A Model Approach to Private Sector Development

Taking a little detour with my blog today to outline a "model approach" for private sector development that distills my knowledge and experience into a single, replicable framework for action.  

My experience suggests that effective private sector development is most consistently achieved by engaging market intermediaries to create and enhance economic opportunities for traditional beneficiaries through explicitly-harnessed expressions of commercial-scale market demand.

Before I explain, I'll clarify a few key terms. 

1. Traditional Beneficiaries: This refers broadly to a host country's endowments and includes its most vulnerable economic actors. Traditional beneficiaries are those constituencies that are typically targeted in classic development programs. Some of the most common include: smallholding farms, small producers, artisan industries, input suppliers, and the traditional workforce. I refer to traditional beneficiaries as "Level I" in this conceptual framework.
2. Market Intermediaries: This refers broadly to a host country's services sector. It captures the host country's economic actors that play key roles facilitating the growth of productive sectors and/or in driving growth in the new economy. Some of the most common market intermediaries include: business development services; trade associations; affordable finance; information and communication technology (ICT); supply chain infrastructure; and, public sector institutions. I refer to market intermediaries as "Level II" in this conceptual framework.
3. Commercial-scale Market Demand: This refers generally to companies or other entities with commercial scale business operations. Commercial-scale market demand can be represented by both host country firms as well as multinationals operating in-country. I refer to commercial-scale market demand as "Level III" in this overall framework.

This is all captured graphically in the exhibit below:

The best way to explain the overall framework is by defining its core principles. 

(1) In developed economies almost all production is demand-driven. About a year ago I asked an agricultural marketing specialist that I was working with to give me a simple definition of 'commercial agriculture.' Here's what he said; "Drew, commercial agriculture is when you plant your crops after you've identified your buyer." This general concept applies across the board in private sector development, not just commercial agriculture.The concept is important because it's what helps ensure relevance in end markets. Pre-production knowledge of demand is one of the key things that makes developed economies efficient.  Effective private sector development ultimately boils down to building an economy's capacity to understand and better satisfy demand.

Of course there is really nothing revolutionary about this concept. "Demand-driven" has been emerging as a buzzword in our industry for well over a decade. The supply-side, demand-side struggle has actually been raging in intellectual circles for centuries. I'll never forget the day back in college when I was first introduced to French economist John Baptiste Say, and his 19th Century law stating; "Supply creates its own demand."

My professor, who obviously had some strong feelings on the subject, pulled something out of his briefcase and tossed it on the floor by his lectern. He said; "I've got a fresh supply of dog doo for sale here class; show me the demand!" A few of us laughed but nobody offered to buy the baggie of poo. Satisfied that he'd made his point our dear old professor turned around and went on to the next part of his lecture without missing a beat. That happened back in 1989. I'll always remember it as the day I decided I was a Keynesian. 

The point of all this, aside from the fact that I've always wanted to share that story from my college days, is that I don't think there's any real rhetorical disagreement anymore, at least as far as development economics is concerned. Our community now refers to almost all new programs as being "demand-driven". The fact that a lot of "demand driven" projects out there are nothing more than re-branded versions of the same old "supply-driven" approaches seems a little disingenuous to me; but hey, at least we've all got the rhetoric right! 

More on this issue when I dive into methodology in the next post. For now I'll wrap it up as follows:

Framework Principle #1: Effective private sector development programs are demand-driven. Proxies are not reliable mechanisms for expressing demand in developing economies; i.e. programs where demand is expressed through international sector specialists, local industry working groups, or "that's what worked in the last country" ... "that's all I had on my thumb drive" are not truly demand-driven. Real Demand-driven programs are contractually anchored to profit-motivated expressions of commercial-scale market demand already operating in the markets targeted for intervention; with some real skin in the game.

(2) If you haven't already, I encourage you to take a step back and find a way to get a handle on the profound relationship between economic growth and growth in services. If you look at the economic data underlying any contemporary development success story you will see that periods of sustained economic growth go hand in hand with dramatic growth in the services sector.

Of course it makes perfect sense. Close your eyes and try to imagine what is actually taking place in a country as the private sector develops. The image that comes to my mind is a viral explosion of new mechanisms that "connect the dots" between a country's old economy and new expressions of market demand. This viral explosion of connection mechanisms gets reflected in national economic data as growth in Services, while the compounding impact of the overall process gets reflected as growth in GDP. I've captured this all graphically in the following illustration:

The fact is most of the tangible results that we offer up as evidence of success for private sector development projects are the byproducts of new connection mechanisms established in our host countries.  We have to keep in mind that that the evidence of new connection mechanisms are an important consequence of our work, but the evidence is not the objective. Neither are the new mechanisms themselves. Our ultimate objective in doing private sector development is strengthening a country's capacity to build its own new connection mechanisms on a sustained basis ... that's the only way the process becomes viral.  We have to keep this distinction in the front of our minds as we implement projects so that we can stay focused on what we're ultimately trying to achieve.

Let's not kid ourselves. This is a tough thing to do right because it takes a lot of time, patience and persistence to do well. When it comes to choosing between building real sustainable local capacity and importing short-lived end-to-end solutions, international firms will always be conflicted as long as time is short, process is opaque, and expectations are high. Local firms, on the other hand, are not faced with the same choices. Local firms are more compelled to find ways to muddle through the reality of their own environments so they too can deliver evidence of success.

Framework Principle #2: The best private sector development programs blend in, use what's already there, and never let themselves get too intrenched or too far ahead. Just as growth in services tends to underpin growth in productive sectors, host-country service providers (in both existing and emerging forms) have got to be the 'workhorses' of program implementation. Programs should try to mimic, as much as possible, the way a system is expected to function once the donor support goes away.

