The promise of social franchising

You’ve been to a McDonald’s: each restaurant may be a little different, but every McDonald’s follows a similar recipe. There’s even a movie about the fast food franchise–evidence of our fascination with business model that holds the promise of fast growth (and eventual ubiquity!).

In a franchise operation, a network of enterprises is guided by a franchisor. Franchisees own their own business, but agree to be bound by the franchisor’s requirements, usually paying the central franchise office for the right to operate under their name as well as for inputs and supports needed to operate; in return, the franchisor shifts some investments and risks to its franchisees and, by growing its footprint, makes more money and builds its brand and knowledge base–making the franchise itself even more attractive to would-be franchisees. This self-reinforcing process lies behind the success of business format franchises like Subway.

The prospect of harnessing market forces and business principles to deliver social goods has drawn praise from many (this Forbes piece and this one from Entrepreneur are good examples of such enthusiasm). But for social goods to reach those who most need them in frontier markets, a pure profit model may not work. In healthcare and education, franchisors often must subsidize or otherwise offset costs at some point in the overall system. Should the subsidy come at the central level or through price subsidies for customers? The answer is, unsurprisingly, that it depends. And we still need to understand why some goods and services are more amenable to the franchising approach than others.

Reproductive health, as the work of Social Franchising for Health shows, has seen some notable successes. In primary health care, experience reveals that winning business models have not yet emerged. In education, several ambitious efforts are taking different paths. Across these examples, centralized support is combined with different approaches to local control and customization. We also see varied arrangements for offsetting costs that the patients or children that the franchises serve could not otherwise afford to cover.

Clearly, the role of the state is worth considering: if governments are already providing school education, a social franchise that provides better methods or curricula can reach scale by getting governments to adopt its approach. In healthcare, social insurance offers the prospect of subsidizing patient costs.

Cost subsidies and shared infrastructure aside, I’d argue that we also need to hone our analysis of franchise design in frontier markets to better understand exactly how a franchise can enable the trifecta of scale, quality, and financial sustainability.

To develop your analysis, a good starting point is the three-point test laid out by franchising guru Michael Seid when he visited our MIT class a few years ago:

  • ability to maintain brand standards at each location
  • ability to scale operations
  • ability to achieve economies of scale

By the way, Seid actually wrote the book on the topic (“Franchising for Dummies”); for more on the implications for social franchising, see his company’s site.

A second set of considerations is laid in a study by Dahlberg, a social sector consultancy, whose insights are summarized here and explored in an Innovations article. While it was completed a few years ago, the analysis still holds. For instance: there is no way for an unprofitable set of enterprises to become profitable by growing the network. Unit economics must first be feasible before a franchise makes sense. Most social entrepreneurs, the Dahlbeg experts suggested, are too impatient in seeking to get to scale too fast.

Against this backdrop, what are we to make of Aflatoun? The Amsterdam-based educational organization grew out of a program pioneered in India over the course of some ten years, but Aflatoun itself was founded in 2005, at which point the Indian program had reached 162,000 children in 1,100 schools. Within three years the organization exceeded its initial goals: pilot in 11 countries (Aflatoun had reached 20). It provides social and financial education to children, anchored in a set of children’s rights laid out by the United Nations.

In its first few years, Alfloun moved fast, refined its business model by adopting a hub-and-spoke model, launching a built-for-scale “train the trainer” program, and leveraging funding, relationships, and research to build a global knowledge base, set of partnerships, and manuals and materials that any organization or government could use for just $75 a year.

By 2010–five years after starting in one country–Aflatoun was in 41 countries. By 2014, its reach extended to 103 countries and 2 million children. At the start of 2017, it served 4.1 million children in 116 countries.

Is Aflatoun a franchise? Its central organization plays the role of a franchisor, in many ways, by establishing relationships, supporting the use and uptake of its methods and materials, and enforcing conformity with its non-negotiable core elements (see this 2016 case study).

Field research and industry experts tell us that before you even get to brand standards, operational scalability, and economies of scale, first the single unit must deliver services and products that its customers value at the price they pay. And unit performance must be measured accurately, consistently, and rapidly enough for the data to be useful to the unit’s management and to the franchisor.

