Business model innovationMarket-based approaches for sanitation services

Ullrike Messmer & Heiko Gebauer

Sandec & Environmental Social Sciences

EAWAG

Zurich, 12-09-2013

Diversion concept

„The poor“

“Victims and supplicants for aid” towards being “value conscious

consumers and resilient entrepreneurs”

Key objectives

1) Understanding the role of business model innovation for sanitation services

2) Presentation of the business model of Eoos/Eawag and X-runner

3) Current status of business model work among grantees

4) Discussion and further steps

Business model thinking providing business knowledge

KP

KA

KR

VP

DM

CR

CS

C R

KP – Key Partner, KA – Key Activities, KR – Key resources, VP – Value proposition, CR - customer relationship, DM – distribution & marketing, CS – customers, C – Cost structure, R - Revenues

Marketing

Supply chain management

Pricing

Business strategy

Leadership

Organizational change

Process management

…

Business models as the top of the iceberg of business

knowledgeBusiness models

Business knowledge

Key factors for doing business with the poor

• Affordability, accessibility, acceptance, and awareness (Anderson

and Markides, 2007)

• Pay-per-use, no frills service, paraskilling, distribution networks,

contract production & deep procurement (Karamchandani,

Kubzansky, and Frandano, 2009)

• Adapting products and processes, investing in removing constraints,

leveraging poor people’s strengths, combining capabilities and

resources with other organizations, engaging in policy dialogue with

governments (UNDP, 2010)

Examples of supply chain management at Waste concern in Bangladesh

Urban poor

- Waste production

Waste concernMapAgro & waste concern baraka agro products

Rural farmers

- Compost application

Non-profit approach

- Waste separation & collection

- Compost plant

Profit approach

- Demand creation- Marketing &

distribution- Enriching compost

Supply chain contract

- Visualizing supply chain management activities- Disaggregation of supply chain activities into material,

information, and financial flows- Contractual arrangements between supplier and buyers- Incentives for each supply chain actor and consistency

among the incentives

Example of pricing and financial flows at Sarvajal

0

500

1000

1500

2000

2500

3000

3500

4000

Installed water systems

2008 2010 2014 20162012

...

Sarvajal(Franchisor)

(5000 $ / 2600$)

Micro- entrepreneurs(Franchisees)500 $ (40% of

revenue)

Communities(Villages –

3’000)0.12 $ for 20

liters

1 : n 1 : m

BankMicro-credit

institute

Source: own interpretation and interviews. Based on Macomber and Sinha (2012)

Business model innovations drive market creation

Creating needs where markets exist Creating markets where needs exist

- Traditional (narrow) perspective concentrating on product and service innovations

- More open (holistic) perspective driving business model innovations

- Developing a cheap and affordable phone, distributing it to low-income people, and charging appropriate air time prices (pre-paid)

- Providing a micro-credit to village person for buying a phone

- Training village phone operators in entrepreneurship

- Renting out phone minutes (pay-as-you-use) to village people

+ Pre-paid services Village Phone Operator

Villagers

Grameen‘s phone ladies illustrate the power of business model innovations

There are four reasons why business model thinking is beneficial

1. Business model is a holistic concept, which integrates social- and profit-oriented motives into consistent, overarching strategic goals

2. Business model can create revenue structures that match the volatile cash-flows in the low-income segment

3. Business models can make markets more inclusive for the poor by clearly depicting different value creation options

4. Business model thinking considers organizations not as isolated actors, but rather as integrated into business eco-systems, in which actors integrate resources to create value

Combing traditional growth thinking and business model innovations

Market penetration

1 - Existence2 - Survival

3 - Success

4 - Scale-up

5 - Maturity

Market creation

Creating needs where markets exist

Creating markets where needs exist

Time

KP

KA

KR

VP

DM

CR

CS

C R

Business model innovation

Different degrees of scope in the pro-poor solutions can be scaled-up

Market penetration (Scale reached by pro-poor solutions)

Scope(Complexity and heterogeneity of needs addressed

by pro-poor solutions)

- Incremental BM- BM customization- BM replication

- Radical BM- BM diversification- BM customization- BM replication

FIRST ENERGYScaling-up

cooking stoves

Low High

DESIPOWEREnergy

solutions for villages

BM – Business model

Strategy canvases for business model visualization

Key resourcesWhat key resources are required?

Value proposition• What value do we

deliver to the customer?

