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Apr162015

Inclusive business & managing unintended consequences

This month Tufts' Fletcher School hosted a two-day conference, Inclusion Inc., to test the idea that “the only competitive business is an inclusive business.” In this summary written by the senior associate dean of the school, Bhaskar Chakravorti, we learn that inclusive business models and strategies can have unintended consequences. According to Chakravorti, these include:

  • Pressures of public market expectations: The first unintended consequence of inclusive business has its origins in an organizational contradiction: key stakeholders – shareholders, market analysts, and even line managers whose compensation is tied to quarterly targets and stock performance – may not support a corporate decision to be inclusive.
  • Stresses along the supply chain: It is easy to imagine the pressures placed on suppliers as inclusive businesses push into market segments where the margins are thin and volumes are large. The challenge is particularly acute in the emerging markets where value chains are incomplete and the supporting infrastructure and institutions are under-developed.
  • Distortions in production: As an inclusive business creates incentives for local communities to join the value chain, resource are re-prioritized to align with commercial demands.
  • Distortions in consumption: Many of the original critiques of the movement to serve the “bottom of the pyramid” consumer made the observation that the poor will spend their limited budgets on the products that are most successful in reaching them. It begs the question at to whether more readily available products have displaced essentials from the consumption basket.
  • Challenges in scaling-up frugal innovation: Many inclusive businesses get a jumpstart through improvisation and assembling of locally available resources – often described as frugal, MacGyver – after the endlessly inventive 80s TV hero – or, in India, “jugaad” innovation. These innovations capture the imagination, attract media coverage, and, most importantly, attract resources. Unfortunately, the vast majority of such ideas have had difficulty deploying at a large scale.

We appreciate the concluding suggestion that before taking the "pill" of an inclusive business model, "it is advisable to read the label on the side-effects first and manage them before taking the pill and enjoying its many benefits." Certainly, any new ventures will bring some unexpected results and generate lessons to be learned -- but trying to understand the "side effects" in advance should improve the chances for success in the long term.

Image source: Fletcher School of Law and Diplomacy

-- Clara Shen

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