If every franchisable operation must first work at the unit level before scaling, what are criteria did Aflatoun have to meet before scaling up?

Along the way, it has had to balance local customization and on-the-ground innovation on the one hand against central control and replicability on the other. Exploring these tradeoffs should help us all to understand how to design for scale and innovation.

SPRING ELECTIVE Effective Business Models in Frontier Markets

15.232 Effective Business Models in Frontier Markets

SPRING H1 20173253298189_1a2318c199_z

Students: Interested in innovating amid constraints?

Across Africa, Latin America, and Asia, a fascinating mix of established companies, start-ups, non-profit enterprises, and private-public collaborations are innovating in serving low-income customers. In 15.232, Effective Business Models in Frontier Markets, examples from a variety of sectors reveal what works, what doesn’t, and why, in the quest to reach scale, sustainability, quality, and social impact. We investigate ambitious startups and inspiring leading-edge organizations that have found new ways to deliver services and goods in frontier markets where customers have little to spend and business infrastructure is still developing. Such markets have often failed to deliver the healthcare, energy services, education, water, sanitation, consumer products, connectivity, entertainment, and income generation opportunities that people seek. What enables some enterprises, governments, and non-profits to meet these needs effectively?

Exploring this question will sharpen your ability to look at any new business idea from multiple perspectives. Operations, revenue, marketing, finance, and strategy all factor in to the business model perspective developed in this class.

Case examples anchor our analysis. We’ll draw lessons from pioneers who are bringing cost-effective, scalable, high-quality solar power services, eye surgery, software coding education, and HIV prevention to those who most need it. Far from the labs and corporate sites where others develop new technologies, these innovators are forging novel business models on the front lines. You will learn about new approaches to education, energy services, water, sanitation, healthcare and more through cases, projects, and discussions with thought leaders. Class topics draw on strategy, marketing, operations, systems thinking and other MBA tools and lenses. While some case examples address global health, others tackle different sectors, yet the insights they offer apply to many domains, as you will discover in a mini project of your own choosing.

Join us if you’re interested in applying business thinking about scale, sustainability, quality, and impact to one of the world’s most pressing problems: serving the people in greatest need.

More about the class: Student Advice

Former students came up with great reasons to take this class:

  • Spring H1-only (half semester, February to mid-March) class taught by MIT Sloan School of Management’s Anjali Sastry, an expert in global health, frontier markets, and System Dynamics who has worked in many of the settings we explore.
  • Not just for people interested in healthcare, but anyone interested in innovation and business models in low-resource settings–and in understanding and analyzing new business models anywhere.
  • The class offers a rare opportunity to integrate and contextualize what you learn in other classes, including action learning projects.
  • A wonderful line-up of guest speakers includes case protagonists, experts, investors, business innovators, and thought leaders. Past guests include tech entrepreneur/philanthropist Desh Deshpande, global industrialist Ratan Tata, corporate and venture capital investors, and top government leaders.
  • Follow your passion by selecting a cutting-edge organization to analyze for the class, then benefit from expert guests’ thoughtful feedback on your assessment.

Check out what past students had to say about this class.

More about the class: Official

15.232: Effective Business Models in Frontier Markets | 6 Units | H1: 7 Feb to 16 Mar 2017 | Tu Th 1-2:30 pm | E51-376

This MIT elective class examines how new approaches that link innovations in operations, revenue generation, marketing, finance, and strategy enable improved social outcomes in resource-limited settings across Africa, Latin America, and Asia. Uses perspectives from system dynamics, design thinking, and strategic analysis. Explores success and failure in attempts to innovate and scale in product and service delivery. Analysis of novel business models draws on case studies, videos, industry reports, research, and guest speakers. Students present their assessments of innovative base-of-the-pyramid enterprises that aim to do more with less.

MIT or cross-registered students who have not taken at least three management or business classes must apply to the instructor for permission to enroll before the first day of class.
See a complete archive of past version of this class (earlier focus on healthcare, now broadened): Business Model Innovation: Global Health in Frontier Markets.

photo source: https://www.flickr.com/photos/morganmorgan/3253298189/

Why won’t markets take care of global challenges?

