Posts Tagged ‘uncertainty’

Fundamental Elements of Informal Sector Commercial Activity

There are two key elements which underpin the dynamics of any business or commercial enterprise in the informal sector. These are Time and Money.

A generalized framework can be diagrammed, as shown above, where the dotted line denotes the degree of uncertainty and volatility of an individual’s cash flow patterns – whether from a variety of informal economic activities – such as for the farmer or trader; or from the salary received for a white collar job. The X axis – Time – denotes the increasing accuracy of estimating the Arrival date of a cash payment (from some revenue source), and the Y axis – Amount – denotes the increasing accuracy of estimating the Amount that will arrive. Their relative ability to estimate Arrival and Amount with any degree of accuracy is indicative of their ability to forecast and plan for expenditure.

Thus, at one end of the continuum, one can position an odd jobs labourer who may or may not get paid work on any given day, and is unable to predict with any degree of certainty what type of job he’ll get selected for, nor for how many days it will last. It could be as basic as loading a truck for half a day’s pay, which in turn might even be in kind, and not cash. And, at the other end of this continuum, one can position a the typical white collar salaried professional or civil servant who knows with certainty exactly on which day they will receive the salary and exactly how much will arrive.

 

Positioning and Location

Now, we can frame these two elements of the commercial operating environment in the form of a position map, as shown above, that maps the ability to plan expenditures against the stability of the cash flow. The red arrow is the continuum of certainty and stability of Timing and Amount of an income stream, anchored by the most vulnerable odd jobs labourer at one end and the relatively most secure salaried professional at the other.

Where it gets interesting is the relatively liminal space in the middle where the various economic actors in the informal economy constantly shift position as they seek to mitigate the volatility of their income streams, through a variety of mechanisms. Much of their decision making is related to their own perception of uncertainty and ability to forecast.

For the purpose of this explanatory diagram, I have selected 4 typical examples drawn from different sectors of the informal economy common in the developing country context. Each are at the more vulnerable end of their own segments i.e. a subsistence farmer, rather than one with an established cash crop; or a small roadside kiosk rather than an established general merchandise store in a market town; since they have not yet achieved the goal of their business development strategies to move their own entrepreneural ventures towards relative stability, and thus provide more insight on the relationship between cash flow patterns and investment and expenditure planning.

The hawker of goods at a traffic light or junction is in a comparatively more fragile situation than the kiosk owner with a fixed location who works to develop relationships with passing customers in order to convert them to regulars at her store. Unlike the kiosk, which might be located near a busy bus stop, or outside a densely populated gated community; the hawker cannot predict which cars will pause at the red light as he darts through traffic shouting his wares. However, compared to the odd jobs labourer, the hawker has comparatively more control over his income generation since his is not a passive function of waiting to be picked from the labour pool in a truckyard or construction site.

The smallholder farmer might actually be better off economically in many ways than his urban brethren involved in informal retail, being able to live off the land more cheaply than in the city. Experienced farmers, for the most part, are able to predict with reasonable accuracy, more or less the quantity of their crop, and the estimated timing of the harvest. However, his sense of uncertainty is often perceptually greater due to the unmitigatable impact of adverse weather conditions, or the sudden infestation of a pest or blight, any of which could at any time completely destroy his harvest, and thus, his expectations. This sense of insecurity in turn influences his decisions on expense commitments to far ahead in time, or too large a lumpsum at some point outside of his regional harvest season. The farmer’s income streams are relatively more out of his control than the disposable income in the pockets of the kiosk’s customer base.

The market woman with her display of fresh produce, at the entry level of inventory investment capacity, might only have one or two different varieties of vegetables or fruit to sell, and may not yet have established a permanent structure – a table, a kiosk – in the market. She might start off with only a tarpaulin on the ground with some tomatoes and onions for sale. Unlike the traffic intersection hawker, however, she is more likely to begin by assuming a regular placement and location as this establishes the foundation for her future business development, through the factors of discoverability and predictability among the customers in that locale.

That is, in addition to Timing and Amount of Income – the cash flow patterns and sources – we begin to see the role played by location – Place1, as a supporting element of the commercial activity in the informal economy. While farmers are least likely to have much control over the location of the land they may inherit, their risk mitigation strategies to minimize volatility of their income streams and maximize their ability to plan for the future and manage emergencies will be discussed in depth in the section2 on rural household financial management. These practices are the foundation of business development strategies commonly observed in the informal economy in developing countries which tend to be less urbanized, and as is often the case, more dependent on agriculture as a component of national GDP.

 

Appendix
1 People, Pesa, Place: A Multidisciplinary Lens on Innovating in Emerging Markets
2 Rural Household Financial Behaviour on Irregular Income Streams at the Base of the Pyramid

Improvising when work gets in the way of a laptop breaking down

Aalto Design Factory, one Monday in January 2014

Just over a fortnight ago, I nudged my coffee cup over a corner of the full size design award winning keyboard embedded in my rather obsolete but much beloved Lenovo.

Today was a very important deadline that my team and I had to meet. And my work involved writing over 5000 original words in response to a wicked problem, one of those that would wring your heartstrings if you knew.

Simultaneously, I had an entire market entry strategy to complete and submit for a client project that had been ongoing since earlier in the spring. My intent had been to get that done and dusted before the 1st of June leaving me the balance of time available to focus on the complex analysis and synthesis of a narrative by today’s deadline.

