Inclusive business model approach: A methodology for implementation - Session 6
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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 introduces the IBM approach, which has been developed by FAO to support the design and implementation of interventions that strengthen market linkages between small-scale producers and buyers. The session describes the rationale behind the IBM approach and the four basic steps for implementing it: understanding the business model, identifying common upgrading priorities, developing a plan for upgrading, and measuring progress. © FAO: http://www.fao.org "
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Inclusive business model approach: A methodology for implementation - Session 6
- 1. Inclusive business models www.fao.org/economic/esa/ © FAO, 2017 Inclusive business model approach a methodology for implementation SESSION 6
- 2. Inclusive business models 2 The IBM approach Session 6 What are we going to talk about? • The difference between • an Inclusive Business Model approach • a Value Chain approach • Implementation steps
- 3. Inclusive business models 3 The IBM approach Session 6 Value Chains and Business Models weakest link Input supplier Producer Buyer Wholesaler Retailer Consumer Financial service providers Public institutions Logistics service providers (transport, storage) Enabling environment
- 4. Inclusive business models 4 The IBM approach Session 6 Input supplier Producer Buyer Wholesaler Retailer Consumer From an overall value-chain perspective The IBM approach looks close-up at the relationship between the farmer and the first buyer
- 5. Inclusive business models 5 The IBM approach Session 6 FAO’s IBM approach FAO’s field programme on agricultural value chains has resulted in a methodological framework to promote IBM.
- 6. Inclusive business models 6 The IBM approach Session 6 The thinking behind FAO’s IBM approach • Focus on key value-chain problems – Improve reliability of raw material supply – Build back from business - strengthen the buyer’s ability to do business with smallholders • Strengthen the people who make the economy grow – Business managers know their markets – SMAEs create value, buy products, generate jobs – Mainstream business thinking among small actors: producers, FOs, SMEs
- 7. Inclusive business models 7 The IBM approach Session 6 The IBM approach should lead to: Concrete Actions & Results
- 8. Inclusive business models 8 The IBM approach Session 6 IBM approach - Implementation steps Understand the business model - how actors are currently doing business Identify common upgrading priorities for buyers and producers Develop plan for upgrading business model including financial plan and implementation of activities Measure progress to identify areas for continuous improvement 1 2 3 4
- 9. Inclusive business models 9 The IBM approach Session 6 1. Understand current business model • Understand the product being offered to the market • FAO checklist of business model components and/or business model canvas • Other tools: SWOT, Ansoff matrix, Porters’ five forces
- 10. Inclusive business models 10 The IBM approach Session 6 2. Identify common upgrading priorities • What are priorities for buyers? • What are priorities for sellers? • What are priority areas of concern to both? • Ranking
- 11. Inclusive business models 11 The IBM approach Session 6 3. Design upgraded business model • For common upgrading priorities, what can be done to improve the situation? • What can be done by the buyers and sellers? • What support can you give as facilitator? • Plan: time schedule & budget
- 12. Inclusive business models 12 The IBM approach Session 6 4. Measure progress • Measure progress against business model description Important: iterative process. A business model is never finished, need always to adapt.
- 13. Inclusive business models 13 The IBM approach Session 6 Continuous improvement Appraise BMs Prioritize Win-Win Upgrade Measure
- 14. Inclusive business models 14 The IBM approach Session 6 Moving forward on inclusive business Integrating smallholders in markets should involve different linkage models Risk of over-dependence on single- market outlet, buyer and crop Appraising the quality of inclusion with a common set of indicators Designing projects that address short- term needs without undermining sustainability
- 15. Inclusive business models 15 The IBM approach Session 6 Other methodologies CIAT. LINK Methodology A participatory guide to business models that link smallholders to markets CTA. Guides for value chain development A comparative review GIZ. Guide to inclusive agribusiness GIZ. Value Links Manual The methodology of value chain promotion IBLF. A framework for practical action in inclusive business Oxfam and SFL. Think big go small Rabobank. Framework for an inclusive food strategy UNDP. Brokering inclusive business models
- 16. Inclusive business models 16 The IBM approach Session 6 Implementing the IBM approach
- 17. Inclusive business models 17 The IBM approach Session 6 Implementing the IBM approach – Group work • Four groups: one for each of the following cases: 1. Seller: … Buyer: …. Product: …. 2. Seller: … Buyer: …. Product: …. 3. Seller: … Buyer: …. Product: …. 4. Seller: … Buyer: …. Product: …. • Each group will work on this case for all the steps in the coming days
- 18. Inclusive business models 18 The IBM approach Session 6
- 19. Inclusive business models 19 The IBM approach Session 6 What is the offer to the market? • Start looking at the business from the perspective of the needs of the customer: 1. What are the products and services offered? 2. What is the value of the product/service for the customer? 3. What is the problem it solves?