(3) The third key to understanding my framework is resisting the natural tendency to snap to judgement when you realize that it is explicitly structured to make big, successful companies bigger and more successful. I was discussing this issue with my wife the other day, who happens to be one of the industry's real pioneers in the area of strategic communications. As I explained this point her brow started to furrow and she asked; "So exactly how is this different from 'trickle down economics'?" It was a great question, and an important one to answer, since philosophically speaking my framework for private sector development is a form of trickle down economics.

There are at least two key differences between this approach and a more conventional understanding of trickle down economics. The first big difference is that my approach is truly demand-driven and tailored at a micro-level; it has nothing in common with supply-side macro policy. The second big difference is that my approach involves carefully engineering each program to be inclusive at the outset; a far cry from cutting taxes on the wealthy, closing your eyes, and hoping for the best (whatever that might be). 

Framework Principle #3: Programs have to be inclusive. Private sector development that does not involve a broad participation in the benefits of economic growth is rarely self-sustaining. Effective programs highlight paths of inclusion, and specify clear plans for validating and measuring target beneficiary impacts at set checkpoints along the way. Remember there is nothing intrinsically wrong with making strong companies stronger as long as the strength is not achieved through donor-funded market distortion. Pro-poor, inclusive development creates strength through increases in a host country's connective capacity, productivity, and the realization of unfulfilled market demand.

(4) Finally, we have to come to terms with the uncertainty inherent in the development landscape.  There are so many different factors that can cause volatility in our implementing environment that you can't manage them individually. My approach is to key off of the macro-dynamics that are always at play, supported by tools to help monitor what's happening and navigate the way.

To keep track of what's happening and make sure your project stays relevant we need to understand the basic evolution of development theory and industrial policy, and appreciate some key lessons learned. The evolution of development thinking is often characterized as a struggle between competing sides of an ideological spectrum. The 'vertical integrators' were the first to set up camp. Using the Asian Tiger economies as the model, they subscribed to the idea that development is all about 'picking the winners'; i.e. that state-chosen firms and industries supported through subsidies and protectionist policies can mature, become competitive in regional and world markets, and drive a country's overall growth. On the other side of the spectrum, the 'horizontal integrators' rose to prominence as countries like Costa Rica and Ireland managed to put themselves onto new trajectories of growth. This competing school of though argued the virtue of free and efficient markets, investment-friendly enabling environments, and policies geared towards a correction of systemic market failure.

Over the last decade the theorists have discovered that in fact both schools are right ... and that both schools are also wrong. Neither of the two models could ever consistently explain, or anticipate, what makes economic development actually happen. The contemporary thinking incorporates parts of both schools of thought, and focuses extensively on important lessons learned. I think there are three lessons in particular that practitioners like us have to understand in order to effectively establish and manage our programs. They are:

1. The realization that national economic systems are way too complicated for anyone to comprehensively understand and purposefully engineer, i.e. there is now a broad appreciation of development chaos theory - the fact that each time we introduce change it has the potential to fundamentally reshape relationships and incentives across the entire economic system. 
2. More pragmatism in terms of acknowledging the role that political economy plays in the development process, i.e. big-bang structural reform programs just aren't practical because any highly ambitious scope of reform is likely to undermine a sitting government's political support.
3. A recognition of the importance of behavioral economics, i.e. shifting away from intervention that is limited to neoclassical forms of market failure, and towards approaches designed to ease more immediate, specific, relevant and practical constraints to development.

This overall concept is captured in the final principle.  

Framework Principle #4: Funding for program activities should be structured in phases through competitive processes to ensure relevance. Mechanisms should also be established to make premature terminations of already pledged funding complicated and difficult. Effective private sector development programs respond effectively to evolutions in host-country markets and systems while simultaneously resisting winds of international political change.

Conclusion

To wrap this one up I'll summarize the pros and cons of adopting my framework by contrasting it with the industry's classical approach. The real differences are the role that real market demand plays in shaping program activities, and the level of engagement with traditional beneficiaries (i.e. directly or indirectly). These distinctions are captured graphically in the exhibit below.

Our industry has historically preferred the "inside out" approach largely because the programs are quick to design, easy to replicate, and straightforward to implement. The programs also make it easy to spend pre-planned amounts on a fixed schedule, and they generate heartwarming stories that makes public relations and outreach fairly easy ... at least in the short run. The problem with these classical direct support programs is that they rarely lead to any significant, meaningful impact, and whatever impact the programs do achieve is rarely sustainable by markets over time. Remember Says Law, my college professor, and the baggie of dog poo? The differences between my approach and the classic approach may not be quite that black and white, but there's no question that the old model is "supply-side" at its core.

Things change pretty dramatically when turn the approach "outside-in.". Programs that follow an outside-in (i.e. truly demand-driven) approach have a much stronger likelihood of being effective and having a sustained impact. The downside is that they are harder to design, they are complex to set up, and they take longer to implement. The outside-in framework also makes it difficult to spend project funds on a fixed schedule, and it can expose programs to "trickle down" criticism that makes public relations a lot more challenging.  The fact is there are some real tradeoffs involved in adopting the "outside in" approach. It's better development, but its more politically risky. It begs the question; "what's the right way to proceed?"

I can't answer that question for you. The path towards more effective development is one that you must choose to walk down at your own risk, and you should do it with your eyes wide open. 

- DS

#3: Learn How To Drive

Summer's over. Back to work!

Last spring I outlined two suggestions for how our industry can quickly go about improving the business of development. (If you'd like to refresh, check out them out: Get Naked and Unplug The Blender) My first two suggestions focused on how our industry tends to approach its management of client relationships on development projects. The reason I started there is that my own experience unequivocally shows that much of our industry’s anemic performance can be attributed to a general lack of capacity to manage client relationships effectively.