• Which one of our customer problems are we helping to solve?

• What bundles of products and services are we offering to each customer segment?

• Which customer needs are we satisfying?

Key activities• What key activities

do our value proposition require?

Key partners• Who are our key

partners?• Who are our key

suppliers?• Which key resources

are we acquiring from our partners?

• Which key activities do suppliers and partners perform?

Customer relationships

• What relationship does each customer segment expect us to establish?

Revenue streams• For what value are customers really willing to pay?• For what do customers currently pay for?• How are they currently paying?• How would they prefer to pay?

Cost structure• What are the most important costs for our business

model?• Which key resources are most expensive?• Which key activities are most expensive?

Marketing• How do we reach our

customer segments (awareness, evaluation, purchasing, and using)

Key resources• What key resources

do our value proposition require?

Customers• For whom are we

creating value?

Source: Johnson et al. (2007)

Customer experience cycle for exploring customer needs

Customer experience cycle Utility layers

X-Runner‘s customer segmentation

Short summary

- Business model thinking providing business knowledge

- Various key factors (e.g., affordability, accessibility, acceptance, and awareness) need to be considered in doing business with the „poor“

- Business model innovations drive market creation

- Scale and scope needs to be considered for pro-poor solutions

- Combining traditional growth thinking and business model innovations leads to incremental and radical business model innovations, business model customization, diversification, and replication

- Business practices offer a broad range of tools to support business approaches for the poor

Key objectives

1) Understanding the role of business model innovation for sanitation services

2) Presentation of the business model of Eoos/Eawag and X-runner

3) Current status of business model work among grantees

4) Discussion and further steps

How did we get to the existing business model?1. Imagining actor relationships

2. Describing business model elements for actor relationships

3. Create morphological boxes with different options

4. Selection of consistent combination of options

Factor Specifications (Options)

Intended buyers Landlords Tenants “Rent a Toilet (Service)”

Responsibility of maintenance (not cleaning)

Only users User and service person

Only service persons

Depends on maintenance

activity

Removal & conveyance of fecal containers

Individuals (users)

Individuals & service

Only service

Frequency Twice a week Once a week

What is our existing business model?

Key resourcesWhat key resources are required?

Value proposition• Access to a clean

and comfortable toilet• Reliable and safe

emptying of the toilet and collection of separated feces and urine

• Affordable weekly fixed service fee (including toilet rent, emptying toilet, transportation costs, and maintaining the toilet)

• Retrofit

Key activities• Renting• Installing• Using• Maintaining• Collecting• Treatment• Selling end-products

Key partners• Local toilet

manufacturer• Ultrafiltration

membrane manufacturer

• Treatment equipment provider

• Local contractors• Local community• Mobile phone

operator

Customer relationships

• Twice a week visits by the collector

• Mobile payment of the service fees

Revenue streams• Service fee• Sales of end-products

Cost structure• Investment costs for toilets and RRPs• Operational costs for toilets, RRPs, and logistics

Marketing• Community events

Key resources• Logistic skills• Operational skills

(RRP)• Management skills

Customers• Families with five

persons including landlords and tenants

• Wholesalers for end-products

What is our existing business model?

Toilet part production

Toilet assembly Installation

Toilet

Operation

Collection/ Transport

Treatment Technology Production

Treatment Technology Installation

Operations Resource Recovery

End-product Sales & Distribution

Demand creation

Payment

How do we see the growth of the business model? (1)

How do we build the business plan?

What are key issues in the business model we are currently working on?

• Reduce break-even time

• Exploring more on the end-product market

• Reconsidering the logistic approach for the collection

• Working on different options for each step in the sanitation value chain

Cost, revenue & profit calculation

Resources

http://blog.business-model-innovation.com/

http://www.growinginclusivemarkets.org/

Hystra (2009), Access to energy for the base of the Pyramid. Research Report.

Hystra (2011), Access to safe water for the base of the pyramid. Research Report.

Karamchandani A., M. Kubzansky and P. Frandano (2009). Emerging Markets, Emerging Models: Market-based Solutions to the Challenges of Global Poverty. Cambridge, MA, Monitor 2009.

Karnani A. (2007), “The mirage of marketing to the bottom of the pyramid: How the private sector can help alleviate poverty”, California Management Review, 49 (4), 90-111.

London, T. and Hart, S.L (2010), Next Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value. Upper Saddle River, NJ: Financial Times Press.