Markets have delivered world-changing innovations across history. Consider the rise of the mobile phone or the acceleration of medical interventions in recent decades and the vast improvements they brought to many lives.

But there’s a down side. Highly scalable technologies can generate such large profits that they increase income disparity between those selling the technology and others (think of Silicon Valley gazillionaires). Or, they can shore up the power of specific actors to shape public decisions in their favor and as a result deliver less of a good or service (or unleash more harm) than the world would otherwise want. The overall result is a market that falls short of pareto-optimal. (This term defines a form or inefficiency: if the market fails to allocate scarce resources in a way that delivers the highest total social welfare, it is not pareto-optimal.) To better understand why profit alone may fail to deliver preferred outcomes, let’s consider specific ways in which markets fail.3281195599_020b6a7e7e_z

Market failure occurs in particular situations where costs and benefits of a given activity cannot be fully allocated to all participants by prices that markets would generate. The result is the over- or under-provision of services and goods. The system fails to produce outcomes that its participants would otherwise prefer. Markets fail when, left to their own devices, there is insufficient incentive to produce what economists would call the efficient, pareto-optimal solution.

Residents want street lighting, but no individual would pay for it, the cost of organizing a customized system to share costs and manage are too high, and companies cannot find business models that would make it efficient to provide street lighting for everyone. Absent a collective intervention, such as local government, street lighting would be undersupplied.

Public goods—vaccines, street lighting—are involved in one type of market failure. Pollution and congestion also create market failure. See this discussion of climate change as a market failure.

To better understand market failure, let’s map out three situations in which markets tend to fail.

First, if production entails increasing economies of scale, the winning firms can become monopolies that charge too much, thereby limiting consumption that would otherwise be beneficial, which explains why telephone services were heavily regulated much of the last century and some of the current debates about the consumer impacts of dominance of firms like Amazon.

Second, markets tend not to work for public commodities—the street lighting example, or national defense. Such cases involve commodities that are open to all (nonexcludable), where one person’s use doesn’t preclude another (called nonrivalry), and where no person can opt out of using the good (nonrejectability). For these common needs, the service or good is ripe for exploitation by free riders who would otherwise opt out of paying, and firms tend not to enter.

The third type of market failure happens when production or consumption has externalities. Negative externalities include pollution: the costs imposed by pollution are borne by many but the benefits accrue to the producer and the end user. Positive externalities include the case of home renovation (renovating your house increases the value of others in the neighborhood, but as the full benefit is not realized by the investor, people tend to underinvest in renovation). Source used in this paragraph.

If you want to explore this topic in more depth, economist Edward Morey offers a more detailed teaching note discussing market failure (he identifies six types of causes: common property, externalities, public commodities, excess market power, lack of markets, and distortions in capital markets).

Lack of information can drive market failure. Economists call this information asymmetry. Individuals who are unaware of the potential effects of poaching may hunt endangered species and impose greater costs on everyone than they would want to. In a sense this market failure means that rational decisions are not made because knowledge is lacking. If people were better educated about the impact of their actions on others and their environment, they might make different decisions. The reduction in smoking in the West over the past half-century is the result of correcting an information asymmetry.

And in other cases, a lack of markets (for instance, for the absence of markets for air or oceans) can mean that the effects on these things are excluded from consideration by communities and firms whose consumption decisions affect them.

Investment in innovation and research may also be subject to market failure because these activities cost more to a firm than it may be able to recoup from the market even though they deliver net benefits to society. Uncertainty–in the form of unpredictable returns to investment–also plays into this form of market failure. One antidote is industry consortia or collaboration to share costs and pool risks in developing new technologies.

 

Global challenges at the heart of NEXT Lab involve market failures. Markets alone cannot deliver the best solutions for reducing the pollution impacts of air travel, increasing the quality and accessibility of higher education, providing the new vaccines we need, or enabling healthcare information to flow across stakeholders with the right protections and ease.

But how can one organization make a difference when the usual business incentives fail to deliver a preferred outcome? To inspire your thinking, let’s look at one antidote to a market failure: The XPrize Foundation’s work on oceans.

