Jan Joost Kessler on four ways to scale up responsible business models that are better for people and planet.
Kumasi Drinks in its own words wants to “squeeze cacao fruit not the farmer”.
It’s a business based in Amsterdam that aims to both increase demand for cocoa fruit juice and boost cocoa farmer incomes in Cote d’Ivoire and Ghana. Its business model is inclusive – engaging with cocoa communities and enhancing gender equality; responsible – increasing incomes for cocoa producers by 20-30%; and sustainable – creating additional value from the juice of cocoa beans, which was a waste product.
But where does Kumasi Drinks go from here? And how can NGOs such as Oxfam support businesses like Kumasi to expand and encourage many more businesses to emulate its model? In this blog, based on my recent study, I want to set out four scaling mechanisms that I recently shared at Oxfam Novib’s first Responsible Business Forum in The Hague, which can potentially change how business works to boost social and environmental impact.
1. Expansion
The first scaling mechanism is that of expansion or growth of inclusive, responsible and sustainable models within one business. This could imply expansion to other markets, sectors, other geographical areas, or to new products. In our study we find many examples of this type of scaling. For example, Kumasi Drinks started with 400 farmers in Ghana: they now aim to expand their business to Ivory Coast, and also expand by developing a new product. As a result, they should grow their turnover and expand the number of people who benefit. While this mechanism leads to more social and environmental impact, the scale tends to remain limited to niche markets. Capacity building and access to finance are also required to be able to expand.
2. Replication
The second scaling mechanism is when like-minded businesses replicate or adopt a whole responsible business model. This happens once the model has shown to be viable with positive social and / or environmental impact.
There are a few examples from our study. First, incentivised by supportive government policies, and inspired by examples of viable farmer producer organisations, thousands of new farmer organisations are being formed in India. Second, with the support of the Solidaridad organisation, a business model of supporting small tanneries with improved technologies to reduce water pollution is being replicated across countries. Third, in Kenya we see a strong growth in the number of women-led SMEs and several of these are becoming responsible businesses.
3. Adoption of new practices by conventional businesses
The third scaling mechanism is conventional businesses adopting inclusive, responsible and/or sustainable principles and practices. This can really help achieve impact at scale.
Kumasi Drinks has expanded and scaled up by collaborating with ‘conventional’ businesses. Lars Gierveld, the founder of Kumasi Drinks, says working with larger companies has mutual benefits: Kumasi Drinks can make use of bigger firms’ technical and marketing knowledge, while the companies benefit from marketing new products.
Lars mentions two important risks of conventional businesses adopting his product and the new business model that comes with it. First is the risk that the new product is used by the larger business for greenwashing. Second is the risk that, as producers now get extra income from the juice of the cocoa beans, cocoa buying companies may think there is no need to increase price they pay to farmers.
Both risks are mitigated by a monitoring system that constantly validates the impact for producers and which Kumasi Drinks has invested in from the outset, so it can demonstrate the value of its business model.
4. Encouraging new legal norms
The fourth scaling mechanism is that of promoting and creating a new legal norm that forces all players in the sector to become more inclusive, responsible or sustainable. This mechanism is quite different from the others as all companies have to comply with a norm enforced by law. This means even the worst performers will need to move, creating sector-wide social and environmental impact.
Kumasi Drinks is not yet pushing for a new norm but does want to promote a living income for all cocoa producers. Our study found a few examples of this scaling mechanism. For example, Tony’s Chocolonely and Fairphone both have explicit strategies to influence legal norms. Fairphone lobbies for stronger EU regulation on circular economy (such as modular design and longer-lasting software). Tony’s lobbied successfully with the Dutch government and European institutions for action on child labour, human rights due diligence and deforestation.
How do these scaling mechanisms change?
How do these scaling mechanisms contribute to real transformation, or “systems change’? We outline how the potential contribution of each mechanism increases as we move from mechanism 1 to 4, as indicated in the graphic below.
Why NGOs such as Oxfam need to focus on scaling
I believe the above four mechanisms can be a useful starting point for reflection on how to stimulate scaling as NGOs such as Oxfam look support to responsible business. Key measures to support this scaling will include: collecting reliable data to create an evidence base on the new business model; sharing successful models to enhance adoption by others; collaborating with ‘conventional’ businesses; building a validation system to avoid greenwashing; identifying the barriers to build the ‘new normal’; and working in networks to raise awareness and lobby for a change in legal norms.
During the Responsible Business Forum I heard many inspiring stories of responsible business models, of social entrepreneurs getting rid of profit as the main goal, of local impact being achieved. But I was also conscious that we need to move from such local impact towards transformation of markets and global impact, from ‘islands of success’ to ‘seas of change’.
Author
Read the full report by Jan Joost Kessler and Jan Willem Molenaar: Scaling of Inclusive, Responsible and Sustainable Business Models.