1. Business Model Innovation in the Water Sector Safe and affordable water services in the lowincome segment Heiko Gebauer Associate Professor Business Innovation Environmental Social Sciences (EAWAG), Zurich, Switzerland Center of Service Research, Karlstad University, Sweden Zurich, 06-05-2013

2. Key facts on water in low-income countriesWater safety: arsenic, fluoride, bacteria, and so on Water scarcity: physical and economic scarcity Human water consumption: drinking water, hygiene water, sanitation Legal issue: Drinking water as a human right Water users: agriculture has highest water demand, industry, and private water consumption Water sources: surface water, rainwater, groundwater, or sea water 3. India as a hot spot of physical and economic water scarcitySource: Harish Kumar Jeswani , AdisaAzapagic (2012) 4. India water supply and demand gapAddams, L., G. Boccaletti, M. Kerlin, and M. Stuchtey. 2009. Charting Our Water Future: Economic Frameworks to Inform Decision-making. Available at: http://www.mckinsey.com/App_Media/Reports/Water/C harting_Our_Water_Future_Full_Report_001.pdf. [Accessed on 2 April 2011]. 5. Various water technologies might make drinking water safer and more affordable (1) Household devices (e.g., Hydrologic Ceramic Rabbit Filters, Unilever Pureit, Tata Swach, Sodis)Tablets (e.g., P&G sachets, PSI chlorine tablets)Rainwater harvesting 6. Various water technologies might make drinking water safer and more affordable (2) Pumping (e.g., Grundfos Lifelink)http://www.grundfoslifelink.comMicro-treatment plant or water kiosks (e.g, Naandi, Trunz, Sarvajal) 7. Gettyimages 8. Business research has to decide on the way we take at the cross-roadBusiness at its cross-road PPP1Base of the Pyramid (BOP)Population in million> $20,000Industrialized markets500$2,000-$20,000Emerging mass markets2,000< $2,0004,000 1.2 Billion ( $ 2000 annum) 1.6 Billion ( $ 725 annum) 1.2 Billion ( $ 365 annum)1 PPP Purchasing power parity Source Rangan, 2009:Exchange marketBOP (Submerge and poverty) market 9. Why are market creation and business model innovation important to the water sector? BOP market penetrationMobile phones 5 - Maturity Micro-creditsInnovating Business model4 - Scale-up Mobile payment 3 - Success BOP market creation2 - Survival 1 - Existence Time (or cumulative investments) 10. Business model thinking inspires profitmaximizing firmsLow-cost carrierRazor & blade (inverse)FranchisingPay-per-use 11. Business model thinking also applies for social-businesses and non-profit firms Financial profit maximizationN/AProfit-maximizing businesses Repayment of invested capital (selfsustainability)No recovery of invested capital Non-for-profit organizationSocial businessSocial profit maximizationSource: Yunus et al (2010) 12. Do you know these business models? Funding models for nonprofit firmsSocial business (models) Member Motivator Entrepreneur Support Model Big Bettor Fee-for-Service Model Public Provider Service Subsidization Model Beneficiary Builder ... 13. Combining water treatment technologies and business model thinkingC) Communities as a beneficiary of micro-water treatment plantD) Entrepreneurs as franchisees for selling water servicesA) Low-value devices given away to supplicants for aidMicro-water treatment plants (community filters)B) Selling high-value devices to the financially more viable customersHousehold devicesNon-profitProfit-oriented 14. Combining water treatment technologies and business model thinkingC) Communities as a Micro-water beneficiary of micro-water treatment treatment plant plants (community A) Low-value devices given away to filters) supplicants for aidProject reportingProject executionProposalIdentificationServiceDistributionAwareness creationManufacturingR&DSupplicants for aid living close to the poverty line ($500-1000 in PPP) Multiple donors supporting water projectsD) Entrepreneurs as franchisees for selling water servicesB) Selling high-value devices to the financially more viable customers 15. Hydrologic in the Cambodian market Sales comes from bulk sales sand subsidized distribution Original Tunsai product penetration is 3.5% (after ten 10 years), despite the fact that it was actually given away by NGOs Experimenting with different distribution models 16. Combining water treatment technologies and business model thinking C) Communities as a beneficiary of micro-water treatment plant Communities living poverty line ($5001000 in PPP)ManufacturingOperation & maintenanceInstallationProvider of micro-water treatment plantD) Entrepreneurs as franchisees for selling water servicesR&DC) Communities as a Micro-water beneficiary of micro-water treatment plants (community filters) treatment plant Project executionProject reportingProposalIdentificationHousehold devicesMultiple donors supporting water projects A) Low-value devices givenaway to supplicants for aidNon-profitB) Selling high-value devices to the financially more viable customersProfit-oriented 17. Osho (Oromo Self Help Organization) promoting bone char filters (1) OshoCaretakerEducation Bone char production Community-filter installation & transfer Testing fluoride adsorption Bone char exchange Bone char regenerationOperation & maintenanceDonor(s)Communities living poverty line ($500-1000 in PPP) 18. Osho (Oromo Self Help Organization) promoting bone char filters (2) OshoCaretakerCommunities living poverty line ($500-1000 in PPP)Education Bone char production Community-filter installation & transfer Testing fluoride adsorption Bone char exchange Bone char Operation & Diversification Diversification regeneration Chlorine tablets Bone dust as chicken feed maintenance Hygiene products Bone chare as fertilizer Grocery sales Cost transparency and Generating and securing reduction paymentsDonor(s) 19. Combining water treatment technologies and business model thinkingMicro-water treatment plants (community filters)D) Entrepreneurs as franchisees for selling water servicesC) Communities as a beneficiary of micro-water treatment plantB) Selling high-value devices to the financially more viable customers A) Low-value devices given away to supplicants for aid ServicesSalesDistributionMarketingR&DNon-profitManufacturingHousehold devicesFinancially viable customers($ 1500 50000 in PPP) 20. Hindustian Unilever Pureit 21. Unilever promoting Pureit water filters R&DManufacturingMarketing, sales, and distributionServiceUser-center design to deliver better experience Water filter as an aspirational productHousehold devices manufactured locally with a standard quality Sales approaches (e.g., community events) Payments (e.g., subsidies, micro-credit, layaway) Trusted, well-educated sales force (e.g., health workers) Promotion through seeding filters within the community Distribution approaches (e.g., retail channels, basket of goods sales)Germ-Kit replacements 22. Combining water treatment technologies and business model thinking D) Entrepreneurs as franchisees for selling water services Franchisees CommunitiesB) Selling high-value devices to the financially more viable customersProfit-orientedBuying waterWater SalesOperation & maintenanceNon-profitBuilding franchiseesHousehold devicesInstallationA) Low-value devices given away to supplicants for aidManufacturingC) Communities as a beneficiary of micro-water treatment plantR&DMicro-water treatment plants (community filters)Provider of microwater treatment plant 23. Business model innovation at sarvajal affordable, accessible, and pure water Installed water systemsHolistic extension of the business model ...Micro-credit instituteBank4000Sarvajal (Franchisor) (5000 $ / 2600$)3500 3000 2500 2000 1500 1000Microentrepreneurs (Franchisees) 1:n 1:m 500 $ (40% of revenue)Communities (Villages 3000) 0.12 $ for 20 litersCapabilities: maintaining and monitoring the systems Capabilities Individual skills bright brains to repetitive gains Routines Franchisee strategy tool / approach to balance own / borrowed capital500 0 20082010Source: own interpretation and interviews. Based on Macomber and Sinha (2012)201220142016 24. Equipment 25. Water shop 26. Preparingthewaterfortransportation 27. Transportingthewater 28. Business model innovation at sarvajal affordable, accessible, and pure water Installed water systemsHolistic extension of the business model ...Micro-credit instituteBank4000Sarvajal (Franchisor) (5000 $ / 2600$)3500 3000 2500 2000 1500 1000Microentrepreneurs (Franchisees) 1:n 1:m 500 $ (40% of revenue)Communities (Villages 3000) 0.12 $ for 20 litersCapabilities: maintaining and monitoring the systems Capabilities Individual skills bright brains to repetitive gains Routines Franchisee strategy tool / approach to balance own / borrowed capital500 0 20082010Source: own interpretation and interviews. Based on Macomber and Sinha (2012)201220142016 29. ConclusionExperimenting with business models is a small step, one giant leap to make water markets works