The thinking behind the XPrize is that a well-designed prize—which includes not only money, but also guidance, support, and publicity—can incentivize change in cases where the market would otherwise fail. The XPrize Foundation has created three efforts to address unmet needs to improve our oceans:

  1. The Wendy Schmidt Oil Clean-Up XChallenge
  2. The Wendy Schmidt Ocean Health XPrize
  3. The Shell Ocean Discovery XPrize

As XPrize’s Dr. Jyotika Virmani explains,

They all fit within the overall vision we have to be on an unstoppable path to a Healthy, Valued, and Understood Ocean by 2020. We have a number of post-Prize activities underway, so we have impact stories as well. The Wendy Schmidt Ocean Health XPrizes were designed to provide the impetus for technological innovation that would not otherwise take place.

New physical technologies are needed to both map and clean up the oceans–but so too is the availability of useful data that can in turn spur other innovations. In November 2016 XPrize and its offshoot HeroX launched a related effort, the Big Ocean Button Challenge. As we are learning from the XPrize experience, designing the right sequence of prizes and challenges is key.

In general, the XPrize Foundation asks the following questions in pinpointing potential prize domains:

  • Is the market failure clearly defined?
  • Will successes and failures stretch the bounds of art, science or engineering?
  • Will the results spark a new industry?

In our first NEXT Lab class, we traced how one set of prizes did exactly this, thanks to our class guest, Dr. Virmani.

Then, in our six NEXT Lab projects, teach eam’s early research allowed them to develop their initial thinking about market failures in order to set the stage for your creative thinking about the potential for partner organizations to work with others to address the global challenge. In our final class, we return a full circle to the ideas behind the XPrize Foundation’s approach to consider what teams uncovered about the other ways that innovation might be supported in a given challenge domain. What might the next XPrize tackle?

photo source: https://www.flickr.com/photos/uw-eric/3281195599/

For my new class, NEXT Lab, we invited leaders to pose their crucial question about their world in 2025

New Executive Thinking on Global Challenges gives final-semester Executive MBAs an opportunity to shape the future. We have a fascinating set of projects and a class designed for our advanced MIT students to cultivate the essential leadership capability of managing in the present with an eye to tomorrow.untitled

In NEXT Lab, each faculty-mentored student team crafts answers to their partner organization’s focal question about a specific global challenge. Students learn about complex challenges by taking on a real-world project that calls for field research, team ideation, and interaction with a great bench of experts and seasoned faculty, all designed to inform a five-month dialog with corporate leaders. 100 person-years of experience may be represented in each team, offering students the opportunity to connect what they have learned about global leadership, analytics, operations management, system dynamics, innovation, and behavioral perspectives—and to put it to the test by building an effective collaboration. Students work from December to May, with guidance from NEXT Lab, to understand their partner organization, map out scenarios for 2025, and scout for new ideas using library and field research (including a week on the ground in March) to develop data-driven, creative, and practical ideas for immediate actions to enable a better future.

Building on our experience with hundreds of action learning projects across the world, NEXT Lab is planned to maximize learning and impact. It is designed for students with every interest and background who seek to change the world—and for partner organizations who aim to create a better future.

What I learned working with the US Military and others after the 2010 earthquake in Haiti

The earthquake that hit Haiti on 12 January 2010 unleashed almost unimaginable misery and chaos in the span of minutes. In the days and months that followed, many more suffered its grim repercussions. Along with the rest of the world, the United States was quick to respond, and soon the US military was leading the way. Within 48 hours of the earthquake, the US Southern Command had established Joint Task Force-Haiti, whose leadership team coordinated a vast and complex effort. For the next nineteen weeks, JTF-H led Operation Unified Response, our military’s longest and largest ever disaster relief effort on foreign shores. At its peak, 22,000 service members, 58 aircraft, and 23 ships were involved, along with a vast amount of supplies and equipment, not to mention support from many quarters.haiti_needs

Many were moved to contribute. Shortly after the earthquake, an MIT colleague emailed to ask if anyone would step in to help his defense-contractor contacts working with the response efforts.  Hoping to contribute in some small way to the response, I volunteered—my desire to help certainly outweighed my expertise. Before explaining how much I learned about working efficiently amid uncertainty and urgency, not to mention about the almost impossibly hard work of post-disaster efforts, I’ll set the stage by describing the collaboration, its goals, and its operational methods.

