From Corporate Social Responsibility to Business Model Innovation
Compassion,
enlightened self-interest and an innovative approach can make CSR
projects a viable part of your business operation.
CSR
teams face formidable internal competition when chasing capital
expenditure within their organisation, particularly when moving into
untested markets.
In
the vast majority of listed companies there is an overriding view
that private capital should be used to deliver maximum short-term
returns to shareholders rather than funding non-core products
offering long–term sustainability benefits. So how do you convince
the board your project is a legitimate, strategic and viable option
for the company?
In
many cases this is best achieved by finding a project that has direct
links to the firm’s core operations, with a business plan that
headquarters can relate to; one that feeds back into the company’s
normal growth matrix.
M-Pesa,
the world’s first large-scale mobile payment service, is a great
example of how good ideas can impact lives and be integrated back
into the core business.
M-Pesa
(M stands for mobile and Pesa is Swahili for money) is a joint
venture between mobile phone giant Vodafone and its Kenyan subsidiary
Safaricom. Initially aimed at helping the unbanked population of
Kenya receive and repay microfinance loans, the service was quickly
adopted as a means to transfer remittances and pay for services.
Within three years of its 2007 launch, it had 12.6 million registered
users and tens of millions of transactions - equating to 30 billion
Kenyan shillings (US$375 million) - every month. Today’s its
operations have extended to Afghanistan, South Africa, India and
Eastern Europe.
“There was a lot more we could do”
The
concept was born in 2004 when a study by Vodafone’s Corporate
Responsibility team confirmed what the United Nations had surmised
some years earlier; that information and communication technologies
were an important lever to improve social and economic conditions in
the world’s poorest countries. It was proof, according to team
leader Nick Hughes that “there was a lot more we could do” with
the first generation network; developments which could turn corporate
responsibility into real business opportunities.
His
initial proposal was turned down by the Vodafone board, which was
focused on the imminent launch of 3G.
But a couple of senior
executives saw the potential and Hughes, refusing to give up, sought
financial support from the UK Government’s Challenge Fund set up to
assist sustainability innovations. He was awarded £910,000 (US$1.45
million) conditional on Vodafone funding the remaining 50 percent.
When
Hughes presented the idea back to Vodafone’s CFO he took a
different approach. Rather than introducing the service as a separate
CSR initiative he was able to present benefits understood by a
traditional telco operator. M-PESA would increase Vodafone’s
“stickiness” with its existing client base and boost agent
loyalty. In other words he was able to show the proposal made good
business sense.
Letting
the business evolve
When
the pilot programme kicked off in 2005, 500 customers were enrolled
(with a free phone) and eight agents trained in buying and selling
air time. It soon became evident that the use of M-Pesa was not
confined to loan repayments. People were using their M-Pesa float to
send money to relatives and pay each other for goods and services.
Some used the account to hold money overnight. At the full commercial
launch in 2007 the micro-loan payment functionality was removed.
Customers were able to deposit or withdraw cash at M-Pesa outlets,
transfer money from person to person and send pre-paid airtime. The
aptly named communication campaign “Send Money Home” made no
reference to either a loans or banking service.
M-Pesa
soon became profitable. In addition, and even more importantly, it
contributed to a reduction in churn of Safaricom’s customer base.
The company has now gone beyond its payments service, forming
partnerships to provide a money transfer service between the UK and
Kenya; interest-bearing savings accounts; and point-of-sale
micro-crop insurance for Kenyan farmers.
5
Tips for successful CSR innovation
As
noted in my case study Vodafone
M-Pesa: Unusual Innovation – From a
Corporate Social Responsibility Project to Business Model Innovation,
co-authored with Olivier Furdelle, Executive-in-Residence at the
INSEAD Social Innovation Centre, M-Pesa was not the first mobile
money service launched in the world, but it was the most successful.
It’s interesting to look at why.
Firstly,
there
was tremendous need for their product. Internal remittances are huge
in Kenya, as in many African nations, and the population was looking
for a cheaper, safer, more efficient way of moving their money.
Secondly,
they had the market. Safaricom already had 80 percent share of the
country’s mobile phone market, in other words 80 percent of the
population could use their service.
Thirdly
they
understood the agent economics. Their business plan recognised the
need to incentivise agents who had the resources to buy and resell
airtime.
Number
four,
they
were flexible. When you bring something new onto the market you have
to be able to let it grow in different directions. It doesn’t
matter what people use your product for as long as they use it.
M-Pesa put the service out on the market and let it evolve.
And
finally
they
took a proactive stance addressing potential risks, working alongside
rather than fighting with local regulators.
Finding
a versatile
business
model
Vodafone’s
success was the result of a clearly defined objective and a strategy
which could adapt. When moving into an unfamiliar marketplace you
have to be prepared to adopt innovative business models and different
processes.
Working
under a CSR platform provides initiatives with a buffer against
normal business practices allowing exploration. However once the
business is established, real growth will only occur once it is
integrated back into the core business.
While
many firms engage in CSR for altruistic reasons, the highly
competitive business world requires that, when allocating resources
to socially responsible initiatives, companies consider their own
business needs. Hughes recognised the importance of both. M-Pesa,
while providing bottom-line benefits for Vodafone, was also able to
use innovative mobile phone technology and business models to tackle
development challenges in poorly resourced countries, transforming
the lives of millions of people and businesses.
Loïc Sadoulet, INSEAD Affiliate Professor of Economics at INSEAD
http://knowledge.insead.edu/strategy/from-corporate-social-responsibility-to-business-model-innovation-3704#4tGCVq05UYyTxdLa.99
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