3.4. Design and Implementation

Introduction

The competitiveness strategy informs project design and implementation. The design should include a causal model that articulates how project interventions will facilitate implementation of the competitiveness strategy. To “facilitate” means to stimulate change in a market system without becoming part of the system. The goal of facilitation is to foster behavior that drives upgrading and that makes the value chain more competitive by capitalizing on firm-level incentives and by cultivating collective action.

What to Do: Designing a Value Chain Development Project

Address systemic constraints. The value chain approach seeks to address systemic constraints in order to enable an industry to exploit end market opportunities. This requires a project to not simply replicate interventions that improve transactions (between one firm and another), but to address related but distinct system problems such as the need for new services, standards, advocacy, formal and informal rules and skills development. Another way to look at the link between systemic and end-market opportunities is to consider why the value chain did not see or respond to clear threats or opportunities. Are there underlying drivers within the value chain that make responding too risky or perceived as unprofitable? A project’s responsibility is to catalyze responses to the defined threats and opportunities in such a way that firms and the industry are willing and able to test out potential solutions and learn the importance of responding.

Build flexibility into project design and implementation. There are many factors that contribute to the performance and success of firms and industries. Some of these factors can be estimated, but are difficult or expensive to quantify accurately, such as the costs of poor roads, long distances between markets, expensive and unreliable utilities and a poorly functioning public sector that results in many informal fees. Other factors—such as the dynamics within relationships—are even harder to quantify. Furthermore, competitiveness is not a fixed point; rather, it is an ongoing process in response to a constantly changing environment. For all of these reasons, flexibility in project design and implementation is critical to successful outcomes. When people relate to each other and learn through their interactions, they do so in a non-linear fashion, resulting in a chaotic path of failures, regroupings, and incremental jumps of learning and behavior change. The process of internalizing learning and turning it into new behaviors leading to improved performance is not easily predicted and can often go awry without guidance and gentle redirection from facilitators. Projects cannot and should not assume a simple and predictable progression during design and implementation, and need to build in flexibility to their designs and management systems if they want to achieve successful outcomes.

Facilitate win-win relationships. In many noncompetitive industries in developing countries, conflicting economic and social incentives result in conduct during commercial interactions that is primarily short-term and adversarial. Value chain development projects must find ways to foster a range of commercial and social relations that directly contribute to increased competitiveness without compromising the non-economic needs of MSEs and the poor. For more on transforming inter-firm relationships, click here.

Promote innovation and learning. Learning and innovation happen only when incentives are in place to encourage people and firms to invest in learning and to risk adopting innovations. Value chain projects should support individuals, firms and industries to innovate in order to constantly upgrade, which is essential to capture market share and to prevent it from being eroded over time.

Broaden and deepen benefits. Benefits accrue in terms of increased incomes and reduced risks. Value chain development projects should foster benefit flows for individuals, firms and industries that provide them with sufficient incentives to engage in relationships that are more effective and constant upgrading.

Who Should Do It: Catalysts and Leverage Points in the Value Chain

After understanding what needs to be done to overcome systemic constraints in a value chain, the next challenge is to identify the actors who will perform various activities. There are multiple actors engaged in a value chain, some internal and others external. Often, external actors (implementers and donors) drive the strategy and perform many of the functions in a value chain. This approach is unsustainable in the end since these external value chain actors do not have a stake in the process and will eventually exit. A core tenet of the value chain approach is that internal actors, that is, private-sector firms in the value chain, should drive the process and strategy of change.

Project designers and implementers, as external facilitators, should therefore identify market actors inside the value chain who have the incentives, skills and resources to drive upgrading throughout the chain that will result in the ability to exploit opportunities in the market. Private-sector firms with the right incentives can play a catalytic role in transforming relationships in the value chain. Analysis of leverage points in a value chain is one of the first steps towards identifying such catalytic firms that can spearhead value chain interventions.

Leverage points: Leverage is the process of targeting an intervention at points in a system that can generate broad change throughout the value chain by affecting multiple actors in the value chain, supporting markets and/or the enabling environment. It is important for project designers to assess these points to determine how to effectively foster change that results in increased competitiveness. Leverage points can be found within economic structures (such as product aggregation points), social structures (such as community elders), economic incentives (such as competitive pressure) and social incentives (such as community social norms).