In early February 2010 my small MIT “away” team started its collaboration with military and humanitarian experts working with the Joint Task Force. We aimed to contribute to a larger effort from MIT Lincoln Laboratory, and soon were working directly with them, MIT humanitarian logistics experts, military personnel, and the Haitian arm of Boston-based non-profit Partners In Health.

Our team aimed to bring varied methods, ideas, connections, and research efforts to the practical challenges facing the humanitarian response in Haiti. In February, shortfalls in communications, electricity, fuel, food, water, and other inputs persisted across the shake zone and beyond. The responders’ efforts were stymied by these very constraints, yet without informed action they would fail to alleviate the problems. A key question was: how to collect and share real-time information on current needs, so that the JTF-H leaders and their colleagues could supply what was most needed? Over two million Haitians had been left without shelter. Many had no phones and there were few ways of knowing who was where. People moved from place to place as conditions changed.

Our collaboration lasted just three intense months, from February to April. It provided me with one of the most vivid learning experiences of my life. Imagining the potential cost of a misstep drove home the need for every action to be effective: what we did in a conference room in Cambridge, Massachusetts mattered, because there was no time to waste. Responding well to a large-scale disaster, I learned, poses the starkest of challenges—the situation changes constantly, stakes are high, and information is hard to come by. It’s obvious that the most crucial thing is to prioritize actions, yet the past and future must factor in at every step. To do right by the Haitian people, we needed to appreciate the pre-disaster situation and its historical context. We also needed to think ahead to what could follow the emergency response, knowing that every disaster relief operation has the potential to set the stage for subsequent recovery or instead to create new problems that would become evident only later. Combining it all in the right mix seemed, to me as a neophyte, a near-impossible task, and I quickly grew to appreciate that the people who can carry out this work warrant our gratitude and admiration. In those early weeks thousands worked heroically on the ground in Haiti.

Our MIT-based team gleaned all we could from phone calls (often rushed, interrupted, or garbled), video conferences, our own site visits to Port au Prince and environs, interviews of knowledgeable informants, and of course much research. We consulted a vast range of existing sources for information, talked to experts in disciplines from child nutrition to data mining, downloaded datasets, analyzed spreadsheets, and shared updates and work products on a private website. Our aim was to contribute to the evolving plans for collecting and making sense of the data most needed to serve the millions in need.

The specific results of the overall effort and the data collection project are documented in the US Army’s Center for Lessons Learned archives and in other reports, including a paper published later that year in Military Review, that present the team’s innovations in humanitarian assessment along with recommendations for future disaster response. We’ll focus here on a few things I learned as a team member: new disciplines and practices that could help in all kinds of project teams.

In those early post-earthquake weeks, with our loose team of on-the-ground military personnel, defense contractor experts, leaders of Haiti-based organizations, and personnel from multiple universities interacting around the clock every day, there were many emails. At the suggestion of the team’s mentor, who was an experienced military leader, there was one main daily email. Each email included a paragraph that reminded the team of two crucial elements: the goal of the overall mission, which had been dubbed Operation Unified Response, as well as the specific aims of our team. These were listed crisply using simple formatting: each key idea got its own brief line and was indented by tabs to indicate where it fit in the plan. It was a quick verbal and visual guide to what we were all focusing on. It even managed to telegraph the hierarchy of steps and results. The formatting was simple enough to work in any email reader, and the entire paragraph was short enough that it could be read quickly. The indentation drew attention to the causal logic behind the entire project: steps were shown clearly, then the phrase “so that…” flagged specific objectives. The language was brief, direct, and jargon-free.

This simple technique made our mission salient. In the early weeks, the part of the paragraph that presented the team’s goals and means-ends hypotheses was refined a few times as our focus developed. Because it was easy to find at any moment, and easy to read and remember, we could actually use it to check our work. Sometimes we would invoke it several times in a single day when discussing the task at hand. Were we focusing on something that would contribute to the goals? Were the results we were seeing in line with the cause-and-effect linkages laid out in the email footer? As one remote component of a large, fast-moving team, this method helped prevent wasted effort and enabled us to identify the most important findings to share with others.