- 20. Inclusive business models 20 The IBM approach Session 6 Example: Blue Skies case • What is the product offered to the market? • What is the value of the product/service for the customer? • What is the problem it solves?
- 21. Inclusive business models 21 The IBM approach Session 6 Example: Blue Skies case • Product: Natural fruit juices and fresh fruit ready for consumption. Differentiated product with standards of quality (guaranteed through certification schemes). • Value: Quality and taste of fresh fruits available any time. • Problem solved: No time is needed to peel, cut and mix fruits for fresh juices.
Hinweis der Redaktion
- This session introduces the IBM approach, which has been developed by FAO to support the design and implementation of interventions that strengthen market linkages between small-scale producers and buyers. The session describes the rationale behind the IBM approach and the four basic steps for its implementation: understanding the business model, identifying common upgrading priorities, developing a plan for upgrading and measuring progress. Outputs Participants will be able to: Understand the rationale of FAO’s IBM approach List the steps in the implementation of FAO’s inclusive business model approach Identify a business case for the implementation of the IBM approach
- The IBM approach complements value chain thinking, with a specific emphasis and lens on the producer to first buyer linkage in the chain. By focusing on the relationship between producers and their first buyer - often the weakest link in the chain affecting its overall performance -it is possible to improve the competitiveness of the whole chain. The IBM approach has adapted business tools to facilitate understanding on inter-business linkages and to identify context and commodity-specific solutions to local market obstacles. A cornerstone of the approach is to maintain focus on improving competitiveness through win-win solutions for the smallholder-to-buyer linkage rather than addressing the individual needs or concerns of either actor in isolation. The IBM approach is a methodology for designing and implementing interventions that improve small actors’ business models as well as the linkages between business models. The IBM approach is made up of four steps. The process is basic and flexible to allow for adaptation to local contexts, commodity characteristics, market structures and evolving progress and constraints.
- A value chain looks at all of the businesses and activities involved in getting a product to the consumer. It includes a wide number of moving parts (all actors, all channels, all environmental elements). A value chain is made up of various types of business models – depending on the business involved in the value chain. A different type of business model will characterize each step of the value chain depending on the business and how it does business upstream (sourcing its inputs) and downstream (marketing its products). Each actor in a value chain will have its own particular business model – the sum of which make up a value chain. The value chain approach (VCA) was introduced into agricultural development economics during mid 2000’s. The VCA promotes chain-wide competitiveness and improving collaboration and trust between actors. The first step under a VCA is usually an initial appraisal to reveal the dynamics of the relationships between actors along the chain. The appraisal will also identify constraints and opportunities that need to be invested in and addressed in order to improve competitiveness. With smallholder-based production, implementation of a value chain approach usually means investments and support provided at farm (on production practices) or close to farm-level (post-harvest/farmer organizations). It is rare to see public support adopt a ‘true value chain approach’ by addressing all constraints upstream and downstream; this is primarily because it is difficult to justify public expenditure for constraints that large companies face. In addition, in smallholder agriculture, it is most likely that the producer-first buyer point of sale will be the weakest point in the chain and in most need of support and investments. Strictly speaking however, a value chain approach should take into consideration all actors’ constraints in order to improve chain coordination and overall competitiveness. Otherwise the costs from inefficiencies due to downstream actors’ constraints can result in the losses being passed back to the weakest player: the smallholder. Under the conceptual framework of a value chain approach, FAO and many of its partners have been focusing on improving the chain’s weakest link, which are the business models that link small farmers and the next buyer in the chain including traders, processors, large buyers or farmer organizations.
- This slide reinforces the previous slide. If the message on the previous slide was understood and time is short, this slide can be skipped. The inclusive business model approach focuses on the relationship between producers and their first buyer which is often the weakest link in the chain affecting the overall performance in the chain. By understanding the dynamics of the producers with their first buyer is possible to enhance the competitiveness of the whole chain.
- If it was not mentioned before, explain how the IBM approach was pilot-tested between 2008-2012 during the EU-funded Agricultural Commodity Programme in sixteen countries in Africa. Also, the knowledge on the topic has increased during an Irish-funded project on up-scaling business models, which included workshops with development organizations, the public sector and private sector representatives. This training was developed as part of the project. The IBM approach has been developed under FAO’s value chain and market linkages programme. Its purpose is to support the design and implementation of interventions that improve the performance and growth of linkages between smallscale producers and buyers. The approach has adapted business tools to facilitate understanding on interbusiness linkages and to identify context- and commodity-specific solutions to local market obstacles. A cornerstone of the approach is to maintain focus on improving competitiveness through win-win solutions for the smallholder-to-buyer linkage rather than addressing the individual needs or concerns of either actor in isolation. The approach begins by carrying out an appraisal of the individual business model of a smallholder group and its respective buyer. The internal dynamics of each enterprise and how it is doing business with other value chain actors are appraised. Priorities for moving each business model forward are identified separately and then cross-checked against one another to identify upgrading priorities that are common to both. Interventions are designed and implemented that focus on common priorities or, in other words, “win-wins” for both actors.