With this post I switch gears and focus on some important dynamics that our industry needs to get better at cultivating inside its project teams around the world in order to really get serious about achieving meaningful development results.

I decided the best way to start the discussion was to share an excerpt from an article in a leading Project Management Journal that I read this summer. The article analyzed the influence of cultural patterns on professional behaviors in Ethiopia. (click for link to the article)  The authors presented the table I've inserted below midway through the article to summarize their findings. 

Any of these sound familiar to you? ... Thought so. Do any of them sound unique to Africa? … Didn't think so. 

Development professionals are trained to see that every situation we encounter is unique. We've learned to account for cultural idiosyncrasies all around the world. We've figured out how to adapt ... we've embraced the need to acclimate. In fact, our industry has worked so hard to accommodate the cultural habits and associated behaviors of the developing world that it has become disconnected from the habits and behaviors that are now being practiced in the developing world. I think our industry has let the excuse of “its their culture” become a scapegoat for outdated, ineffective management practices and an inability to provide leadership to projects.

Of course, while vacuous generalizations can be fun to make, they typically aren't all that useful, so I'll be a little more specific. I think the most serious consequence of our industry's cultural and behavioral dysfunction is the negative impact it has on workforce motivation. To illuminate this point I'd like to draw upon the conceptual framework for motivation outlined in the book Drive, by Daniel Pink (Link to the Book's Homepage), because I've found Pink's framework explains my own experiences with management and leadership very well.

Pink argues that motivation levels are generally determined by a combination of four factors:

1. Money ~ Increasing someone’s wages is the best way to motivate them, until they achieve the threshold of a comfortable living wage. Once someone crosses this wage threshold, improvements in other factors have a bigger impact on motivation than further increases in wage.
2. Autonomy ~ People that are given some discretion in deciding how to approach their work - and where/when to do it - are more motivated than people who are micro-managed and policed.
3. Mastery ~ People that are afforded the opportunity to develop real competence and refinement in something are more motivated at work than people who find themselves doing the same thing, the same way, over and over.
4. Purpose ~ People that feel they are working towards a mission, or a higher calling are more motivated than people who simply feel they are exchanging time for a paycheck.

Does motivation really matter? Its a fair question, and Pink gives the best answer I've ever seen: Performance = Ability x Motivation (P = A x M). I like it because its a simple, yet powerful, way of showing that we need motivation to perform.  A good reminder that we can bring all the ability in the world to the table (e.g. A=100) but if we can’t motivate our teams (e.g. M=0) our industry will never truly perform (e.g. P=100x0, or P=0).

So how does our industry do in the context of Pink’s framework for motivation? Let's quickly go through the four part framework - one part at a time - and find out.

1. Money In my experience, development salaries tend towards the modest end of competitive. I have yet to encounter anyone in development that feels overpaid, but I’ve also never been in a situation where my staff or colleagues appeared unable to sustain a fairly comfortable standard of living.

In terms of motivating teams to perform it means that salaries are generally large enough to enable high levels of motivation, but they are not sufficient to motivate high levels of performance on their own. In order to motivate development teams we need to bring more to the table than money. In the context of Pink’s motivational framework, it means our industry needs to harness some motivational influence from other parts of the framework in order to really perform. 

2. Autonomy In my experience this is an area where our industry really tends to struggle. A major culprit is the fact that technical approaches to project work tend to be conceived through top-down processes that often fail to consider input from the staff or partners that are actually implementing the work. The practice has been institutionalized through the industry’s over-reliance on “experts” who typically feel accountable for their ideas, but not for results.  Development really suffers from a fallacy that good ideas somehow implement themselves. If you take a look at any service industry where results aren’t “optional” you’ll find a much more inclusive, bottom-up process for formulating approaches to work.

Our industry's capacity to provide its workforce with a motivating sense of self-direction is further limited by its devotion to the 20th century’s concept of “workplace.” Much of our industry - including the biggest bilateral donor out there - still believes that “working” is best defined as someone being in an office, sitting at a desk.  It is true that people who are not motivated are unlikely to show up to work, if given a the choice, but turning an office into a prison is a band-aid for symptoms, not a treatment of the underlying cause. Strict regimentation can provide the appearance of work happening (and we need to recognize that for much of the industry, that's enough) but it never addresses the real problem of nothing real ever being accomplished.

Our industry could take enormous strides in the direction of AID effectiveness by recognizing and embracing what’s been unfolding this past decade across the developed world. We have to migrate away from our old 'expert-oriented' management model and embrace an approach that emphasizes critical thinking in key leadership roles and assign management responsibilities to people that have been professionally trained to motivate people and teams to step up and deliver. I have lost count of how many clients I’ve had that were shocked to discover the biggest challenge leading a highly-motivated team is getting people to stop working at night and actually leave.

3. Mastery This is another area where we really tend to shortchange our workforce. I have been surprised to see how many development contractors still seem to be operating these days under the assumption that in order to survive they need to stay tethered to same things they’ve always done, the safe things that the industry already widely accepts and understands. What gets pitched as “innovation” turns out to be nothing more than re-mastered rhetoric, compressed deadlines and curtailed costs. 

What's the solution? There are a few things I think we can do fairly easily to better exploit the motivational potential of providing opportunities for mastery. One big thing is our proposal efforts should start focusing only on identifying management talent, not the entire project team, in the solicitation phase. Upon award, a new project’s management team should spend at least the first 8 to 12 weeks “ground-truthing” the proposed approach and framework, building out a staff and operational capacity, and establishing a well articulated plan for the first year’s implementation. We all have to keep in mind that each additional increment of time invested upfront in thinking, planning and organizing will enhance opportunities for mastery across the board, and in turn generate increasing dividends (i.e. more real development results) over the life of the project.