A second technique facilitated this sharing. Every Monday evening, the Commanding General of Operation Unified Response was briefed. A short spotlight briefing would follow the main presentation, and our broader team would put these briefings together every week. The aim was to use the 20 minutes to maximize utility for Commanding General, or CG, who made daily and weekly decisions. So we followed a standard format that I imagine is common across military settings.

The cover lists date, status (“unclassified” in our case), title, and the names—usually at least a dozen—of the key team members and their affiliations. This would make follow-up easy. Page two was called the BLUF slide: Bottom Line Up Front. It would list in a few bullet points the conclusions that would provide the basis for the CG to make decisions. The rest of the presentation would explain and provide specific evidence for the BLUF points.

Rigor and logic were the watchword in preparing the briefing deck. If the goal was to inform the key decision-maker, every point would need to be supported with the strongest possible analysis that made the supporting data vivid, offered some basis for comparison or assessment (for instance, by mapping trends over time or comparing camps), and cogently accounted for limitations and open issues in the analysis. Graphs, schematics, photographs, and quotes were all used to back up the specific points, making for as well-rounded a presentation as possible.

Knowing that we needed to create actionable points for the BLUF slide gave the team focus for the entire week. We were all motivated to show week-by-week progress, for one thing. Second, discovering something that would not help the CG make decisions for the coming week was of no value. When we read books on the history of Haiti, dug into our datasets, or examined how to plan for latrines, this provided a sharp focus—no small feat for academics!

A second aspect of the BLUF page fascinated me. The rule was, our CG could call a stop to the presentation once that second page was shown. He could do so for any of three reasons: something more urgent demanded attention; the key points were already accepted (perhaps because they were obvious?) and there was no need to delve into the background then and there; or the points were sufficiently irrelevant or off base that it would be a waste of time to go further. Understanding that this was the norm provided further focus for our work. We didn’t want anything we did to be too obvious or irrelevant. We also appreciated that there could be times when the audience in the room had more important things to do, so the presentation could be cut short without sacrificing the punchline. Knowing that when the entire deck was shown it would be because the CG was choosing to spend the remaining 19 minutes to consider our work was also motivating. We all knew that time and attention were at a premium in all activities: the same principles should guide even the most formal and routine events. Cut anything that is not a good use of time, that does not contribute to the mission and the objectives. The consistency of applying these principles helped the entire team to feel motivated and focused throughout the loosely organized and often chaotic effort. It also supported our humility as part of something much larger.

Taken together, the briefings tell a story of the project. The team mined their experiences to draw lessons learned after the operation’s stand-down on 1 June. One way we did this was via an all-day multi-stakeholder after action review that took a no-holds-barred approach to identifying what we learned. Key insights were distilled in written reports. The insights are informing ongoing efforts to better prepare for the next disaster. And now I use the BLUF approach, the focused mission statement, and after action reviews whenever it makes sense.

 

photo source: http://humanitarian.mit.edu/projects/haiti-needs

To help a child with autism, avoid getting trapped in fruitless searches for cause or cure

If you know a child with autism, chances are you’ve grappled with questions about its cause and cure.
Maybe you looked for explanations for how autism hijacks a child’s development.
Or you could have sought treatments that would return a child to normalcy.
The sheer volume of news about the condition may lead you to think that medicine has answers. Like so many touched by autism, you may end up disappointed to find more questions than answers.
With scant knowledge of its cause, a cure is far away. But we do know more about its rise. This spring, a study by the United States Centers for Disease Control found that 1 in 88 children have an autism spectrum disorder—the rate doubled in under a decade! Experts are debating key questions: are we just more willing to diagnose? Or has the number of kids with the condition actually increased?
These issues make headlines, but they’re not what matter most to families and friends of someone diagnosed with autism. Yes, the CDC findings might help you feel less alone in facing challenges. More broadly, knowing the numbers affected may help advocate for needed resources. Yet when it comes to figuring out what to do when a child is diagnosed, we need more immediately practical advice.

So here’s some advice you can put to use right away, whether you’re a parent or want to help one. (more…)