The ILO is working to unpack different business models geared towards decent work - and find out what does and doesn't work.
In recent years market systems programmes have sought to better capture their pro-poor impact – particularly on productivity, income and jobs. As a result, M&E guidance has improved, evidence maps have emerged and monitoring standards have been set.
But far less attention has been placed on measuring success from a private sector perspective. This, in many instances under a market systems approach, ultimately underpins prospects for long-lasting and widespread change.
Research commissioned in 2016 by the BEAM Exchange found that "the single most important condition for success is that the pilot intervention introduces and demonstrates a business innovation which is profitable for all private parties involved.”
In fact, the reason that almost half of the research sample failed to scale was "low profitability for partners or competitors."
In other words, the intervention benefits target groups, but the business model is not viable for commercially-minded market actors. Meaning it is highly unlikely to be sustained beyond the period of project support.
This echoes recent criticism of Base of the Pyramid (BoP) ventures more generally. Many of which have looked attractive in theory but proved less than palatable in practice and did not “support the profit opportunity half of the [shared value] hypothesis.”
The ILO Lab project is currently working to unpack different business models geared towards decent work; and in doing so, to gather experience of what works, what doesn’t and what needs to be done differently to achieve the promised ‘win-win’ market systems outcomes.
The work is guided by two specific research questions, exploring both market player and project perspectives:
- What are the shared features of successful business models – in how they are constructed, executed and measured?
- How should projects gear their support to maximise the chance that such models can be mainstreamed in the market system?
Based on our experience of supporting more than 25 market systems projects over the past four years, we believe that - in contrast to the ‘impact case’ - the ‘business case’ remains poorly understood for a variety of reasons.
Some of these relate to culture and mindset, with the world of private enterprise outside the comfort zone of many practitioners. While others are related to very practical considerations. These include the difficulty of obtaining data from companies, and the financial literacy skills required to interpret them.
Instead, many projects assume that sustainability is assured because the company is ‘making money’, without considering the many variables that underpin decision-making incentives in even the smallest businesses: from the cost of capital to cashflows, and break-even to balance sheets. This means projects can struggle to analyse and make an appropriate assessment of the business innovations they are promoting.
The Lab research consists of two parts. We are reviewing available case studies and published materials from various projects in public domain – like those from the Sida-funded ILO project, Road to Jobs in Afghanistan
The second will dive deep into a small sample of case studies, conducting key informant interviews with projects to gain insight into how business models are operating on-the-ground.
We plan to share findings in early 2019 - and would like to invite the BEAM community to contribute their own business model cases, experience and learning by getting in touch with us at email@example.com.
 Erik Simanis, ‘Bringing Bottom of the Pyramid into Business Focus’
 Definitions of a business model vary, but in broad terms it describes how a company creates and captures value (Harvard Business Review). For the research, we take it a business model to be a formal description of how an innovation (a product, service or practice) is delivered by a given company. Business models are of course a simplification of much more complex structures.