4. Purpose This is where development should be knocking it out of the park, but its another area where we're striking out! We tend to forget that in order to be truly motivating a purpose needs to be more than just meaningful; it needs to seem relevant and it has to feel achievable - we ignore the nuance of purpose to our peril.

In the development industry our sense of purpose is shaped largely by the way our teams perceive the things they are asked to do; whether or not they believe activities matter; and, the perceived likelihood of success. It is impossible to maintain the coherence required to sustain a project’s sense of purpose if a project's leader lacks the skill and/or courage necessary to communicate openly with stakeholder and clients. Once a project team finds itself spending most of its time on activities it knows will not lead to any meaningful results, or working against deadlines and/or expectations that it knows are impossible to meet, its sense of purpose will quickly deteriorate into cynicism. In fact, the best predictor of whether or not a team will feel a strong sense of purpose is the project’s capacity to build and maintain effective client relationships. Sound familiar? It's why I started out last spring with Get Naked and Unplug The Blender.

I am intrigued by the debate taking place these days between USAID and its implementing partners about the FORWARD initiative. It's interesting that nowhere in the discussion is the important role that international firms could and should be playing in terms of motivating project teams to step up and perform. I don't think the omission is an accident; I think the industry recognizes that, with few exceptions, genuine leadership is not an industry strength. For contractors like me this debate has some pretty serious implications - business is pretty slow! Putting self interest aside, I have to admit that given the kind of performance I've seen by our industry the last few years, I am sympathetic to the Agency's reluctance to continue to engage us in our traditional roles.

I do think we can tip the balance back in our favor if we recognize that the most valuable thing the developed world can bring to development at this point are solid behavioral examples of empowering management and courageous leadership. We can silence the critics by finding new ways to introduce opportunities for autonomy and mastery on our projects, and new ways to preserve each project team's sense of purpose.  Let's face it. If we can’t learn how to drive there’s really no reason for the donors to keep us around.

The Bottom Line

If you want to get serious about development results invest some real time and energy modernizing the way you staff, manage and motivate your people, especially your teams on the ground. If you treat your people like adults they’ll act like it ... as long as you also give them a couple good reasons besides their paychecks to care.

#2: Unplug The Blender

I hope you’ve all had some good opportunities to practice getting naked the past couple of months. I hope no one’s been arrested in the process!  This month’s suggestion builds on where we left things last time.

Here’s the issue. Our industry is often criticized for being overly optimistic about what we can accomplish through our development programs. William Easterly, an NYU development economist, once offered a compelling metaphor to describe this naïve ambition in his article The Utopian Nightmare. He joked that where the private sector had the wisdom to separately develop Rogaine for men to grow hair, and Nair for women to get rid of it, the development community would have spent years trying to develop one comprehensive product that removed hair from women’s legs and planted it on men’s heads.

I think Easterly has a point. It definitely made me laugh.  But I don’t agree that the cause of our industry's problem is naïve ambition. My own experience suggests the issue is less about what we set out to achieve, and more about what happens to our plans once the “rubber hits the road”.  To illustrate the point I’ve constructed another hypothetical.

Once again, you are running a private sector development project. This time you’re in Southeast Asia, and you're about to kick off a new activity. Your host country has an abundant supply of bamboo with some really unique colors and grain patterns. Experts think the bamboo’s unique qualities could enable it to quickly establish a US $500 Million footprint in the fast-growing global market for eco-friendly furniture and building materials. The problem is traditional drying techniques cause the wood to become severely cracked and discolored, making it unsuitable for export markets.

Your project recruited an international wood-processing expert to come in and take a look at the problem. The expert did a bunch of field research and outlined the following strategy:

The solution to the cracking and discoloration problem is careful management of the drying environment (i.e. humidity, temperature & oxygen levels). Determining the proper combination of these variables will require a controlled atmosphere wood kiln and up to a year of R&D effort. You’ll need to minimize the number of things that could go wrong during the R&D phase by: 

1. Working in partnership with the local agriculture university.   
2. Establishing just one processing site.
3. Providing rigorous oversight & meticulous documentation of every trial sequence. 
4. Importing a high-quality controlled-atmosphere wood kiln. 
5. Engaging the private sector to commercialize the process after the R&D is completed

The strategy is clear, simple, efficient, and reasonable. You present it to your client. The client loves it and gives you a green light to move forward. In my experience, this is how most new development projects start.

And then this happens …

Your client calls to tell you that the Embassy has rejected your request to import a high-quality wood kiln. She explains that there is an agreement with the local government to encourage growth in light manufacturing. When the Embassy heard your project was working on an initiative involving wood kilns, it made a commitment to the government that it would support manufacturing the kilns locally.

So, what’s your response? The expert’s strategy was clear: Import a high quality controlled atmosphere wood kiln for the R&D phase, minimize the number of things that could go wrong. Is this the right time to risk working with an inexperienced company that’s never built a kiln? You’re going to rock some high-level boats if you stick to your strategy and push back on the decision. You could undermine your project if you don’t. In a situation like this, unless you’ve already mastered the practice of getting naked, you’ll probably just go with the flow and start looking around for a local manufacturer.  While a single decision like this may not drive the project off its rails, it can start a cascade that becomes harder and harder to stop. To illustrate the point, lets go back to the example.

You’ve identified a local manufacturer that you think can figure out how to build the kilns. After several weeks of back and forth, the company says it needs a minimum order of 10 kilns to make a profit. You’ve only got the budget for one. The deal gets stuck. A few days later you get a panicked call from your client. News of the impasse has reached the Embassy and they are furious. They’re furious because they’ve just now learned that your project was planning to give a kiln to the agricultural university and don’t understand how that will create jobs and increase exports in the current year. Your client tells you that everyone wants to see a new plan for 10 private-sector wood processing ventures. They want to know how many jobs and exports the plan will generate by the end of the year. And they want it all by COB tomorrow.

