ELS

Designing a Livelihood Intervention: Process, Tools and Techniques1

1.0 Introduction
The primary reason to promote livelihoods is the belief in the essential right of all human beings
to equal opportunity. Poor people do not have life choices nor do they have opportunities.
Ensuring that a poor household has a stable livelihood will depend on substantially increase
in income, and over a period of time, asset ownership, self-esteem and social participation.
The second reason for livelihood promotion is to promote economic growth. The ‘bottom of
the pyramid’ comprising nearly 4 billion out of the 6 billion people in the world, who do not
have the purchasing power to buy even the bare necessities of life – food, clothing and shelter.
But as they get steadier incomes through livelihood promotion, they become customers of
many goods and services, which then promote growth. The third reason for promoting
livelihoods is to ensure social and political stability. When people are hungry, they tend to
take to violence, crime, etc. Thus, we see that there are idealistic, utilitarian based arguments
for livelihood promotion.
Livelihood interventions are conscious efforts by an agency to promote and support livelihood
opportunities for a large number of people (other than those directly or indirectly employed by
them). Government of India has been one of the largest agencies involved in such livelihood
promotion efforts. However, the cooperative sector, the corporate sector as also the NGO
sector has also contributed to promoting livelihoods. Livelihood interventions can be in many
forms and go far beyond running an income-generation program. Some of the approaches of
livelihood interventions in India are:
Spatial Approach: Many livelihood interventions have a spatial a geographical boundary. It
may be a single village, a watershed, a river basin, a block, taluka or a district or a region. The
main difference between other approaches and a spatial (or area development) approach is
that it tries to tackle all the sectors and segments of the population in that area.
o Supporting locally inter-dependant economic activities, based on a leading
intervention, as done by various state governments in the irrigation command areas.
o Supporting livelihoods in a degraded watershed or degraded forest area.
o Intervention in a cluster of enterprises, such as Ludhiana for hosiery, Badohi-Mirzapur
for carpets, Kancheepuram in Tamilnadu and Sualkuchi in Assam for silk sarees, and
so on.
Segmental Approach: Promoting livelihoods for a vulnerable segment of the population,
such as landless households, tribals, women and the disabled.
o Supporting livelihoods of the poor through micro-credit, for example by SEWA, BASIX,
etc.
o Investing in human development - nutrition, health, education, and institutional
development (for example CARE’s Women’s Income and Self-Help project, Jharkhand)
o Asserting the rights and entitlements approach of the poor – whether to minimum
wages, land tenure or access to public services, for example the National Association
of Street Vendors of India asserted the rights of livelihood of street vendors.
While spatial livelihood interventions try to cover a whole region or a sub-region, segmental
approach focuses its attention on one specific group of vulnerable poor people: landless, or
tribals, or women or any such other.

