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The business of
doing good

Supporting organisations to deliver on good intentions

Scaling in impact, not just in numbers

22/4/2015

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The world is littered with the burnt-out wrecks of well-meaning people who have tried to take a weak organisation to scale. When the foundations aren’t strong enough, problems are magnified, and a huge amount of energy must be wasted in sorting products that are not quite right or systems that fail to deliver. If you’ve ever built and scaled a business, you’d accuse us of stating the obvious here. But when we think about scaling organisations with a social purpose, it’s a lesson that needs to be re-examined within the context of delivering impact. Scaling impact is not simply delivering more products and services through more staff. It’s about understanding precisely what it is that we do to create social value, so that when we start chasing numbers, we don’t lose sight of what matters. The problem is: going to scale can generate its own organisational momentum and gravitational pull on our priorities. Case in point: we’ve seen countless poverty-focused organisations suffer mission drift, when staff start focusing on easier-to-reach (read: less poor) clients in response to cash bonuses that reward rapid growth in client numbers.

In microfinance (where we’ve worked for over 20 years), many people worked under the assumption that providing credit (and sometimes other financial services) was inherently a good thing. Access to small loans automatically created impact. If this was true, then the challenge of going to scale was simply one of sourcing more capital and building organisational systems to deliver more loans. Few recognised that when it comes to creating impact, it’s the details that matter. Credit (when delivered well) can make a real difference to people lacking capital for investment, or for coping with unexpected financial needs. Yet a loan that is too big to repay, or delivered too late to make a difference to a seasonal livelihood (such as a farmer’s) can create more hardship than good. And when organisations start to compete with each other for market share, and incentivise staff to loan more money rather than to understand and respond to clients' needs, the time and space needed to build a relationship with clients and find ways to add value are lost. When clients become mere numbers (rather than relationships), staff can become harsh and coercive, rather than supportive, if things go wrong for those clients.

We explore these issues in a new book that showcases AMK, a Cambodian microfinance organisation that achieved remarkable success. It grew to serve almost 400,000 clients in just 12 years, using a methodology that is effective in reaching people below the poverty line, and delivering the products and services that make a real difference in their lives. AMK is not only successful in creating impact, but also in delivering a surplus that allows for a 15-18 per cent return on equity for investors.

AMK’s success is not a case of blind luck. Rather than chasing numbers, AMK’s strategy was to invest in understanding and serving its clients. Staff performance incentives promote reaching the right people and serving them well. Growth isn’t the goal, it is a by-product of quality. A drive for quality, rather than growth, meant that AMK designed products and services that are (to this day) unique within the market place. For example, AMK offers its clients flexibility: flexibility that allows clients to draw down money when they need it (rather than paying interest on money they are not using) and flexibility in the loan terms that allows clients to repay in line with their volatile income and expenditure patterns.

This focus on clients is not just about getting the products and services right, but also managing what matters. And for AMK’s clients, this means ensuring quality and consistency of product delivery. AMK learned through its mistakes that core activities that are vital for impact cannot be taken for granted. When giving a loan, AMK recognises that a thorough assessment of client cash flow and repayment capacity is essential. To do this effectively, AMK field staff visit clients in their homes – to get a real sense of their lives and businesses. This process is time-consuming (and costly). However, at one stage staff were taking shortcuts by skipping these visits, and management turned a blind eye, as performance numbers were looking good. However as competition grew, and the economy slowed, some clients started struggling to repay their loans, and weak loan appraisal exacerbated the problem. In response, AMK brought in a zero-tolerance policy to ensure home visits were done.

The lesson here is this: when we talk about scaling impact, first we need to think first about what we do that creates impact, and then we need to think about how we scale those processes and maintain their quality (and of course learn, adjust and improve along the way). Too often we scale a ‘good product’ without recognising that to scale impact we need ‘good organisations’ too.

This article originally appeared on the Practitioner Hub for Inclusive Business blog.

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We Need Good Organiations, Not Just Good Products

5/3/2015

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What if your social enterprise provides a great product that helps lots of people, but also has some unintended negative consequences?

“From day one, I was in debt. Two years on – I’m still behind on my payments, and really struggling to find my feet with my finances.”  

This is what we heard when recently talking to a tenant of a housing association. Taking up a new tenancy had thrown him into unmanageable levels of debt – a direct and unintended consequence of one social enterprise’s failure to see the big picture. 

