By Sadruzzaman 'Tamam' Noor, CARE Bangladesh
In the following blog, Sadruzzaman Noor provides and interesting perspective of a practitioner at the forefront of learning and applying systems thinking. In the blog, a number of important challenges are raised. For example, many practitioners absorb new ideas like market systems thinking through experience. At the same time, learning something from experience can lead practitioners to perceive that there is a specific market systems approach. During the Symposium, many systems thinkers raised an important concern that ideally, international development practitioners should not focus on a market-systems-develop approach, but rather focus more on learning how to apply systems and complexity lenses to challenging market conditions and contexts. While there can be some tension between these points of view, it is increasingly clear that being able to both support field practitioners learn from experience and establish greater clarity around the theoretical underpinnings of the thinking is important.
The approaches being undertaken nowadays by the international donor bodies to improve lives of the general population in underdeveloped parts of the world differ significantly from approaches assumed a couple of decades ago. We have seen the emergence of systemic thinking and market systems development (MSD) approach that are quite distinct from the conventional aid schemes. We have predicted, observed and analyzed the merits of involving the market in pushing the agenda of enhancing living standards in the package of increasing inclusivity as a tool of sustainable business growth. This is mostly because we have learned to identify the root causes of market level failures that bars the flow of production and delivery of goods and services for all. As a result, and as a general solution, the market systems development professionals are putting up a great effort to increase the frequency and quality of interactions between providers and consumers through short term projects engaging the private sector anticipating behavioral changes at both tiers.
The market systems development programs (MSD) follow a number of facilitation guides that would help the managers to plan and communicate strategies to engage the private sector in achieving certain goals. However, as the vast majority of the aid workers working in this sector in developing countries are still graduating to this relatively new market systems approach and as the saying goes “unlearning is much more difficult than learning”, MSD project managers often face troubles in acquainting the team and other relevant stakeholders into the complex paradigm of systemic thinking. This article offers a summarized private sector engagement and facilitation approach to help project managers in this regard and trigger critical thinking within the team.
A good starting point is explaining how MSD works and why we need the private sector engagement to find solutions to most of the questions present at the market level. Let us start by trying to define these two in the following chapters.
2. Market Systems Development
Markets, just like any other system, are composed of several components such as actors (e.g. private companies, service providers, consumers), their relationships (e.g. transactional, partnerships), and the dynamics of the relationships (e.g. bargain power, influences). Apart from these, there are norms and perceived notions that dictate how these components function. Simply put, a ‘market’ is a thing that allows a range of actors to exchange values, in other words ‘problems and solutions’, which help these actors to survive and grow. The main role of markets is to provide the space to create opportunities for participation of buyers and sellers. The performance of a market is calculated from the quality and quantity of opportunities it creates and the proportion of the relevant population it invites to participate.
Markets move in the direction the actors chooses it to. Interestingly, when we observe markets, we identify two key issues:
a) Buyers and sellers do not efficiently foresee the outcomes of following certain directions in dysfunctional markets. This lack of foresight basically makes these markets low-performing.
b) Markets always rectify itself. Whenever there is a gap of certain product (a good or a service) in a well functional market someone usually steps up and fills it.
Now, these two issues may seem counterbalancing each other, and mostly it does. A low-performing market do have the need of policies, tactics and guidelines that may help it get better. This latent demand, once surfaced, can call out to entrepreneurs and authorities to adopt strategies and standards that can add value to the performance of the market. The only real issue to be addressed here is the speed of change. There are many actors who are extractive and do not see investing in growth to be profitable because no one else is doing it. This is where the MSD approach can offer it service to ‘accelerate’ the process.
Here is the thing, MSD professionals do not offer real solutions to real problems. Rather, they bring the actors together who might be interested in solving the problems. Hence, MSD approach tries to establish mechanisms that guide the market to become more resilient to internal and external threats by equipping them with systemic thinking patterns.
This is much easier said than done. One might wonder why extractive actors would listen to these external characters such as MSD professionals. This is exactly where the facilitation part comes.
3. Facilitating MSD Programs
An integral part of changing the direction of a market to make it more participatory and inclusive is to involve the private sector stakeholders who would be potentially benefited from such a change. Graduating businesses from having an extractive attitude to supporting growth and investing more on process innovations and product designing can lead towards increased traction. Moreover, we have seen many projects providing ready-made solutions to specific market level actors that brought immediate success, but died down as soon as the flow of donor money stopped. So, it is very important to ensure that the ownership of change lies with the agents of change, i.e. the market actors.
Putting things into perspective, even in high performing markets there is a very high (nearly 90%) rate of failure for start-ups. However, if the market system is designed in a way it provides cushion for entrepreneurs to get back on their feet and try again, the total number of trials will keep increasing. Markets learn from their failures, adjust tactics, and retry enriching the institutional memory of the sector in the process. This is exactly how the world got popular products like NetFlix, Facebook, Uber and AirBnB, simple trial and error. This is a continuous process that helps markets to get better in terms of becoming more participatory and creating more opportunities.
Naturally, businesses strategize on evidences and peer learning. Innovations can be expensive, and with the lack of the ‘cushion’ we discussed in the previous paragraph, it can bear high risk in low-performing. Merging these two concerns an MSD program assumes two important roles such as –
The Evidence Collector MSD programs should analyze the market by gathering and dissecting data. There has to be some potential for growth showing benefit for the actors to make any change. The duty of generating tailor made business cases incorporating inclusive growth lies with the MSD programs.
