IBM concept and definitions - Session 2
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The background and guidelines for delivering these PowerPoint presentations can be found in the facilitator’s manual: http://www.fao.org/3/a-i7968e.pdf http://www.fao.org/economic/esa/ This session explains the IBM concept. Participants are asked to define the IBM concept by breaking it down into its two components: business models and inclusive. The presentation covers existing definitions by diverse organizations and the development and business rationale behind the concept. Lastly, participants are asked to agree on a definition that will guide the discussions throughout the training. © FAO: http://www.fao.org
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IBM concept and definitions - Session 2
- 1. Inclusive business models IBM concept and definitions SESSION 2 © FAO, 2017www.fao.org/economic/esa/
- 2. Inclusive business models 2 IBM concept and definitions Session 2 What are we going to talk about? What are we going to talk about? What are we going to talk about? What are we going to talk about? What are we going to talk about? • What do we mean by inclusive business models? • What types of organizations are working on inclusive business models? • What is the rationale for supporting IBMs?
- 3. Inclusive business models 3 IBM concept and definitions Session 2 What do you think is meant by: 1. Inclusive? 2. Business model?
- 4. Inclusive business models 4 IBM concept and definitions Session 2 A business model… implies how an enterprise… • …buys and sells goods and services and earns money (Rabobank) • …structures products, services, and information flows, and interacts with other actors (Johnson and Scholes) • …does business, markets its products and sources inputs and finance (FAO) • …creates, captures and delivers value
- 5. Inclusive business models 5 IBM concept and definitions Session 2 Inclusive can refer to… • vertical and horizontal linkages between different actors • accessibility for farmers with fewer assets, women and more vulnerable groups • trading practices according to needs of smallholders • fair distribution of benefits • shared decision making • common goals and responsibilities
- 6. Inclusive business models 6 IBM concept and definitions Session 2 What does inclusive business models mean?
- 7. Inclusive business models 7 IBM concept and definitions Session 2 Many organizations working on IBM
- 8. Inclusive business models 8 IBM concept and definitions Session 2 IBM definitions Businesses that integrate low-income groups into value chains - CIAT Models that build bridges between poor people and business community - UNDP Enterprises that adapt their buying practices, supply chain, marketing strategy and company operations for smallholder sourcing - Oxfam
- 9. Inclusive business models 9 IBM concept and definitions Session 2 IBM definitions (cont.) Entrepreneurial initiatives that are economically profitable and environmentally and socially responsible - SNV and WBCSD Profitable core business activities that also tangibly expand opportunities for the poor and disadvantaged in developing countries - BIF Mutually beneficial business partnerships - GIZ
- 10. Inclusive business models 10 IBM concept and definitions Session 2 Mutual benefits Market integration Underlying concepts in IBM Profitable
- 11. Inclusive business models 11 IBM concept and definitions Session 2 Why the business community should invest in inclusive business models Business rationale… Sourcing from smallholders is good business • Diversify suppliers • Local suppliers (reduce transportation cost) • Smallholders have comparative advantages ▫ No alternative sources of supply ▫ Access to agro-ecological knowledge and land ▫ Access to family labour and inputs • Corporate responsibility to invest in local development • Positive branding
- 12. Inclusive business models 12 IBM concept and definitions Session 2 Why the public sector will invest in inclusive business models Development rationale… • Provide the opportunity to increase smallholder income and improve food security • Contribute to local agro-industrial growth • Create solutions that are scalable • Involve local private sector in national development • Mainstream market-oriented production skills • Transfer know-how between private companies and small actors • Attract private investment in agriculture
- 13. Inclusive business models 13 IBM concept and definitions Session 2 What do you think is meant by: Inclusive business model? Do you want to add/remove anything to/from your key terms for ‘inclusive’ and ‘business model’?
Editor's Notes
- See Preparatory activities in Module 2 guidelines
- Item1 - Introduce the topic by asking participants in pairs to discuss for five minutes what they understand by the term “inclusive”. - Hand three cards (same colour) to each pair and ask them to write down on the cards key words or terms (not sentences) which for them defines the term. - Ask them to stick the cards on the sticky board provided. - When all pairs have finished, a resource person puts the same/similar key words into groups on the board. - Review the grouped key words on the boards for ‘inclusive’ to see if anything is missing. - Repeat the exercise for the term “business model” with a different sticky board.
- Review participants’ definition of “Business Model” from flipchart to check if anything from the slide is missing The definition includes any given enterprise, large or small, informal or formal A business model concept is very basic and generic. It refers to how a business views its customers’ needs and puts in place a strategy on how to respond to those needs.