No one can dispute that the housing association delivers social value in its core product – low-cost homes for vulnerable people. But a housing association is also a business; in these days of austerity there’s financial pressure to keep properties filled, in order to avoid lost income.

The man we spoke to had been in private (furnished) rented accommodation; he was on the housing association waiting list; he was newly-married; he had just paid a month’s rent in advance. One day he received a call with the good news that a flat was available, and instructions to come to the housing association office the following day with a deposit to pick up the keys.

If he failed to do so, he was warned, the flat would be offered to the next person on the list. So with only one day’s notice, he paid the deposit for the new (unfurnished) flat and moved in.

With his limited funds, he first bought gas and electricity cards; he then borrowed money (at high interest) to purchase a bed, a fridge, and a cooker. So straight away, this vulnerable individual found himself in debt, all because of an organisation that was trying to help him improve his situation.

So why did this happen? These types of stories about unintended consequences are worryingly common. 

Social enterprises seek to create a positive impact on the people they serve and the wider world around them, by tackling the failures of the market (and the public sector) which overlook the needs of poor and excluded people. But in our work over the past 20 years, we see a surprising problem emerging. Organisations too often experience a gap between theory and practice – which either, at best, limits their effectiveness at delivering social value, or, at worst, actually puts their clients at risk. 

We all begin with good intentions – but good intentions simply aren’t enough. Fortunately, we have seen in practice that small changes to how these organisations work can lead to dramatic positive changes in their impact.

How difficult, for example, would it be for the housing association to recognise that it’s not simply delivering a product (in this case, a low-cost flat) that matters, and to consider how to support the person through that transition – to provide in this case a pool of white goods or furniture that could be rented or borrowed; to allow more time for a new tenant to move in? 

Our proposition is this: delivering on good intentions requires social enterprises to move beyond a focus on delivering good products, and instead build good organisations. Products that meet clients’ needs are important, but we also need to focus on the operations of how we deliver these, all the while learning from what works – and what doesn’t.

This is one insight in our recently published book, The Business of Doing Good, that explores the journey of AMK, a microfinance organisation serving over 370,000 clients – half of whom are below the poverty line –  through a network of branches reaching more than 80 percent of villages across Cambodia, making it the national market leader in outreach. 

Managing what matters Much like the housing association, AMK has good products that meet clients’ needs (in this case, small loans to help clients invest in farming or micro-enterprises). But its thinking about impact doesn’t end there.

It recognises that when it comes to translating good design into good outcomes, the devil is in the detail about how products are managed and delivered. In the product design phase, there are key elements built into a product to create benefits and protect clients from harm. But where staff don’t understand these elements, don’t see their value, or aren’t motivated or don’t have time to follow through on them, they will be overlooked in the name of simplicity or efficiency.

AMK once ran into problems with how staff dealt with loan appraisals – involving time-consuming process that includes a visit to the clients’ home. This is meant to give staff a window into clients’ lives, and be sure that the client isn’t taking on too much debt. But when staff caseloads went up, they started cutting corners on the home visit to serve ever-greater numbers of clients. A “zero tolerance policy” to missing home visits was quickly introduced, supported by the internal audit department.

Similarly, AMK recognised that reaching poorer clients in more far-flung rural areas is difficult – and while its incentives encourage field staff to achieve high client portfolios, it makes adjustments where staff work in more remote areas, where clients are harder to reach, and where they’ll be able to reach fewer of them as a result.

The end of “command and control” The final point about good intentions is this: we can achieve great product design, and avoid the “reality gaps” wrought by misaligned incentives, or poor quality control – but there’s always space to improve on the work we do.

While it might be nice to think that organisations can be run by pulling levers from the centre, and the lives of our customers or beneficiaries can be changed in a foreseeable, formulaic ways – the world is not ordered and predictable as we might like to think.

In addition to the “hard” side of building the organisational processes and systems to deliver value, the “soft” side of the organisational culture and how staff engage with the purpose of the organisation, reflect on what they are doing, contribute to learning and improving practice is also critical.

AMK learned this: where the reality that staff face on the ground is actually different to the theory enshrined in their training and manuals, this needs to be communicated up to top management, so that AMK can improve what it does. 

Building an organisational culture to engage staff in an organisation-wide conversation around what matters for clients is a key part of AMK’s success. Having your staff on your side in terms of their understanding of what you are trying to do, focusing on delivering your intent (and not just the letter of their job description) and learning and improving is key part of being effective.

