Simon Maxwell, ODI: Harnessing the power of business for development impact: towards the fourth generation

[Business Fights Poverty]

Simon Maxwell, Senior Research Associate at the Overseas Development Institute, and Chair of the 2009 Event Series, "Harnessing the Power of Business for Development Impact", shares his reflections on the series. The Series was organised by the ODI, the UK Department for International Development, and Business Action for Africa. The final event in the series is on Tuesday 13 October (click here to register).

Download Simon's full paper here.

What have we learned as we come to the end of this very successful meeting series? And what’s next?

Speakers and participants have made an inspiring and convincing case that:

• There are strong synergies between business and development – in other words, that there are ways of doing business that benefit local communities and national economies, that are also good for business profitability and sustainability.
• Such benefits can be measured, using a mixture of quantitative and qualitative measures.
• Governments and donors have a role to play in kick-starting and incentivising best practice.

In addition, however, the meetings have shown that:

• Scaling up remains a major challenge.

And, to my mind:

• The debate could benefit from stronger connections to other development topics.

The evidence that there are strong synergies has come from the business community and organisations that support business, with endorsement from NGOs and Governments. Speakers have come from sectors as diverse as natural resource extraction, travel, retail, telecommunications, and finance, working in a variety of country contexts, including fragile states and conflict-affected environments. Most businesses represented have been international, although with strong links to local enterprises.

Can we, collectively, do more? As a thought experiment, I would suggest starting not with business and what it can or should do differently, but with development needs and how business can meet them. This leads me to suggest that business will be judged by how well it contributes to innovation and transformational change.

The first generation of business engagement in development mainly consisted of social investment under the heading of CSR, the second with the acknowledgement of minimum labour standards and other norms embodied in the UN Global Compact. The third generation has seen companies engage in new ways with supply chains especially, but also with customers and other stakeholders. The fourth generation will see the private sector helping to solve the next wave of development challenges: climate change, urbanisation, demographic change and the challenge of managing a new globalisation.

Post written for Business Fights Poverty by Simon Maxwell, Senior Research Associate at the Overseas Development Institute.

[Zahid Torres-Rahman]

Samantha - you make an interesting point. I had always thought of the two key strengths of a business approach to poverty reduction as being its scalability and sustainability. Your example suggests this is true, but that it is each business that provides sustainability, but that it may take many businesses to achieve scale. I suppose that is how most effective markets work to achieve a particular outcome. I'd be interested to hear from a donor on this, as I thing you are right about most donor initiatives expecting scale from a single business.

[Samantha Morshed]

With regard to your point about 'scaling up'. It seems to me that there is too much emphasis on scaling up. The great success of SME sectors in the developed world is in their diversity where every small business finds its own niche and USP. In so many ways the diversity offers strength to the sector in particular in terms of overall national risk mitigation. Yet when we talk about the developing world there is this obsession with scaling up something because it works in one way in one location.
In fact I think that our understanding of 'scaling up' is often incorrect - where we chose to interpret it in too simplistic a way. To give an example, I am the founder of Hathay Bunano, a social business in Bangladesh and we make hand knitted toys in rural production centres all over Bangladesh, for export to mainstream western markets. By every indicator it has been extremely successful. So should we 'scale up'? There is no benefit to teaching every rural woman in Bangladesh to knit and would be no market if we were to do this. In fact, we have created a concept of rural hand manufacture through the use of rural production centres. It is this concept that is good and strong and it is this concept that should be scaled up - rather than the business per se. Of course, the business will continue to grow and should continue to grow because it provides an example and inspiration of what can be achieved through business to reduce poverty in rural Bangladesh. But what we need to scale is the concept and to encourage diversity within the concept. For example, all types of handicrafts, jute products, hand made paper, leather products could benefit from applying our basic concept of rural hand manufacture through rural production centres. It is the concepts that we need to scale up and then create diversity within.
So why doesn't this happen - it's not so easy to create diversity within concepts - it requires separate thinking and innovation for each of those businesses it might generate. The donor model tends to be inflexible and prescriptive and scale up is seen as an easy and administratively light way forward. Creating scale through diversity within concepts would take more work, more innovation and more flexibility from donors.
To achieve successful scale up we need to be more flexible in our approach.