Categorizing Market-based Solutions by Financial Flow

Monitor Group provides a compelling list and analysis of market based solutions (MBS) in their report, “Emerging Markets, Emerging Models”. The report outlines two main challenges faced by today’s policymakers: categorizing MBS and measuring subsequent impact. My process graph below visualizes a new analytical model categorizing different types of MBS.

I’m evaluating the degree of financial integration that business models of various social innovations have with the marginalized community they serve. A business model that fits more categories engages more social forces. For example, an MBS that engages with two marginalized groups as producers and consumers does a better job of integrating with both, than an MBS simply involving one group as consumers.

Different types of market-based solutions:

  1. An MBS that offers a product or service treating marginalized groups as consumers. The organization implementing the MBS sells goods or services to the group in exchange for proceeds. The marginalized group benefits because it gains access to a product or service from which it was previously excluded, or because it is supplied goods or services at a lower cost.
  2. An MBS selling goods produced by a marginalized group, without hiring members of the group as employees, is merely engaging them as producers.
  3. The marginalized group works independently and could choose to interact directly with the market without the MBS. The MBS entity often acts as an agent, linking the producers to a larger market. The marginalized group usually benefits from secured access to the market. The MBS entity gains cost advantage by utilizing excess capacity such as land, labor or local expertise from its producers.
  4. An organization’s MBS mandates it to employ members of a marginalized group. The marginalized group therefore participates in the market as workers in the MBS. The organization employing the MBS thus creates employment opportunities and sources of income for the group in exchange for loyal employees (and potentially good PR) by contributing to a social cause.
  5. If an MBS entity makes a marginalized group beneficiary of the entity’s profits, the MBS usually falls between a social enterprise and an NGO. The marginalized group gets access to free resources without going through the market exchange process. The MBS entity would gain good PR simply for “doing good”.

This model also opens door for benchmarking between two MBS entities that fall in the same category. For instance, if two MBS employ two marginalized groups, we could compare the two entities’ employee expense to gross margin ratio. In this way, one can clearly see what percentage of the entities’ gross margins are being paid out to marginalized groups.

Another example would be if two MBS entities were selling products to two different marginalized groups. We could compare the price discounts of their products and multiply that by their sales volumes to reach a conclusion on which entity has a deeper discount or a larger scale.

It appears that there is a correlation between MBS driven community-market integration and increased impact and sustainability. As I continue my research, I will collect more cases to test this categorization model.

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