1
This reading is collage of materials drawn from various sources. Some part of the chapter is adapted from the
following two sources: Datta et al. 2014. Resource Book for Livelihood Promotion, Fourth Edition, The Institute
of Livelihood Research and Training; and Datta et al. 2004. A Resource Book for Livelihood Promotion,
BASIX and New Economic Foundation pp. 233-262. Sources for other sections are mentioned at respective
places. This chapter is meant for class discussion only and not for quoting
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However, even this can be limiting since many of the poor have little in terms of human
endowments – and need investments in nutrition, health, education, vocational training and
organising into producers’ groups and cooperatives, before they can benefit from microfinance
or livelihood promotion efforts.
While some see this as merely a matter of changing the resource allocation priorities of the
government, others see it as a more radical task. They feel that unless the poor are
empowered and assert themselves, they will never get their rights. The rights-based advocacy
is the hallmark of the movement led by Medha Patkar of the Narmada Bachao Andolan. The
National Association of Street Vendors of India, Patna, is another such example of a rights-
based approach to livelihood promotion.
Sectoral Approach: Promoting livelihoods along a sector of the economy such as
agriculture, or a sub-sector such as cotton, soyabean, dairy, etc.
o Sub-sector Interventions, such as dairy, fishery, and sericulture, usually covering the
value chain from primary production to the ultimate consumer, e.g. NDDB in dairy.
o Intervention along a Vector (something which cuts across all sectors): such as water,
power or market linkages. E.g. MART, which has worked on rural haats – local
markets.
There are several facets, which need to be looked into for the sub-sector to generate large
number of livelihoods and smoothly pass the larger proportion of the value addition to the
primary producers. These include:
 Market: demand conditions
 Basic agro-climatic conditions or, natural conditions
 Infrastructure
 Capital in various forms
 Technology; Knowledge; Research
 People, their skills and attitude, and how they are organized
 Policy and regulatory framework
 Inefficiencies in any of these elements can block flow of resources and hinder number
of livelihoods supported by the sub-sector.
Sub-sector intervention, therefore, involves:
 Detailed study of the sub-sector, identifying-
 Demand profile: is it growing or stagnant, what are the prospects?
 The whole value addition chain
 Various players who are involved in value addition
 Technology used for each stage of value addition
 Identifying the bottlenecks in each stage of value addition and the key players who are
involved in that stage of transformation
 Identifying the possible interventions that can help overcome the bottlenecks, in
consultation with the key players
 Motivate the important players to take necessary action. Working with the key
stakeholders, including the gram panchayats, to resolve growth constraints
 Providing various transformations, supports; such as strategic reorientation to the market
and livelihoods; building consensus, developing systems of information processing and
sharing among key stakeholders.
 Continuously scan market opportunities to tap into demand, using secondary sources
and give this feedback to the various stakeholders.
 Continuously monitoring the bottlenecks and informing the same to the agency for
identifying any change in intervention when needed

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 In a very similar manner intervention can also be made into a vector, which influences
many sub-sectors. For example, water is a vector, which influences not only cultivation of
food crops, but also animal husbandry, industrial activities and even tourism in an area.

Designing a Livelihood Intervention

The basic process of designing a livelihood intervention involves the following steps:

2.0 Stage I: Understanding Internal and External Contexts: Coolie's Framework

Step 1: Understanding the Internal Context of Intervention

Step 2: Understanding the External Context of Intervention
(Exercise for 3-E (Explore the External Environment)

3.0 Stage II: Deciding on intervention

Step 3: Analysing Value addition
Step 4: Knowing economies
Step 5: Deciding on Value Chain

4.0 Stage III: Designing the Intervention

Step 6: Overlaying competence (intervening organisation)
Step 7: Design of the Collective organisation
Step 8: Creating Producer-member driven value chain
Step 9: Mustering Financial Resources
Step 10: Initiating and initializing operations

In this unit, we will walk through this process step by step.

2.0 Stage I: Understanding Internal and External Contexts: Coolie's Framework

Vijay Mahajan and Thomas Fisher2 had extensively used Michael Porter’s3 framework for
analyzing the strengths and weaknesses of an industrial subsector. The authors then helped
Sankar Datta adapt this framework for analyzing livelihood intervention choices for the poor.
They cheekily named it the ‘Coolies’ Framework’, taking into account the fact that a porter is
called a Coolie in Hindi! The main elements of the Coolies’ Framework are the Internal Context
and the External Context, under which livelihoods for a particular target segment are sought
to be promoted. These contexts are discussed below:

There are two important elements of Internal Context that must be borne in mind, while
designing or assessing a livelihood intervention.4 These are:

Understanding People’s Livelihoods; and Understanding organizational competence of the

agency who is promoting livelihoods.

2
Mahajan, Vijay and Thomas Fisher, with Ashok Singha, 1996. The Forgotten Sector: Non-farm
Enterprises and Employment in Rural India. ITDG, Rugby, UK.

3
Porter, Michael E. 1990. The Competitive Advantage of Nations. The Free Press, London
4
From the Resource book on Livelihood Promotion, 3rd Edition
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 Figure 1: The Coolie’s Framework

Step 1.1 Understanding People’s Livelihoods

There are four element of livelihood profile of a poor household: Livelihood Activity Portfolio,
Livelihood Capabilities, Livelihood Shocks and Vulnerabilities, and Livelihood Strategies of the
people (Please refer to profiling of livelihoods).