Connecting with the bigger picture of their work (and actively contributing to the improvement of that work) is hugely motivational – especially when that work is difficult, as it so often is for organisations in the business of doing good.

The insights emerging from AMK’s experience demonstrate how a deeper understanding of “social value” can better harness the force of business for good. Delivering the right products matters: products that people want, and products that meet their needs.

But going beyond the product, we need to think about the systems and processes for delivery, and ensure our staff engage in thinking about where we may be doing harm or where small adjustments in our services (or how they are delivered) may enhance our impact. To us as organisations, those small changes might be “low-hanging fruit” – but to those we serve, they could make all the difference.

This blog post originally appeared on The Pioneers Post. Follow them on @pioneerspost.

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Building a Client-focused Business Model

20/6/2014

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"We will never be a leader in client service" a senior AMK manager told me. Indeed in the competitive Cambodian microfinance market many clients might choose another microfinance institution over AMK as its loan disbursement is slower and more time-consuming for clients and its loan sizes are smaller.  Coming from an organisation that is proudly client focused, this struck me as strange.

AMK, serving more than 360,000 people, is now the largest MFI in Cambodia in terms of outreach. How can an organisation that invests heavily in understanding and responding to the needs of its clients be less customer friendly than others? Answering this question gets to the heart of the approach of an organisation that has often taken the “road less travelled” in the way it does business. If fast loan disbursement (which clients might prefer, and which other MFIs are prepared to provide) means compromising the detailed loan appraisal process that ensures the success of a client’s investment and ensures they are not over-indebted, AMK is just not interested. AMK recognises the importance of matching loans to client capacity to repay, not just whether they have sufficient collateral to cover them in the event of a default. Central to the appraisal process is a visit to the client’s home which experience has shown is critical to get an accurate understanding of the client’s situation. This takes time, is hard work for staff, and involves some inconvenience for clients. Other MFIs have long abandoned this step, but AMK has made this a mandatory part of their lending process,  and implemented a “zero-tolerance” policy, with disciplinary action for client officers who neglect the visit, and checks as part of the internal audit process.

This example illustrates two of the founding principles of AMK. First, AMK tries to make data-driven decisions that are informed by detailed research and client feedback and not staff perception of what is best for clients or what they want. This led to some important product innovations such as a credit line loan that cut costs for clients by allowing them to draw down their loans when they need them, rather than paying interest on capital that is not being used. Second is a recognition of the risks created by taking on debt, and a responsibility to take every measure possible to protect clients from harm. This is reflected in products to help clients manage risk and cope with shocks such as emergency loans, micro-insurance, savings, as well as a recognition that when things go wrong for good client harassing them for repayment or seizing assets hurts the client and certainly does not build client loyalty. Instead AMK takes a ‘soft-collections’ approach that emphasises problem solving. In this way, AMK was a pioneer in establishing a set of client protection principles in 2005, long before this was an industry focus.

But AMK’s business model is not just about doing what is best for its clients. The third founding principle is a commitment to sound financial discipline at all levels. AMK seeks the “sweet spot” that balances client benefit and protection with commercial success. In a highly competitive market, an approach that seeks scale and financial viability for all products and services, has been at the heart of AMK’s rapid growth. Not only this, but AMK has consistently achieved a depth of poverty outreach unrivalled by most other institutions.

AMK set itself clear goals in terms of poverty outreach, and translated this into a growth strategy that targeted the most remote and rural areas of the country. This was challenging and costly, particularly in a country where it could take 6 hours to drive 150km, and field staff report sleeping in the forest overnight when rivers became impassable. But AMK built a business model to make this possible – products were tailored to fit client need leading to high levels of retention and low arrears; staff were asked to achieve high levels of productivity; costs were carefully managed.

Overall, what is notable about AMK is not the specific decisions it has made, but the way in which it has made these decisions. At the core has been an understanding of the poor, rural Cambodians it targets. Research and feedback from clients has driven the design of products and services, the choice of where to work, the staff training, induction and performance management systems, the information systems, the key performance indicators and board reporting. Mistakes have been made along the way – weaknesses in product design and staff short-cuts in key operational areas, but AMK has learnt from these and emerged a stronger organisation.

It has been a long journey. One that illustrates the choices and decisions that all businesses committed to building their commercial success on the success of their clients need to negotiate.

First published on the Business Innovation Facility Blog.

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    AuthorS

    Anton Simanowitz
    Katherine E. Knotts

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