions of the formal economy, and the cash intensive informal and rural economy. Current day approaches tend to take the perspective of the service providers when assessing the market opportunity and the needs of the intended customers. And so the research to inform the design of products and services focuses on the behaviour of the end users apart from their context, and isolates their unmet needs within the narrow bounds of a specific project or purpose.

Given that the user researchers, the concept developers and the service providers, are mostly from the formal operating environment and/or first world contexts, they tend to consider consumer behaviour without the explicit acknowledgement that these user responses to the introduction of digital financial services (DFS) are emerging from the context of very different conditions than they themselves are immersed in. That is, there are implicit assumptions tacitly being made regarding the market and its opportunities, which, if left unquestioned, may obscure the underlying causes of the problem. And, thus, may inadvertently act as intangible barriers themselves.

 

A Framework for Approaching this Challenge – Pasteur’s Quadrant

The cash intensive informal and rural economies of the African continent are a very different operating environment from the formal, structured economy of banks, service providers and institutions. This chasm in context, and thus customer worldview, is particularly wide for the vast majority who tend to be defined as financially excluded. They manage their household expenses on irregular income streams from a variety of sources, not regular and predictable paychecks.

This means that many of the market assessment frameworks and tools anchored in the characteristics of the formal, calender based economy may not apply directly to a wholly different context with entirely different conditions and criteria, and their use without adaptation or acknowledgement may skew the resulting insights and concepts. Most of the available research tends to fall into either pure social science or design driven user research. As we have seen, when it comes to making markets work for the poor, neither approach alone is enough to make sense of the opportunity.

pasteur

We are inspired by what is known as Pasteur’s Quadrant – a hybrid approach that integrates the need to understand the context with the pragmatic goal of immediately useful and relevant information.  Our objective is identify strategies that lower the barriers to adoption, whilst minimizing the dropout rate. That is, our goal is to craft sustainable concepts that work for the target audience within the contexts and conditions of their own operating environment and daily life. This approach increases the success rate of a business model. We have been inspired by the way the prepaid airtime model bridges this same chasm for telecommunication giants around the world.

 

Grounding Insights in the context of Informal and Rural Ecosystems

Taking a systemic view of the untapped market for digital financial services, thus, would ground the market observations and the customer insights within the frame of reference of the target audience’s own operating environment. Among the financially excluded, particularly on the African continent, this can safely be said to be the informal sector which contributes a significant proportion of each nation’s GDP and employment, regardless of industry.

Framing the essence of the challenge in the form of these critical questions,

  • What are the barriers to adoption of DFS ?
  • What can be done to lower these barriers to adoption?

permits us to take a systemic approach to identifying barriers to DFS adoption, balancing the need for understanding the unknown with the insights required for conceptual design.

The following questions demonstrate the way we can drill down for comprehensive understanding for a particular customer segment or region in a viable manner:

1. What are the common characteristics of the cash intensive informal economy in which this population resides?
2. What are their current means to manage their household expenses – urban vs rural
2a. What are their current options for financial services – which all do they have access to and which all do they actually use – informal AND formal
2b. Why do they use what they use? And why don’t they use what they’re not using but have access to?
3. What are the market forces acting upon the existing DFS market in their region – regulatory, policy, prices, interoperability, tech of the solution, type of phone etc
4.  What are the assumptions these DFS are making wrt their target audience needs, behaviour, usage patterns and capabilities? How do these assumptions fall short of the real world context and usage behaviour in the context of their cash intensive operating environment?

And thus, the starting point for business model design are the answers we are able to synthesize from the insights gathered above, in order to answer the following question:

What is necessary in order to bridge the gap between the DFS and the intended target audience?

 

Our approach offers a pragmatic diagnosis of the situation, from the perspective of the informal economy and the poor, within the conditions and constraints of the current day regulatory and policy environment. It clearly identifies the gaps in the existing system and describes the opportunity space for new business models that would offer value and resonate with the target audience’s needs and context.

We recommend giving technology a backseat and approaching the solution development process from a more holistic perspective of people, their operating environment and their existing financial behaviour.

Read more on these interdisciplinary lenses for innovating for the informal economies of the developing world’s emerging consumer markets.

Uber’s problems with women’s safety in India – my 2 rupees worth

In its mindless rush for scale, Uber leapt into the Indian market with their “hassle-free” service of hailing a car with a push of a button on your smartphone. I call this mindless because “will it scale” is an unquestioned imperative for a startup, not something that is thought through. Nobody asks should it scale, or, is this the right place to scale? Neither does anyone look at the compromises made, to the brand and to the customer experience, in this drive to scale. Thus, its no different from the mindless growth of an amoeba, responding to the instincts imprinted on its DNA.

