Design and Implementation

Design and implementation is the fourth phase of the value chain development project cycle, subsequent to value chain selection, value chain analysis and designing the competitiveness strategy. While is it useful to separate these phases for the purposes of discussion, in practice many of the techniques and skills used in selection, analysis and strategy development are continually applied during implementation. Further, while these stages of the project cycle are sequential, they are not linear: it is essential that analysis continues during the implementation phase, in order to guide modifications to the competitiveness strategy in response to changes in the market, the enabling environment or the chain itself.

The competitiveness strategy that informs project design is not just a plan for helping individual firms become more profitable, it is a road map for moving an industry toward higher, sustained rates of growth. It provides a vision of competitiveness and an upgrading plan for the industry that helps us understand what needs to be done to upgrade the industry, who the relevant stakeholders are and what each of them needs to do, and how the industry will attain the vision.

Many value chain development programs in the past have focused on alleviating specific constraints by introducing improved production technology, providing financial and business support services or improving the policy environment. The aim of the value chain approach articulated here is to facilitate actions that build capacity internal to the value chain to enable private-sector stakeholders to become and remain competitive without continued external support. To achieve this, value chain programs must draw on the vision of competitiveness to develop:

An industry pathway to guide interventions in support of this vision,
A knowledge management system to enable deviations from the pathway to inform ongoing and future interventions, and
A plan for scaling up impact and removing support prior to exiting.

Why Intervene

All interventions should flow from a project's goals and objectives, and for value chain projects the goal is increased competitiveness that benefits MSEs and the poor. The aim of a project intervention should therefore be to result in one or more of the following:

An increased number of actors building broader and deeper commercially grounded networks: Will the intervention encourage existing value chain actors and new entrants to establish effective relationships in the value chain, supporting markets and/or enabling environment?

Example: By assisting commercial agricultural input firms to test and roll out more appropriate business models for targeting the smallholder market a USAID project in Zambia^[1] was able to get 12 input firms to establish over 1,200 new relationships with rural smallholder communities resulting in smallholder investments of over $1 million in their farms in 2008.

Increased competition based on upgrading and innovation: Will the intervention increase the number of value chain or support market actors that are constantly upgrading?

Example: A project in India^[2] helped several supermarket chains to move beyond a price-only strategy for local sourcing of fresh produce. The new focus on product quality drove farm-level upgrading and encouraged investments in the production of specialty produce.

Improved credibility of and confidence in market mechanisms through transparent and reasonable benefit flows: Will the intervention increase the transparency and appropriateness of benefit flows to all contributing actors in the value chain and supporting markets?

Example: As grafting and pruning services began to generate demand among smallholder avocado growers in Kenya^[3], the industry realized that a self-accreditation program was necessary to set apart trained service providers who used only certified and labeled quality scions from more unscrupulous and untrained "quack" service providers. Accreditation guaranteed a set of minimum standards for service delivery, such as the commitment to provide an additional free grafting should the first service fail, thus ensuring that smallholder farmers benefited from the services they received.

Improved key end market factors that will increase competitiveness--in terms of product, operations and branding: Will the intervention improve the specific value chain products, operations and/or branding strategies required to increase the capacity of the industry to differentiate itself from its competitors?

Example: USAID interventions in the dairy sector in Pakistan^[4] ensured coordination among different segments of the industry so as to increase overall competitiveness. Farm-level upgrading that raised milk yields was timed to coincide with the establishment of a quality-controlled supply channel (cold chain) to facilitate a win-win relationship for the private sector firms and dairy farmers.

What to Do: Designing a Value Chain Development Program

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, poorly functioning 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 predictable 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 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 more effective relationships and constant upgrading.

Read about the program design process.

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 long run 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 cataclytic 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 ideintification of several actors, but all might not 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 is 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 an action or agent that stimulates performance improvements within an industry or system, but does not become 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 have to also 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 smart subsidies 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 breath 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.

Click here to read more about these principles together with project examples.