A few drops of coffee was all it took to disrupt my intended plan of action.

I’m sharing this anecdote here, now, because I learnt something about myself that I’d not have noticed had this not happened.

Improvisation is the key to success in challenging situations where the infrastructure we take for granted, or the tools we come to rely on, refuse to perform the way we expect or they should.

Slow down during a crisis, and you will have that unique center of calm grounding you instead. It may seem counter-intuitive at first glance, but if you step back and consider the whole, this singular moment in time – infinity – can allow you an unprecedented opportunity to envision the whole, recognize the landmarks, and the obstacles, and then, plan your navigation all the way through to your goal. That is, instead of diving in deep into the urgency, take a step back off the edge of the cliff instead.

Then, and only then, when you have your roadmap in mind, take that critical first step forward to begin.

We submitted over 10 megabytes of materials last night, well in advance of our deadline. And, after a day or so of letting my poor old tired eyes rest from switching back and forth between two screens and flipping the trifocals on and off, I’ll sit back down to complete the interrupted strategy for my patiently waiting client.

Design research as a method for discovering & understanding the world around us

Variously known as User Centered Design (UCD) or Human Centered Design (HCD), the fundamental philosophy underlying the designer’s approach to problem solving is that of discovery – “figuring out how to make something that will work in this context”.

Innovation, invention and novelty rarely have pre-scripted processes due to the as yet unknown, and often, uncertain nature of the outcome. The design process acknowledges this by embedding various techniques for discovery of the problem space as well as the possible solutions.

These include:

  1. Exploration –  1. the action of exploring an unfamiliar area. 2. the thorough examination of a subject.;
  2. Prototyping –  an early sample, model, or release built to test a concept or process or to act as a thing to be replicated or learned from;
  3. Iteration –  the act of repeating a process with the aim of approaching a desired goal, target or result (2);
  4. Experimentation – a procedure carried out to verify, refute, or establish the validity of a hypothesis. May vary greatly in goal and scale, but always rely on repeatable procedure and logical analysis of the results.

This post was inspired by a twitter conversation with Dr Dan Lockton. It is the first of a series of explorations on our adaptation and evolution of the methods available for design research as tools for discovery and understanding where data may be inadequate or non-existent such as the informal economy in emerging African economies.

Please use the category UCSD to discover more on this subject.

Uncertainty and The Prepaid Economy: Time and Money

prepaid-globalgsma-2011-2013

Uncertainty characterizes the entire global Prepaid Economy and is the underlying driver for decision making.

Systems are unreliable

Inadequate infrastructure, variability in basic services (will we have electricity this morning?), obsolete or incomplete systems; all of these, and more, are part and parcel of life in the emerging regions of the world. Will we wake up to find the capital city grinding to a halt because riots have erupted over the price of onions? None can say.

All of these elements act together to create a far more volatile operating environment which adds up to an uncertainty around timing. Will an accident along the main artery cause hours long grid lock familiar to anyone from Lagos to Lahore?

Cash flow is irregular

For the vast majority employed in the informal sector, regular predictable paychecks are not the norm.  Irregular unpredictable income streams from a variety of sources are the norm, and daily wage workers are not guaranteed that work will be available the following morning.

Even the farmer faces uncertainty, though her fields might be fruitful and ready for harvest. Seasonal ebbs and flows in cash flow are part of the rhythm of daily life outside of the formal economy’s calender year with its predictable regularity.

Smaller businesses too may feel less secure in cash intensive markets, dependent as they are on ensuring that incoming revenues must cover outgoing expenses.

Uncertainty is the only certainty

No one, however is immune from the larger uncertainties of their environment. Strikes, riots, power cuts or floods – these can bring entire cities grinding to a halt.

And the lower down the income stream you are, the greater the impact of this uncertainty. Without float, planning becomes a challenge and community is your insurance in times of need. Juggling to minimize the volatility between income and expense is an ongoing exercise in trade-offs.

Empowering oneself through control of time and money

In the prepaid economy, the greater the span of control you have over timing of a payment – its frequency and periodicity, and the amount to be spent, the greater your ability to plan and manage your finances. From chaos and disorder, one can find ways to negotiate and be flexible, whilst striving to keep one’s head above water.

This characteristic manifests itself in a wide variety of forms – purchasing patterns; choice of cooking fuel; social and flexible weights and measures; a wee bit of wriggle room to negotiate in case of the unexpected.

This is the second article in The Prepaid Economy Series. Here is a link to the IntroductionThe next one will take a closer look at the importance of flexibility and negotiability – that wee bit of wriggle room, left for the unexpected.

Sampling uncertainty

This drawing was made by Jeroen Meijer of JAM visual design, Amsterdam, earlier this week during the workshop we held on Monday, November 26th, 2012.

Its a visualization of the chart I use to show how participants were sampled for the prepaid economy project. The axes represent the individual’s ability to accurately predict either timing or amount of their cash flow status, and thus, their ability to plan. By all rights, this should be on the Prepaid Economy blog where this topic has been an ongoing matter for discussion but I wanted to share the communication potential of this format.

Its also a way to segment the undifferentiated masses in the informal economy, where traditional means to segment a population demographic such as income level or education may not be relevant or skew results leading to misinterpretation. What if one could cluster by patterns of cash flow, and thus, consumer behaviour?