What’s your response now? Once again, the expert’s strategy was clear: Work in partnership with the local agriculture university for the R&D phase. Establish one pilot site. Provide rigorous oversight & meticulous documentation of every trial sequence. Engage the private sector once the R&D is complete. Minimize the number of things that can go wrong. Of course, if you didn’t try to push back the first time, what are the chances that you’ll do it now? In my experience, slim to none.

So you get to work building out a new plan. You don’t have much time to establish estimates for job creation and export growth, so you do a back of the envelope calculation. 10 companies ... about 50 employees per company ... each with US$ 2.5 Million of exports in the first year. On the last line of your plan you type: "We estimate that the program will create 500 new full time jobs, and lead to a US$ 25 Million in exports in the first year.”

Now skip ahead a few weeks. Your back of the envelope estimate of $25 million in exports has made a real impression. The entire country seems excited about the program now. The local chamber of commerce pitched in to help you recruit 10 industrialists willing to set up processing companies. A large multinational donor agreed to provide credit guarantees through a local bank. The local government offered tax concessions in exchange for an agreement to discount the product for tribal artisans in remote, volatile areas. And, the flurry of activity convinced your local manufacturer to start building the first batch of kilns - and order parts and materials for a second.

At this point it’s really starting to look like a win/win for everyone. From its very humble beginning our little R&D program has morphed into the country’s new model for doing private sector development… all before a single plant of bamboo has even been cut.

I call this tendency to let simple, focused activities become elaborate, multi-stakeholder solutions as "Development Smoothies.”  You know... start with a banana (technology R&D), then blend in a scoop of ice cream (strengthen local manufacturing), add a peach (create 500 new jobs) throw in a couple of strawberries ($25 Million increase in exports), add some coconut milk to loosen things up (SME credit enhancements) and then top it off with a nice little cherry (new economic opportunities that help stabilize remote, volatile areas.)

Here’s the problem. Development smoothies may be great going down, but they have a terrible aftertaste. To illustrate, let’s fast forward through an entire year of our hypothetical.

Everything continued to go really well for a while. Each company received its wood kiln on time. The loans came through. Staffs were hired, ribbons were cut, and people got to work. Unfortunately, none of the companies managed to figure out a drying process for the bamboo that solved the cracking and coloring problems. One by one, each of the new companies concluded it just wasn’t possible and threw in the towel. By the end of the first year all ten companies had suspended plant operations, laid off the new employees, and stopped making loan payments for the kilns. The bank that made all the loans had to write them off, and got dropped from the sponsoring donor’s credit guarantee program as a result. Regulators reacted by suspending the bank’s license - its case is still unresolved, pending further investigations. The manufacturing company, sparked by that initial flurry of kiln orders, decided to make a bet big on the production line. Once the orders stopped it was forced to liquidate assets to pay down the debt, and eventually went out of business. And those tribal artisans in the remote, volatile areas that were promised cheap bamboo? They are now more convinced than ever that all their government knows how to do is make promises that it never intends to keep.

In a last ditch effort you decide to bring the wood processing expert back out to see if she can help troubleshoot the problems... identify a solution. She visits what’s left of the ten plants and discovers that none of them maintained any records. She also tested each of the kilns and found they all had leaks, and the controls weren’t properly calibrated. When she gets back to your office the expert pulls out the original strategy document, flips to the last page, and tosses it on your desk. “You didn’t import a high-quality kiln, you didn’t work with the university, you didn’t establish a single pilot site, you didn’t provide rigorous oversight, you don’t have any documentation of the trial sequences, and you didn’t wait to engage the private sector until the R&D was completed. Why do you think I emphasized each of those points specifically… what did you expect would happen?”

When a development smoothie starts coming together, it can be very hard to stop. Once it’s whipped up you’re stuck with it. There’s no going back. In our example, those fateful early decisions cased the R&D program to spin out of control, and led an entire country to end up mistakenly concluding that its bamboo simply can’t be dried. The scars may be too deep for anyone to ever really digest what happened, or to realize what was supposed to have happened instead.

That’s why, if we want to get really serious about development results, we have to learn to “unplug the blender.” Unplugging the blender means resisting the temptation to score quick points when it compromises key parts of a strategy.  It means taking more time away from busy people’s schedules to explain to them what you’re doing and why so they don’t make bad decisions for you. And it means fixing problems before they become unmanageable.

I think Easterly’s suggestion that problems with development stem from naïve ambition reflect his academic point of view. When you spend enough time in the trenches you discover that program designs are typically fine... the real problem is lousy implementation. That’s a problem we can solve, and its a problem we have to solve. Because while I may disagree with Easterly’s attribution of the problem, I can’t argue with his conclusion. By promising so much, we really do end up making the problems worse.

The Bottom Line

The development community needs to find ways to discipline itself with the same kind of bottom line focus that enables the private sector to make smarter decisions.

Next Up ... Learn to Drive

#1: Get Naked

Let me start with the obvious… I am NOT suggesting you take off your clothes. Instead, let’s imagine a scenario we might confront on any given day in international development. Here’s the situation:

You’re running a private sector development project in Africa.  A severe drought recently triggered an intense conflict that wiped out key segments of a value chain you were helping to develop. Your project is tasked with setting up an emergency rehabilitation grant program to help affected companies get back on their feet. Initial planning suggested that it would take 4-5 months, but just to be safe you told your client you’d have it all wrapped up in six.

Fast forward a bit. You’ve discovered that what most of the companies need in order to get back on their feet is seed and harvest equipment. But there’s a problem. The planting season doesn’t start for several months. If you stick to the original schedule there’s a pretty good chance that the funds will get used on more immediate personal needs, and there will be nothing left over for the planting season. In order to restore the broken links in the value chain, your grant program will need an extra two months.