- This is general guidance on the steps to implement FAO’s IBM approach The process is basic and flexible to allow for adaptation to local contexts, commodity characteristics, market structures and evolving progress and constraints.
- Supporting local business models begins with an appraisal of how target farmers and buyers are doing business. The appraisal looks first at the farmers’ groups to understand their organizational structure, members, resources, capacities, suppliers and buyers, commodity characteristics and marketable surpluses of members. The buyer’s business model is similarly appraised to understand their management structure, resources, capacities, product description, operational capacity, and clients.
- Common upgrading priorities are those action-areas common to both the seller and a buyer. To identify these, the business model descriptions of both the farmer group and the buyer are reviewed separately, and the respective priority areas are identified and ranked. The results of both rankings are then compared to identify priority areas that are common to both actors. For instance, in most cases price will rank highly on both actors priority areas, indicating that an action area is needed to address the problem. Priority areas will typically be grouped into reliability of supply, quality standards and price. Their ranking, however, will vary according to the nature of the commodity, such as staple or high-value cash crops and the different target markets, such as export traders, the tourist industry, hospitals, supermarkets and fresh markets.
- Once common priorities are identified activities and interventions to address them need to be designed and budgeted. This process can also be continued in a participatory workshop setting. The number and scope of the interventions will be highly dependent on the funding available.
- The business model descriptions provide an initial benchmark which can be used to record progress over time. They are, however, static while businesses themselves are dynamic. As such, an adapted version of a “workshop on identifying common upgrading priorities” can be reconvened every six months to understand whether the upgrading activities are actually contributing to an improvement in the business model relationship between smallholders and buyers. Examples of indicators to measure business model progress 1. Volumes traded between smallholders and target buyers 2. Smallholder return on investment from business model and net margin increase 3. Number of smallholders supplying produce through target groups 4. Number of informal and formal contracts 5. Number of repeat contracts 6. Number of additional buyers approaching smallholder groups 7. Number of additional market outlets available to buyers
- Work on IBM’s never ends. There is always room for improvement.
- One of the main foci of strengthening smallholder integration in value chains has been on strengthening farmer organizations. This has had mixed results depending on the local context and approach used. Smallholder market integration should not only be limited to this type of model however. More recently the role of contract farming in linking farmers to markets in a more inclusive way has been analyzed. Reference the FAO book on contract farming and inclusiveness and FAO web site on contract farming. Traders are also an important player and could potentially play a bigger role in strengthening smallholders. For instance, in Rwanda, traders are used by the government to provide training in the appropriate use of fertilizers. There is also the concern that linking to a reliable and well paying buyer can create dependency and livelihoods problems if the buyer decides later to pull out of the market or change supplier for whatever reason. It is good practice to design initiatives that can promote livelihoods diversification options rather than restrict it.
- Just as there are many definitions available for the IBM concept. Various organizations have developed a methodology to promote IBMs. While the next sessions will focus on FAO’s methodology, there are valuable tools from different methodologies.
- The next sections will go over the implementation of the IBM approach by putting the theory into action with an actual case from participants’ work.
- Ask participants to organize in groups and select a Business Model they wish to analyze in more detail. All participants in the group should be familiar with the general business model and actors included. Select cases from the current work participants are doing. Participants should analyze current situation (including problems) and not the ideal situation. It is important that groups get assigned a concrete business case that they know, in order to avoid participants analyzing whole sectors. It may be most useful for them to analyze a business case that they are actually working with. However, participants tend to want to present that case in better light than the actual situation may be for fear of being criticized for not having done a good job. Thus, when discussing with participants on the choice of the case to analyze, it should be made clear that the case should have a couple of problems; otherwise participants cannot learn from it. Even if only for a short period of time, it is beneficial to get participants to think about the case they are going to work on for the IBM approach implementation. In this way, it is possible to go straight to the details of each case during the next days. The exercise on the offer to the market is to get participants to start thinking in practical terms in the case. Consideration: In the modules on IBM implementation (6-9), the power point presentations include the Blue Skies case (used in section 5 IBM drivers). The objective is for the facilitator to provide practical guidance on what is expected with the implementation of each of the steps.
- The idea is to get participants thinking from the perspective of the final consumers. Why would they buy a product? What is the problem it solves or what is the value it offers?
- Ask participants to describe the offer to the market in the Blue Skies Case - or any other case the facilitator is familiar with and participants have already analyzed in the previous sessions. The objective is for participants to get a sense of what is expected when they analyze their actual case.