I’m due to arrive in New Delhi next week. Would I use Uber? No. I’d rather walk across teh street to the Sardarji sitting in his tent at the local taxi rank and ask him for a car and a reliable driver. It could be for the day or for the week but I’ll insist on the same guy showing up, without extra company in the front seat, and register my home address and phone number with the taxi rank. For additional peace of mind, I’ll walk back across the road to the guardhouse at the entrance to our apartment complex and point out the taxi fellow responsible for driving me around.

In the neighbourhood where our apartment is located, we are recognized as original owners, not newbies, and the local taxi standwallah isn’t going to risk his future business and his reputation if there’s even a peep of complaint from me. The eyes of the community should be sufficient to keep the animal instincts of the average Delhi eve teaser under control. A little further down is the auto rickshaw stand, under the shade of a large tree where the chaiwallah makes his brew. More strangers come and wait here unlike the taxi stand, but one can still spot a regular or two. At least, that’s how it used to work back when I was taking a scooty to work every morning.

In neither case would I think of wandering around after dark, if I was alone in the vehicle.

Uber arrives.

Why do we hear of women taking these cars at night all by themselves?

Things might have changed in the last couple of years since the horrific news of the bus rape in New Delhi, what do I know? So I did a little digging to see if my premise on why Uber was enabling women to lower their barriers to conventional common sense in India.

“To the extent that the Uber brand name induces a sense of security and this is used as a business strategy, a proper legal regime should allow the Indian woman’s strategy to succeed,” source

Because it needs a smartphone, knowledge of English, and an internet connection, is there an implied raising of standards of who’ll show up at your doorstep? Implicit here is that education and data plans imply greater security?

On the other hand, this knowledge hasn’t helped this lady in Chennai whose Uber driver kept trying to ‘cancel trip’ in the middle of a secluded location.

The internet’s explosive growth in India, coupled with smartphones, mobile wallets and e-commerce, seems to have lowered the barriers to services such as these, which probably leads to a greater acceptance of an app driven service along with the perception that it’s somehow “safer” than hailing a regular taxi on the roadside.

Yet, the very same internet has always provided trolls with the anonymity and impunity with which to harass and abuse women without consequence. This element of the web seems also to have now transferred itself onto the app driven sharing economy.

SOS buttons in a context where the police aren’t likely to jump in their vehicles and race over to save you, nor can they be trusted not to molest you, is a technological solution meant for the VCs back home.

Taking a taxi ride is not the same thing as purchasing a book or making a restaurant reservation.  Can you scale trust and local context as instantly as you do an app?

Affordability is not the same as a lower price point

Third party informal kerosene sales point deep interior of rural Eastern Kenya. Photo credit: Niti Bhan

Absolute price of a product has always been assumed to be the means to successfully reach the BoP customer and the concept of affordable is often a synonym for cheaper. While price bands do matter when targeting this market, price/performance ratios tend to be more important to those who seek the best value for their hard earned and limited cash and affordability is proportional to the flexibility of the payment plan than the lumpsum amount. This is evidenced by the findings from the household energy consumption behaviour research conducted among representatives of the claimed target audience (the Base of the Pyramid living without electricity) which captured fuel usage and purchasing patterns based on income and cash flow.

The vast majority of the rural BoP who tend to be subsistence farmers managing on irregular income streams from a variety of sources have seasonal peaks and lows in their cash flow. Only on occasion during the course of the natural year are lumpsums of cash available for direct purchase. Documented behaviour includes storing household ‘wealth’ in the form of livestock, to be sold on demand for emergencies or at predetermined times of need such as for school fees at the beginning of the year.

Harvests are a seasonal time of plenty and shopkeepers in each region are aware of the major buying season for consumer durables and other high ticket items. At other times, purchases are made by the way of a variety of ‘informal microfinance’ tools such as shopkeepers offering layaway plans within their local community, permitting customers to pay off the price of the desired product over time and offering flexibility of duration, periodicity, frequency and amount of each payment per the customer’s convenience.  The risks are only when the customer is a relative stranger to the area.

This purchasing pattern, based as it is on an irregular cash flow of varying but small amounts, is why kerosene as a choice of fuel for lighting is so embedded in rural BoP markets. One can purchase it on demand, by cash amount (as little as 5 eurocents) or quantity (250 ml or even less) thus its purchase and use can be determined by the cash available on hand to the customer. It is the requirement of a lumpsum amount of cash that more often acts as a barrier to purchase than the absolute price of the product.

Thus, affordability of a product or service, in the mind of the BoP customer, has more to do with the flexibility of the payment plans than the price range. An example of this is the widespread prevalence of prepaid or pay as you go payment plans for mobile phone airtime that has made mobile phone usage affordable in the informal economy where few have the regular paychecks or consumer credit facilities to consider post paid subscriptions that deliver a monthly bill for an unknown amount.