Just as you are about to hit “send” on an email explaining the new 8-month timeframe to your client, you receive an urgent phone call from her. She tells you that Secretary of State Clinton will be coming to town in a few weeks to announce that the relief funds have been distributed. Before you catch enough breath to respond, she says you’ll have to accelerate the whole program and finish in five months in order to distribute the funds before the Secretary’s arrival.

Yikes, huh? Welcome to development!

How should you respond? Your first instinct might be something like the following:

Option 1: “That’s a fantastic idea--what a great opportunity for some high level exposure. It will take some hard work, but we’ll make sure to get things wrapped up ahead of schedule. I’ve done this kind of thing dozens of times so I know how to get plenty of great photo opps for the press and some great stories for the Secretary … we’ll bring tears to her eyes!”

This is what I call the “kick the can” down the road response (or to pick another kids’ game: “Hot Potato”). In a moment of desperation, this approach enables you to say yes to everyone and deal with the problems later, or better yet leave them to the next guy.

Why would anyone choose this approach? Isn’t it risky? You’ll make people happy in the short term, but it’s bound to blow up in your face once everyone realizes your program has failed… won’t it?

The sad truth is that in an industry without widely accepted standards for measuring results, decisions to “kick the can” rarely blow up in anyone’s face. Deciding whether a development program has succeeded or failed is usually more subjective than objective. Your fate is less about information than about how information gets spun, especially in the short run.

If your ultimate goal is just to survive and keep collecting a paycheck, kicking the can is your best choice because it keeps the noise down and the money flowing on schedule. It’s why just saying yes has become the default approach in so many development efforts, and why there’s usually nothing to show at the end of them.

But what if you want to keep your integrity? You might be tempted to say: 


Option 2: “You have got to be kidding me - that’s unbelievable. This guarantees that all the grant money will be a total waste! I hope you remember that I’ve been skeptical of this whole grant thing since day one; remember I always said it should be a soft loan program. Good development work is slow. It takes good planning, consistent leadership, and patience. It can’t just be manipulated to fit the needs of every visiting dignitary. You people just don’t know how to get anything meaningful done!"


First, let me congratulate you for mustering the courage to stop kicking the can and do the right thing. Bravo! Enjoy the feeling while it lasts. Unfortunately the novelty will wear off as you find yourself boarding a one-way flight home. “Wait a minute!” you ask. “You mean to tell me that if I tell the truth, I’ll get tossed?”

Not exactly. The problem isn’t that you were honest with your client, it's the way you stood your ground. It’s easy to see you let frustration take over and became righteously indignant: you closed the door to working together on a solution.

In case you think getting tossed from a program for your ideals is a badge of honor, keep in mind that changes in leadership tend to kill momentum and replace it with chaos. In other words, in spite of your sacrifice, the ultimate consequence is still failure to deliver real results. In that respect, it’s no different than kicking the can.

So where does this leave us if we are serious about results?


Option 3: “Thanks for letting me know. I understand the pressure that you are under. Unfortunately, this could cause some real problems for the program. Of course we’ll follow your direction on this, but it is my job to make sure you understand how this change will affect our chances for success.  I just hit ‘send’ on an email that discusses a revised  timeline for the grant program based on what we’ve learned on the ground. I’m available immediately to get together and figure out what to do next.”

There are a couple great things about this response. We've resisted the knee jerk temptation to make the client happy by just saying yes. We've acknowledged a hard truth: that in this case an effective grant program needs 8 months, not 5. And, we’ve committed to making the client aware of the full ramifications of their decision. If they ultimately decide to “kick the can” to keep their management happy, they will make that decision with full knowledge of the consequences. You aren’t the integrity police, you’re their consultant - now you have done your job without closing doors.

This approach has been called “Getting Naked,” a term coined by Patrick Lencioni in the short book Getting Naked: Overcoming The Fears That Sabotage Client Loyalty.  The book does a great job explaining why consultants are often preoccupied trying to project confidence, authority, and perfection despite the fact that in most situations their clients would be best served by candor, modesty, and transparency. Each consultant’s approach ultimately boils down to how they deal with common fears, the most prominent being the fear of losing business.

That’s where we are right now. The development industry has developed an unhealthy obsession with keeping the noise down and the money flowing on schedule--often at the expense of real results--to keep projects going and careers on track. Ironically, this approach is precisely what threatens to put the industry out of business.

Consider the HELP Commission’s main conclusion: “A new business model for foreign aid is the main hope—and perhaps the only hope—for fixing a broken foreign aid system. The main competition for foreign assistance dollars should not be among consultants but among ideas coming from other emerging actors that are now involved in foreign aid and philanthropy.”

Don’t mistake the clear message here.  The use of consultants is still a highly acceptable and praiseworthy practice in virtually all other facets of government, but in development consultant has become a four-letter word. Why? Certainly it is true that well-funded charitable institutions have made exciting progress, the private sector has started to play a significant leadership role, and new models for local partnership are compelling. But the development consultant is in danger because we have let our fear of losing business overpower our commitment to doing business well.

Rather than fight the evolution now taking place, we should use this moment as a wake up call: an opportunity to shape a new business model for development and help shepherd the industry into a new era.

We can start with this. Instead of “kicking the can” down the road to keep the chain of command happy, let’s help our clients understand the full implications of tough decisions. The next time someone tells you to finish an 8 month program in 5 months, or get a new subcontractor signed up without a clear scope of work, or plunge into a sector that is phasing out for good reason, make sure they understand the consequences. Maybe more of our clients will start to follow our lead up the chain, maybe not, but don’t let fear stop you from trying. Regardless of the outcome, you’ll know you did your job well.