Catalytic firms: Analysis of leverage points in the value chain may lead to the identification of several actors, but not all might be willing to collaborate with the facilitators. Despite the presence of incentives as well as capacity, it is possible that few firms will be interested in collaborating as a result of political objectives, socio-cultural factors or sheer inertia. The presence of incentives, skill, capacity and leverage, alone, is not sufficient to enable change. However, if a lead firm or firms are willing and able to operate as a value chain catalyst by investing and driving upgrading investments by other firms in the value chain, the immediate impact and demonstration effect can produce rapid change and innovation, leading to higher levels of industry performance. Read more about gaining leverage through lead firms.

How to Do It: Implementing Value Chain Development

Approaches to implementing value chain development programs can be divided into two types: direct intervention and facilitation.

• Direct intervention is the more traditional route for enterprise development projects. Either the development agency directly delivers the services that are required for MSE upgrading or they subsidize private-sector service providers to deliver the services. This direct intervention is often unsuccessful and unsustainable in the long run. The value chain approach recommends facilitation rather than direct intervention in response to value chain constraints.
• Facilitation can be defined as stimulating performance improvements within an industry or system, without becoming part of the system. While conceptually simple, facilitation is very difficult in practice because the aim is to catalyze ownership of a process of constant upgrading among the actors in the value chain. Facilitators need to have an in-depth understanding of the social and economic incentives of different actors in the value chain and a grasp of their level of motivation. Facilitators should also explore ways of creating incentives for market actors where incentives are not clearly present.

Project intensity: Facilitation in the value chain approach implies that project interventions should use minimal resources and take on a low public profile unless there are compelling reasons to be more heavy handed. Compelling reasons are defined by the level of resistance that value chain actors display with regard to taking on risks. There is no absolutely forbidden way of conducting an intervention, but the heavier-handed (or more intense) an intervention, the more probable that the intervention will result in a less competitive industry. This is the case because as projects take on key roles and responsibilities of an industry through heavier-handed and higher-profile interventions the need is reduced for actors in the value chain, support market and enabling environment to take on these roles or responsibilities. For this reason, when considering how to intervene facilitators also have to consider relationships and ownership.

Limited project relationships: Relationships that are critical to industry competitiveness are those between the local actors within the value chain and throughout the broader system (support markets and enabling environment). Facilitators should, to the extent possible, limit—in time and reliance—their relationships with value chain, support market or enabling environment actors. Clearly, it is difficult to achieve since any intervention designed to increase competitiveness requires the project to have interactions with a range of actors in the industry, support markets and enabling environment. The important issue is to understand why relationships have not formed. A facilitator should address these underlying constraints rather than focus on conducting the functions that flow through such relationships, such as service delivery, product and benefit flows and the transmission of knowledge. It should be noted that sustainability is unlikely if projects fulfill any key positions in the value chain or engage in relationships through which important value chain functions flow.

Smart subsidies: One of the principles of value chain development programs is the use of BI to promote sustainable solutions that will continue to accrue benefits to targeted sectors and MSEs after the project has ended. Instead of funding direct and unsustainable support to MSEs, smart subsidies are used strategically to build the capacity of market players to interact more productively among themselves. Such subsidies are used to fund the activities of facilitators. The activities of facilitators include such things as:

• developing the capacity of private-sector service providers to offer improved products and services to MSEs in a sustainable manner
• promoting awareness of these products and services among MSEs
• contributing to an improved enabling environment

Understanding knowledge flows: There is often an underlying assumption that the main constraint facing MSEs (including farmers) is a knowledge gap. There is no end to projects that push expensive training programs based upon this single solution assumption. Systemic thinking assumes multiple factors over time, suggesting that there is never a single knowledge gap, but incentives that have caused MSEs to undervalue proactive efforts to address constraints. Effective value chain development programs require a good understanding of knowledge flows in the value chain.

Recommended Good Practices

The design and implementation of value chain development programs is an art, and step-by-step guides and prescriptions are often insufficient. However, there are some common principles that, if applied judiciously, can improve the design and implementation of value chain programs:

• Focus on a long-term industry vision and maintain a systemic perspective.
• Engage multiple stakeholders, but clearly define roles in upgrading the value chain.
• Increase breadth and depth of benefits to value chain participants.
• Avoid redundancy with what is already being done by the private sector.
• Sequence interventions appropriately.
• Strive for adequate incentives and win-win relationships to ensure sustainability, and develop a clear exit strategy.
• Build flexibility into the program to respond to changing market conditions and project environments.
• Carefully assess resources and consider the scale of impact.
• Leverage resources from the private sector.