Since its launch in June 2000, the Shell Foundation has been pursuing a structured journey to learn how market forces can be harnessed to get affordable products and services to poor people, and which interventions and what kind of agents are most effective at catalysing the emergence and growth of pro-poor enterprise – especially SMEs.
We’ve also explored how best to take advantage of the corporate environment we operate in so as to advance our charitable objectives and have observed carefully under what conditions and through what mechanisms large companies can most effectively contribute to development in general and pro-poor enterprise growth in particular.
At the outset of our journey we acted much like a traditional foundation. We consulted widely, publicised our areas of interest and then sifted through countless proposals submitted by professional NGOs and non-profit organisations. We used rigorous selection criteria to decide between proposals and wound up using our grant money to support a large number of relatively small, one-off projects scattered across many countries.
Most early projects were competently completed by our grantees. But for reasons explained below, we now judge many of these to have ‘failed’
because they did not leave behind initiatives capable of surviving or going to scale without our ongoing support or that of other donors.
Largely in response to that experience, we have been deliberately evolving to something more akin to a ‘social merchant bank’. In essence, this means we work with strategic partners and jointly deploy our money, project development and financial engineering skills and networks to launch what we hope will ultimately become scalable, financially viable enterprise – and market-based initiatives that deliver measurable financial and social (propoor and pro-environment) returns. (see annex 1)
There is still more to learn. But over time our approach has begun to bed down and has started to generate interesting insights and some encouraging results. And it is this accumulated experience that provides the empirical grounding for the four aspects of the Shell Foundation ‘approach’ we describe below and illustrate with examples in Section 3.
Financial viability When we consider providing support to a propoor enterprise either directly or indirectly through some form of intervention or initiative, our experience23 leads us to look first at how the issue of financial viability is treated by other finance, by those running the implementing of the intervention and by the enterprise themselves. If financial viability is not given primacy in their plans and actions, we do not offer support.
The reasoning is simple. Achieving financial viability is not just about ‘making a profit’. Many things happen as pro-poor enterprises become financially viable. First, they rely less and less on relatively scarce aid money, which is a good thing.
Second, achieving financial viability usually means they can start to grow, thus employing more poor people directly or through their suppliers. Third, through the ongoing process of innovation and problem-solving that accompanies growing financial viability, they are able to provide more of their customers – poor people – with more appropriate and more affordable goods and services.
Our experience is that the best way we, as a donor, can help this process of poverty reduction is by ensuring our support is provided on terms that help and require the target enterprises to become ever more innovative, efficient and profitable at what they do as a business.
Going to scale with local capital and local capacities We next look at the interventions proposed to us (financing schemes, training programmes, enterprise incubators, market development projects) and assess whether they are designed to ‘go to scale’ (via growth or replication) using local capital and local capacities.
Again, the reasons are straightforward. There will never be enough aid to provide the support required to the millions of pro-poor enterprises that need it. So the reach and scaleability of any aid or donor-funded interventions will always be severely limited compared with need.
Moreover, foreign grant money – however well intentioned – almost always comes bundled with other things – distant knowledge, foreign skills, other agendas – whose presence for too long can ‘inhibit’ learning opportunities for the enterprises and local support institutions in ways that increase risk and inhibit growth.
Foreign support can play a vital seed-capital role – and indeed is doing so in the current wave of propoor private equity funds and ‘blended value’
investment vehicles focused on providing financial support for a scattered portfolio of social entrepreneurs.
However, what we look for are pro-poor enterprise or pro-poor consumer interventions that are designed to be taken up as quickly as possible by local suppliers – of capital and skills – and whose income stream has the potential to become less and less dependent on grant funding. Essentially, we set out to use our funding and other assets to ‘buy down’ the risks associated with the engagement of local capital and capacity in local enterprise development.
Transferring business DNA We have found that if our interventions are to successfully feature viability and scaleability, then our partners need to be adept at applying business thinking and business principles to how they operate and to the interventions they propose.