The Bottom Line

If you are serious about results, stop saying yes just to stay in the game. Find a way to tell your clients the truth without shutting the door, and rest easy with your integrity and partnership intact.

- DS

Next Up: Suggestion #2 - Unplug The Blender

Do you want fries with that?

Hopefully you read my first post to this blog and thought: “Drew’s right, the development industry has lost its courage ... what can we do about it?”

If you do an internet search using the keywords “AID + Effectiveness” and then click on the first few links, there’s a good chance that before too long you’ll find yourself reading about a 1997 working paper by economists Craig Burnside and David Dollar. In that paper Burnside and Dollar make the case that there is a positive correlation between a country’s economic policies and the long run impact that foreign aid will have on that country’s GDP growth.

Well it turns out this innocuous academic working paper became the basis of a new development manifesto for the better part of a decade. It was attractive because it offered a new paradigm for thinking about one of the world’s most intractable problems: How can we turn foreign AID dollars into tangible development results? Burnside and Dollar’s findings shifted much of the industry’s focus away from thinking about what to do and how to do it and towards the question of where to spend. While I do think it was an important finding, it unfortunately served to obscure further the biggest issue that I think has always been at the heart of the industry's dismal performance. The real reason that most development programs fail is ineffective management.

Development is a thinker’s paradise. Lofty ideas and complicated theories represent the industry’s greatest attributes, and also its biggest problem. An obsession with concepts and ideas prevents most of the best ideas from actually happening. We get results by finding ways to deal effectively with all the wonderful quirks and imperfections of human beings trying to work together in foreign countries, under pressure, with competing agendas. Despite all the evidence to the contrary, our industry remains naive enough to think it can pull off extremely complicated programs, in the most extraordinary circumstances, without professionally trained management.

Now, if past experience is any guide, this is where I’ll probably lose you. For one thing, it’s tough to describe good management. It's also because good management means doing things that feel awkward and uncomfortable. I have spent hours scouring the web for tools that would make it easier to communicate the key characteristics of good management. One of the best things I’ve found so far is a metaphor of a "fast food window.”  This example vividly contrasts the difference between “order takers” and “project managers” and illustrates just how easy it is to fall into the common traps that virtually guarantee project failure for those who have not been professionally trained or mentored in project management.

The key takeaway from this is realizing how crucial it is to start thinking upfront about how to make our clients and counterparts happy at the end of a project, not just the beginning. And we need to learn to work through periods of discomfort in the beginning of projects in order to create value and impact when they are finished.

What makes this more relevant now than ever is that once again we find ourselves on the precipice of significant change. The explosion of aid funding over the past decade, and the heightened expectations and attention that came along with it, pushed our delivery system so hard that we had no choice but to finally admit it was broken.

At the time of Burnside and Dollar's finding, the United States foreign aid budget had sunk to its lowest level in nearly two decades (~ $11 billion/yr). Expectations for aid programs at that time were fairly modest in comparison and the scrutiny and pressure was nowhere near as intense. There were also enough pockets of capable management talent in place to enable the industry to muddle through, but nowhere near enough to handle what happened next. Between 1997 and 2003, the US foreign aid budget more than doubled (to ~ $25 billion/yr), and over the next six years it tripled (to ~ $36 billion/yr). In a nutshell, the industry’s courage was killed by a decade of turbocharged spending through a system ill-equipped to manage it, all at a time when a significant portion of the industry was reducing its focus on what it was doing and how it was doing it.

The industry’s failure to deliver against heightened expectations over the last decade has been a tough pill to swallow. Old habits die hard. That has made it hard for some people to see the bright side, which is that once again we have an opportunity to drive some meaningful change in an industry pursuing one of the world’s most noble causes. There’s a lot of insightful new literature out there with exciting ideas about the direction we can take the industry in the aftermath of our perfect storm. But, what’s still missing from the dialogue is a recognition of how ill-equipped the industry is from top to bottom to effectively lead and manage its projects for real results.

That’s what this blog is all about ... providing practical suggestions for those of you that want to transcend the sexy world of debating development ideas and dig into the heavy lifting of delivering real and sustainable development results. This blog will draw on my background and experience as a mainstream management consultant who made his unlikely landing in the world of development twenty years ago, and share with you a few of the key things that my experience has shown can help the industry make more of its ideas actually happen.

The Bottom Line

Our industry’s obsession with concepts and ideas has long undermined its ability to recognize how difficult it is to make even the best ideas actually happen. If we want to get serious about turning development dollars into real results, we’ve got to really learn how to manage for results and open our doors to trained management professionals.

Next up ... Suggestion #1: Get Naked

- DS

One of the few uncrowded places left

As anyone with some experience in the industry could have predicted, my first foray into development back in the summer of 1998 got off to a rocky start.

In fact, things started to go south the day that I was introduced to my new "counterparts" in the Privatization Ministry of Bosnia's Serb Republic. I had not prepared myself for the possibility that my counterparts might have absolutely no interest in the knowledge or services that my team had been contracted to provide. 

I vaguely recall my first meeting with the Minister. For the sake of simplicity, let's call him "Mr. O". My first discussion with Mr O went something like this:

"Mr. Schneider, we have serious business here, we are serious people, and we can not waste any time. When will we start cooperation with USAID Project? 

Mr. O, it is nice to meet you. I am very pleased to be here. Now perhaps I am confused, but I understand that my team has been working with you and your staff for several weeks already, drafting the laws and regulations for privatization. And, once that is finished, it is our intention to help build your IT system, conduct the training ... (here Mr. O cuts me off) 

Mr. Schneider, we are serious people, we can not waste any time. I want to know when will we start our cooperation?