It is very important for us to pay attention to the People of the area. We must get to know our
target group very closely to ensure that we do not make the same mistake. We need to
consider:

 How will the proposed livelihood opportunities meet the needs of the household?
 How well does it match the resources and skills available to the household?
 How will it fit into the daily and seasonal rhythms of the household?
 Will it increase the household’s income or assets?
 Will it reduce or enhance the risks faced by the household?
 What assurances can be put in place to mitigate risk?
 Will the activity require organizing poor households in groups?
 How capable is the household to participate in such organization?
 What inputs will it require from us?

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Let us remember that the poor people, even before our intervention, are deployed into
different activities. Influencing any one of them, or introducing a new piece of action often
happens at the cost of one of the existing activities.

Livelihood Activity Portfolio

The poor people are often engaged in more than one activity for their livelihood in order to
maintain their cash-flow and also as a risk management strategy. Since we are trying to
promote livelihoods for poor people, it is important to understand the livelihood profile of that
people in the area have, well so that the proposed intervention fits into their daily and seasonal
rhythm of life. In order to know the livelihood profile of poor households:

 First, identify three groups of people from within the group of people we would like to
work with. These could be groups from three villages, or three communities or any
other social segment we are working with.1
 Go to these poor families and do a seasonality mapping exercise to understand their
livelihood pattern throughout the year. Make a list of the various activities they are
involved in at different points in time. Understanding the income from various sources
may help us formulate the seasonality diagram. Often poor people find it difficult to
assess their income. Therefore, we may try to understand their expenditure pattern to
know their income pattern and draw the seasonality diagram.
 Also try to understand the major bottlenecks in each activity. Make a note of these.
 Make a note of the months in a year they are without work or migrate.
 Consolidate the seasonality diagrams from different groups to develop a list of various
activities people in the area are involved in, with an indication of their magnitudes.
The exercise above would have given us a fair sense of the livelihood portfolio of the people
in our area. It may also have given us some sense of the livelihood capacities of the people
in the area, and livelihood strategies used by them.

Understanding the diversified livelihood portfolio in the area: The selection of the
livelihood intervention that will be implemented should be done on the basis of an analysis of
the current livelihood, the needs and the vulnerability context. Is the intervention within the
caring capacity (existing and potential) of the natural resources? What are the aspirations for
development within the community? In some situation an alternative livelihood will be a
required to meet the most basic needs of a household or village, while other livelihood
interventions are aiming for an increased level of well-being.

Besides, knowing about Livelihood Capacity, Livelihood Strategy of the people, and their Asset
Base, and Livelihood Shocks and Vulnerabilities are also important (Please refer to profiling
of livelihoods).

Step 1.2 Understanding organizational competence

The other important element of the internal context is the organization making the intervention.
With regard to the intervention, the following aspects are important for the agency involved,
and must be understood well:

Mission: Does the intervention fit with the organization’s mission? How core is livelihood
promotion to the organization’s mission? It is important to figure these out since the
organization’s functioning must align with its mission. Any mission is translated into specific
objectives that the organization tries to achieve. In order to achieve those objectives, it adopts
a Strategy, which is the way to achieve the objectives, and creates a Structure to implement
1
Usually we talk about a minimum respondent size of three. Talking to one sample group may leave an error.
But then if we check it with one more, and that shows a different view, to assess which of the two views are
closer to reality we need check with a third one.
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the strategy. The organization’s Staff executes their work and adopts a particular style of
functioning, which is appropriate to the organization. An appropriate alignment of these
elements helps the organization achieve its mission.

Capacity: The capacity of an organization includes its set of competencies, and it depends
on the availability of relevant financial and human resources. It is important to be aware of an
organization’s core competency, as it is likely to have serious implications on the interventions
they take up. Similarly, different funding sources and their nature may also influence the
organization’s capacity.

Figure 2: Elements of the External Context

Exploring the External Context

After understanding the relevant aspects of the segment of people for whom the livelihood
intervention is shaped and the intervening agency, it is important to grasp the external
livelihood context. There are four elements of the external environment that influence
livelihood choices: the Factor Conditions, the Demand Conditions, the Industry Conditions and
the Institutional Conditions (See Figure 1 or 2).

