In mid-may Bill Drayton of Ashoka visited the World Bank to present his thinking on Hybrid Value Chains (HVC). In a recent article published in the Harvard Business Review, Drayton and Ashoka-colleague Valeria Budinich warned that “if you are not thinking about HVC collaboration, you’ll soon be guilty of strategy malpractice.” (Click here to view a recorded video of the event).
So what does Ashoka mean when they talk about HVC collaboration? The best way to illustrate is through an example.
In 2004, tackling the dismal living conditions in the slums of Gujarat, India, social entrepreneur Joshi Rajendra founded SAATH, an organization that has developed an innovative and integrative approach to development, and is focused on equipping residents of poor urban settlements to become willing customers of basic services and access schemes. The program was rooted in the belief that the poor would be willing to pay for services if the prices were affordable.
In the first electrification pilot in Ahmedabad, each of the 1,000 participating households paid Rs 2,000 (US$40) for connection charges, and complemented by Rs 6,000 (US$120) that USAID kicked in to demonstrate to the power company that the scheme would work. Eventually, the company saw that this was a profit making endeavor; by taking advantage of these economies of scale, it could lower prices and increase profit. So it slashed prices by 25 percent of the cost and made hook-up fees payable in three installments. As a result, revenues shot up 30 to 40 percent with 200,000 households paying for services.
Why Hybrid Value Chains work
Drayton labels the inability to provide the poor with electricity, as a market failure that occurs when sectors (public or private) cannot provide populations with basic human services. “Most often this is because problems are tackled in isolation,” Drayton observed. .
A solution, Drayton asserts, can be found in what he calls a Hybrid Value Chain (HVC)—a process that capitalizes on the complementary strengths from a mix of sectors. An HVC is created when someone sees “an opportunity to take production and distribution systems that haven’t been talking to one another and puts them together to create a much more powerful ‘hybrid’ value chain.”
In the case of the electrification project in Ahmedabad, the HVC is illustrated in the collaboration between a social entrepreneur (Joshi Rajendra – an Ashoka Fellow), a donor (USAID), and a private utility company. By using donor funds to leverage the decision making power of the utility company, Rajendra demonstrated a cost effective way to provide access to electricity for thousands of slum dwellers, while also increasing profits.
Entrepreneurs: Dedicated to solving problems
Drayton describes the entrepreneur as a key actor, who by nature dedicates his life to introducing a product or process that begins to change the pattern in which we are accustomed to doing things. Ashoka screens and supports entrepreneurs who have introduced products or processes that generate social value on a significant scale. For example, Ashoka reports that over half of their 2,000+ fellows around the world have successfully advocated for policy change at the national level.
At the Bank, Development Marketplace grantees are making similar types of connections. In Cambodia, International Development Enterprises (IDE) responded to a paradigm shift in technical assistance delivery in agriculture. In the 1980s and 1990s, governments started eliminating extension services that traditionally helped farmers increase production by introducing new technologies or practices. IDE’s responded to the gap by training private Farm Business Agents (FBA) to provide extension services and sell inputs, such as seed, fertilizer or irrigation systems to farmers. As a result, agriculture production is increasing, farmers and FBA are generating additional revenue, and a new distribution channel for farming inputs has emerged.
Development Marketplace projects operate at a relatively small scale, so how can a large organization such as the Bank learn from these activities and operationalize new insights?
Supporting entrepreneurship: Where the World Bank can help
Drayton suggests that the World Bank could shine the light on more opportunities for creating HVCs by assembling short-lived global project teams of experts. These teams, in collaboration with others, could identify connections between partners with complementary strengths that can be leveraged to solve problems along the lines of Jimmy Carter’s work in Guinea Worm eradication, widely seen as a successful program that extirpated Guinea Worm from many African countries. Drayton suggests that by convening global teams to connect actors within different value chains, the Bank could participate in solving these problems in a way that eluded society before, forcing a pattern change that could then be replicated.
What do you think? Is the Bank already working effectively in HVC collaboration or is it committing “strategy malpractice?” Is this a new business line for the World Bank? Is this institution nimble enough to diverge from its traditional way of doing business and act more like a consulting firm?
The Bank has been using PPPI (Private Public Partnership for Infrastructure) for more than two decades in partnership with governments and is expanding the use of this instrument. In many countries these types of PPPs account for majority of infrastructure investment projects.
Is the PPP framework an example of a hybrid value chain? If so, then are these types of projects, identical/different to Bill's HVC concept?
Comment and let us know how the Bank can catalyze patterned change on a broad scale, whether it is through creating HVCs or other methods.