What we have in mind here is the deployment by our partners of the same set of skills and entrepreneurial instincts – what we call ‘business DNA’ – that business people everywhere use to identify and assess business opportunities and then overcome the problems that must be solved en route to setting up and operating an enterprise.
These include understanding the market and knowing who your customer is, what they want and will pay for. It also means assessing and dealing with risk, instinctively seeking to keep costs down and ensuring the security and quality of input and final product supply and distribution.
Our experience suggests that the presence of business DNA in our partners usually means they will be particularly enterprising as they search for solutions. And as a consequence, they are best able to convert our support as a donor into large numbers of pro-poor enterprises able to survive and grow after the subsidy stops.
Obviously more than just business DNA is needed to cope with the complexities of running an enterprise in the context of poverty. Indeed, the ideal is where best practice from the poverty and business worlds can be integrated. And of course, there are IDC with no business record who have been able to engineer successful pro-poor enterprise interventions that also deliver valuable social benefits.
But our experience is that most actors from the non-profit or the public sector do not take easily to the business way of tackling problems – even if they ‘talk the talk’ of business. This is not a criticism or anybody’s fault. It is simply a recognition that either by virtue of education, experience or inclination, many civil society actors (at all levels in the IDC and including policy makers and policy advisers in developing countries)
do not have business DNA in their make-up. They are, in effect, commercially illiterate. And, in our opinion, these characteristics greatly reduce their ability to develop successful business – and marketoriented solutions to poverty. Indeed, the widespread lack of business DNA and real commercial experience in the international development supply chain arguably reduces the ability of the IDC to solve many poverty problems.
And in our opinion the absence of this greatly reduces their ability to develop successful business – and market-oriented solutions to poverty. So in the case of our partners, and of course with their permission and full engagement, we put a good deal of effort into transferring businesses DNA into them via various routes set out in the case studies to follow.
Harnessing the valuecreating assets of MNCs Our core arguments so far – that enterprise and business DNA are keys to eradicating poverty and that a great deal more of both are needed – underpin the social benefits offered by the final element of our approach.
Simply put, our experience as a donor operating alongside a major multinational has convinced us that big companies possess a wide-ranging set of tangible and intangible ‘assets’ that can be of huge value in the fight against poverty, especially via an enterprise-focused attack. So we consciously and transparently seek to deploy these assets in support of our work and that of our external partners wherever we can.
The ‘assets’ we are referring to fall into three categories:
First and most fundamentally, established business is a vast repository of the generalised business DNA that is encapsulated in people, knowledge and techniques likely to be found in great profusion, especially in big business.
The second asset category falls under the heading of ‘convening power’. This is shorthand for the subtle and overt ways by which a company’s track record, reputation, brand, political reach and financial clout makes other people listen and respond to what the company has to say.
And the third category includes the company – and sector-specific physical and market knowledge-based assets that lie at the core of the unique processes of value creation and capture on which every company relies.
Usually, all these asset classes are fully and properly deployed in the interests of the business and its shareholders. And when business operates well in developing countries, this is a huge source of social value via jobs created, taxes paid, technology transferred, and so on. But typically these are not the assets MNCs offer, or are asked to use, in order to discharge their CSR or sustainable development commitments.
What our experience suggests is that deployment of these private value-creating assets via pro-poor enterprise interventions, could offer a huge but still unrealised contribution to the efforts of the IDC and poor countries to make poverty history.
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Shell Foundation
(Visit Shell's Website)
The Shell Foundation is established to
support efforts to achieve a balance
between economic growth, care for the
environment and equitable social
development - the goal of sustainable
development.
The Foundation's focus on sustainable
development is based upon the Shell
Group's belief that the long-term health
and prosperity of societies of which it is
part, and its own future, depends on the
ability of all stakeholders, worldwide, to
attain such balance.
However, as one of the most significant
international oil and energy groups, Shell
recognises the global dimension of many
sustainability issues related to its
activities. It believes it has a
responsibility and an opportunity to play
its part in addressing these issues.
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