- Review participant’s definition of “Inclusive” from flipchart to check if anything from the slide is missing
- Based on key concepts identified for “Inclusive” and “Business Model,” ask participants to come up with a definition of inclusive business models. Write down the main concepts in a flipchart
- Explain how there are many organizations working on the topic of IBM. In the past years FAO has been working with organizations in the top part of the slide on the developing a mutual understanding on IBM These organizations participated in a workshop organized in Rome 2013 and since then have worked with FAO to further develop the IBM concept and how to put in to practice. However there are many other organizations working on the topic including: development organizations, finance organizations, business practitioners, As there are many organizations each one with a different mission and working with diverse actors, there are many definitions of IBM.
- The objective of slides 8-9 is to provide an overview of available IBM definitions
- There is consensus throughout these definitions that IBM has not only an economic value but also a social value. The addition to ‘inclusive’ to the term ‘business model’ introduces a much more conceptual term that can mean different things to different people. Ultimately IBM implies both an economic and a social value with mutual benefits for poor farmers and the business community.
- Ultimately – the consensus among all organizations working on IBM is that: The business model integrates otherwise marginalized and poor smallholders into markets or value chains. The business model makes business sense to the buyer The buyer and the smallholders benefit economically with spillover benefits for local communities – extra income generated in the local economy; increase in need for farm/industry labour; more processed food products available locally Under a theory called ‘Bottom of the Pyramid’, IBM can also be interpreted as improving the access of the poor to products which they would otherwise be excluding from consuming – such as smaller individual, thereby cheaper, packaged products. This approach does not apply however to the Bottom of the Pyramid concept and relates solely to poor smallholders access to markets.
- There are many reasons why local and international businesses will source from smallholders – primarily the transaction needs to make good business sense to the buyer. For instance: -Sourcing from a number of different suppliers – large and small – ensures a reliable and steady supply of produce. Procuring locally makes sense logistically; it cuts transport costs and is good for highly perishable products – e.g. Cassava roots. Smallholders have a comparative advantage over other suppliers, which can include: They are currently the only producers of the product; They have access to the type of agro-ecological knowledge and land needed; They can use family labour which pushes down their costs relative to commercial farmers. It is nonetheless important that the cost of labour – based on local/national labour market prices- is nonetheless worked into the price of the product; otherwise there is the risk that the business model will not contribute to poverty reduction. They have access to subsidized inputs which contributes to lower production costs relative to other producers. It is important to emphasize however that the approach does not encourage the promotion of subsidized inputs – which should only be carried out in times of crisis or in close collaboration with the agro-dealers on a national scale. Otherwise there is the risk that local input markets and agro-dealer networks can be unduly undermined. Corporate responsibility. The managers and owners of local companies are also, at a personal level, concerned about local poverty and welcome opportunities to be able to practically contribute to improving the livelihoods of local poor people – if it makes sense for their business. Branding. Working with smallholders is also an opportunity to improve the brand of a company – particularly for international companies.
- Opportunity to increase smallholder income and improve food security – the main advantage is that the investment has more potential to be sustainable compared to other public investments to combat poverty and food security – such as provision of food-aid and seeds and tools. Contribute to local agro-industrial growth – if the investment is based on a sound business case and it contributes to improving the competitiveness of a national value chain the investment will thereby contribute to local agro-industry growth. Solutions that are scalable – investments will ideally have a wide outreach and will target the production of commodities which are currently or can in the future be produced by a large number of small farmers. Involve local private sector in national development – Public investment in smallholder business models also provides government with an opportunity to interface with the private sector and understand their concerns and constraints in the agro-industrial development. Mainstream market-oriented production skills – as well as investing in the organization of smallholder supply through farmer and trader organizations. It is also important to remember that traders also play an important role in the value chain and also need to be organized in order to improve value chain coordination between the upstream and downstream sides of the chain. Transfer of know-how between private companies and small actors Attract private investment into agriculture
- Allow some time e.g. 20 mins for questions and answers for the presenter. Go back to the same group of two/three and ask them to discuss if they would like to add/remove anything from the term ‘inclusive’ and ‘business model’ on the sticky board. Proposed definition: An inclusive business model integrates smallholders into markets with the underlying principle that there are mutual benefits for poor farmers and the business community. For a business model to be considered inclusive, it ultimately needs to result in moving smallholders out of poverty and improving food security.