As I was saying Mr. O, my team is working with your staff to draft the legal framework for your privatization and once that is completed we are planning to support the implementation of the process in many different ways, from developing the voucher transaction system, training auctioneers, reviewing company balance sheets, furnishing equipment at payment bureau sites ... (here again I am cut off)

Mr. Schneider, we are serious people and we can not waste any time. If we can not cooperate together I will ask USAID to remove you and replace you with someone who will cooperate with us.  That is all for today Mr. Schneider. (Mr. O finished while pointing at the door)"

I left that first meeting scratching my head. And I took my translator to a coffee house on the way back to the office because I wanted to try and understand what had just happened.  My translator explained that Mr. O was using the term "cooperation" as shorthand for letting him manage the project's money.  In a nutshell, he wanted to hire staff of his choosing, manage them in his office, and then have you pay for it.  Well, I didn't need anyone to tell me that this kind of arrangement was not going to fly, but I couldn't find anyone to tell me how I might break through this "cooperation" issue. Figuring it out would essentially become my on the job training.

The next few meetings with Mr. O went pretty much the same as the first. It drove me nuts. I tried everything, but no matter what I proposed, he had the same response. I think that once he realized that I wouldn't - or couldn't - really budge on what he was asking for, he just decided to have some fun with me. He'd say things like:

"Mr. Schneider, I see you are here again to waste more of my time. You know, if you were as serious as we are about this project we would already be finished. In fact, that is what I told the Prime Minister last night. I informed him that everything was fine except that the USAID project will not cooperate with us because you, Mr. Schneider, are not professional. The Prime Minister told me that he will speak to USAID and have you removed, so you should start looking for a new job Mr. Schneider."    

Well, Mr. O may have been having fun with me for a bit, but apparently after some time he did finally grow tired of me not capitulating to his wishes and did consult the Prime Minister. I found out about it when I got a phone call from my boss one morning who told me that our USAID client was coming up at the end of the week to meet with the Prime Minister to discuss urgent issues with our project. He made it sound ominous. My boss flew up the next day to spend a couple days with me ahead of the meeting - to try and preemptively sort things out. At one point he went over to the Ministry to try and meet with Mr. O and de-escalate. He got an earful of poison before getting kicked out, and concluded that a showdown was inevitable. 

Our USAID client's meeting with the Prime Minister took place on that Friday morning. Neither me or my boss were invited to attend. We sat in the office for a couple of hours waiting for news, it felt like forever. Eventually our client got back to our office, sat us down and recounted the discussion. They wanted me gone, and he did not see any other way to resolve it.  My short development career was over .... or so I thought. 

And then something unexpected happened. My boss realized that Mr. O's issue wasn't with me, it was his interest in controlling the project's funding, and replacing me would not solve that problem. By explaining this, he was able to convince our USAID client to follow up by asking the Prime Minister to direct Mr. O to develop a comprehensive and detailed work plan for completing the entire privatization and capital markets development process, and include with it a clear outline of the support he needed from USAID in the context of his plan. The Prime Minister was receptive the request. He called Mr. O into his office the next day, directed him to have a plan completed within two weeks, and offered him two choices:  

1. He could gather his staff and lead the effort himself. If he was able to do it then USAID would agree to remove me and sit down with him to negotiate direct support. If he wasn't able to do it, the Prime Minister would find a new Mr. O.  
2. He could ask me to lead the effort for him, using my staff together with his for two weeks. If I was able to do it, he would let me stay, let me manage my team, and utilize our support through the process. And if I wasn't able to do it, USAID would replace me with someone else. 

Mr. O chose option 2. The next two weeks was one of the most professionally challenging and rewarding times of my life. We nailed it.  I'll skip over the details and cut to the point. Six years later, at my going away party, Mr. O and I stood together in front of our teams and reflected on all the things we were able to accomplish working together.    

It all could have turned out much differently. Even though I was just doing my job, the easiest thing for everyone to do that day would have been to follow the path of least resistance and appease their chains of command.  They all could have just thanked me for trying, sent me packing, and brought the next lamb in to be slaughtered. And that is how tenuous things can be in development. 

But I had three key things working for me that day: 

1. I was working for an individual who could see that I was capable of creating a lot of value for the project if given the chance. 
2. I was working for an organization that had the courage to ask USAID to respond to a Prime Minister's request with a counter-request, 
3. I had a client at USAID who was willing to listen to an implementor's suggestion and push back with it in a politically charged situation. 

I survived that experience because I was surrounded by people and organizations that were not driven by fear.

The Bottom Line

While I've never been a big fan of motivational posters I'll never forget one that used to hang on the wall in my old gym. It was a picture of someone climbing up a wall of ice somewhere that looked really cold with the caption: "Be Courageous - It's One Of The Few Uncrowded Places Left". That sentiment really speaks to what has become increasingly frustrating about the development industry. Sure, the rhetoric speaks of innovation and change, but the day-to-day decisions are deeply rooted in fear of failure and/or upsetting chains of command. And this is all too often done at the expense of achieving real development results. My story above would probably have had a much different ending had it had happened today.

It is tough to work in an industry that has lost its courage when you are still driven by a commitment to delivering real results. It helps to remind yourself that it is not personal whenever fear-driven leaders or fear-based decisions impede your work. Most of our industry is going to struggle to transcend its fear-centric orientation until the incentives in the system are changed at the macro-level. If you expect people within the system to act against their own self interest, you are going to get more and more disappointed. 

When you don't expect it, you will be pleasantly surprised when you find people that do. Even in today's environment there are people in our industry that still care more about what their projects accomplish than they do about how it impact their careers. And if you really want to get serious about achieving development results, you need to learn to recognize courageous people when they are around and make the most of those opportunities. Courage in development may ultimately always be perilous, but it is also what gets extraordinary things done.

- DS