The Guarantor MSD programs should help market actors to see the benefits of trying out new things, learning from failures and adjusting tactics. We often see private sector actors, especially in stagnant economies, showing reluctance to invest in innovations. This is where an MSD program can add real value in sharing the risks and shaping the behavioral patterns of private sector actors to move towards inclusiveness.
By assuming these two roles, there are several ways an MSD program can shape its own guideline of market facilitation. I would like to share one variant of such a method in the following chapter I have been following to guide my teammates, most of whom have very recently been oriented in the MSD approach.
4. Private Sector Engagement Strategy
Shomoshti is an MSD program funded by SDC and implemented by CARE Bangladesh. It works across 6 agricultural subsectors in 4 geographic hard-to-reach regions with poor and disadvantaged population who are vulnerable against natural disasters. One of the key focuses of the project is to bring change in the market through efficient mobilization of the private sector enterprises.
There are certain roles Shomoshti has undertaken to improve the performance of the Bangladesh market working within the scope mentioned. The facilitation model adopted by the program has 3 parts that would benefit the private sector partners:
A. Incentive Identification
As discussed in last chapter, an MSD program needs to identify incentives, economic and social, for the private companies and so that a business case can be built on the opportunity. The potential growth of business from increased interactions should be projected as convincingly as possible to attract private investment in sustainably increasing inclusiveness. And to make it convincing, offering strong data augmented by logical analyses is imperative. Therefore, this is the most important mission for the project to gather and present market data that shows incentives.
B. Institutional Memory Creation
An MSD program works towards changing the behavior of market actors. To do this, the program needs to collect and manage evidence of impact per dollar. In doing so, the program tries to build the institutional memory of the actors and the market as a whole establishing the merit of the intervention idea. For example, packaging seeds at a lower cost targeting ultra-poor farmers has not been interesting for large agri-input companies in Bangladesh before a program shared the costs in launching such a project to try out the idea. It became an instant hit in bringing profit for the company as well as increasing poor farmers’ chance to generate more value from their crops. Nowadays, there are several initiatives taken by private agri-input companies in Bangladesh that target low-cost packing of inputs to penetrate the ultra-poor market segment. The market learned how to utilize its forces to adjust and respond to its own call. The MSD program would help the market in creating this institutional memory.
C. Ensuring ROI
Three most important factors related to scale and sustainability should be remembered while designing an MSD program. These are – Relationships, Ownership, and Intensity of investment. As the program assumes the role of a guarantor that is trying to help the private sector to learn the merit of “trying out new things”, these three guiding principles can help build effective interventions. We will briefly discuss this in the following paragraphs.
Since, an MSD program tries to find solution from within the market system, it is of utmost importance that the interventions work towards improving the relationships between the market actors with as light a touch as possible. For example, we often see traditional donor projects to intervene between the connection of vegetables farmers and collectors by imposing fixed and higher than market rates. This would only provide the farmers a relief for a short time by gaining higher price of their vegetables. However, this distortion would not sustain as the market forces defined by higher bargain power of the traders will push it back to the previous status as soon as the donor money dries. On the other hand, the program would have a better chance in gaining impact – higher prices for farmers – by strengthening the connection between the parties, facilitate exchanges of information, and finally letting the market work out the balance in the price.
The ownership of the intervention should stay with the change agent. Often MSD programs fail because they do not do a good job in transferring the ownership of change to the market actors. A really good analogy is that of the magic solution pill. Often programs try to find out the magic solution pill to a certain systemic constraint, package it with academic wisdom, and force a partner to implement it hoping for a positive success story to emerge out of it. However, since the private sector partner had not really own the idea, it seldom continues the effort even if profit is seen. A good way to ensure its true involvement is including it at the planning stage of the intervention and create avenues for it to invest. Reinforcing the actor’s relationship with relevant stakeholders as described in the previous paragraph also helps because it enables the private partner in assuming the role of a change agent.
Finally, an MSD program should avoid pouring down money to help push a certain solution. Often, this does not work in the long run. For example, there are programs that tried to help the dairy subsector of Bangladesh by partnering with private milk processing firms to establish milk-fat testing machine at village level collection points. Though initially it was successful in generating a boost in price for dairy farmers in the short term and helped them understand the benefits of target based production, e.g. feeding the cows with a target of increasing fat content in the milk. Point to be noted is that these testing machines are very expensive and though it would help the processors in the long run to ensure sourcing better quality milk it calls for a very high financial commitment. As a result, this solution proved to be too costly to be uptaken by private sector and ultimately was not scaled up. Learning from examples like this, an MSD program should always look for the sweet spots where the private partners’ required internal rates of return on investment match makes sense for the investment being committed by an MSD program.
There are many cases where we see programs to fail to achieve sustainable impact in spite of having an apparently fail-proof strategy. All of the initiatives mentioned in the previous chapter are from well-known programs vetted by experienced strategists, experts and donors. However, as the saying goes - “the devil is in the detail”, a program needs to be sound in deploying tactics. Introducing tactical thinking to the inexperienced team can lead to changes and bring real impact.
 This situation has its roots to another related issue called ‘profitability’. For example, even if profit is seen by catering to the ultra-poor market segment, a large national level agricultural input company in Bangladesh with limited supply of credit might calculate the ‘profit-per-dollar’, compare it with other options (such as investing further in the high value market), and get discouraged to continue.
 Fat content is very important for milk processors as generally water is stripped down for most of the processed milk based consumer products.
This post was reblogged from LinkedIn. View the original posting here
The MSDHub Blog Series is authored by respected implementers and donors of market systems projects globally.