Factor Conditions
Livelihood activities utilize various accessible resources. Resources that go into production of
goods and services constitute the Factor Condition. For example, land, water, agro-climatic
conditions, availability of skilled people, the prevailing political economy, conditions of roads,
availability of electricity, general development indicators of the region define the activities that
can support a number of livelihoods in that area. Such Factor Conditions must be understood
before considering an intervention.

The presence or dearth of different Factor Conditions can imply adoption of different livelihood
intervention strategies. For example, the organization PRADAN, promoted lift irrigation in the
Ranchi-Lohardaga area, while choosing to work in the leather sub-sector in Barabanki-Uttar
Pradesh. This choice was made on the basis of several favorable factor conditions (many of
the resources) in these two locations. In Ranchi-Lohardaga, water from small streams was
plentiful and the tribals who owned land near the streams were able to undertake cultivation
once they got irrigation. In Barabanki, there was a large cattle population and a lot of landless
people who had the skill of handling dead animals, and did not have any social/cultural
prejudice against such occupation. The ready availability of hides from dead cattle was a
source of raw leather and therefore PRADAN chose to work with the tanning of leather in
Barabanki.
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While examining the Factor Conditions, one must note that the mere presence of the factor
conditions in the area may not be adequate to deem them useful. In order to actually enable
livelihood opportunities, a factor condition must have the 4-As:

• Asset : The asset, physical or otherwise must exist.

• Awareness : People must be aware that such an asset exists.
• Ability : People must have the ability to use that asset.
• Access : People must have access to the asset.

Unless these 4-As are also present with the resources, they are not useful to any livelihood
intervention effort. Some tools related to the access and ownership of resources are discussed
in the chapter on Tools as well.

Demand Conditions
Whatever be the chosen livelihood activity, there is always some output in the form of goods
or services. These goods or services are either useful to the HH (self-consumption) or to others
who are willing to pay something equivalent to their value, and which constitutes its demand.
When examining Demand Conditions, it is necessary to find out who is demanding the goods
and services produced by the people. Is the demand local? Is it increasing, decreasing or
stagnant?

It is aspects such as these that determine Demand Conditions, and which in turn, determines
the number of livelihoods that can be supported, and the income that can be generated from
the activity. Demand Conditions play a significant role in determining livelihood intervention
strategy.

How do we understand Demand Conditions Better?

Economic opportunities in the present-day world can be found in the Market. Market means
demand; though we have already looked at the demand conditions briefly, we have not yet
looked at some of the global and national market trends for these selected activities.

While looking at the market and market trends, it is always good to scan the global or national
markets and assess the characteristics of the market.

For example, the market for fruits and vegetables is growing the world over, but not the
markets for cereals. Therefore, even if the local markets for cereals are larger than fruits and
vegetables, it may be easier to work with the later, than with cereals, if other conditions in our
area permit.

However, identifying future trend of a product or a service is a complex task. But it needs to
be done. Variety of factors influence these trends:

i. New technologies
ii. Change in people’s lifestyle
iii. Change in demography
iv. Change in political balance
v. Or a mix of all of them

What Do We Look for in the Market?

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While scanning the markets, one should look for:

 Market Size: Large markets can support large number of livelihoods. For example,
millions of households depend on wheat production, while only a few thousand people
can produce Psyllium (Isabgol) that the whole world can consume, or a hundred
thousand people can produce all the bamboo baskets that we need. Intervention where
there is a fairly large demand makes good business sense
 Growing Market: A growing market throws up new potential for more people to join in at
different parts. It offers better opportunities for supporting larger number of livelihoods. An
existing large demand, which has no future growth or that which is likely to dwindle, cannot
be called a growing market; therefore it does not offer a very good prospect
 Dynamism: Markets which are dynamic; absorb changing technologies; constantly witness
entry and exit of players; offer scope for a wide range of activities, are dynamic markets
and can support many livelihoods
 Transparency: Transparent markets are usually fair, giving all players a level playing field.
 Low Barriers: Markets with low exit and entry barriers are an ideal choice. Usually these
markets become very competitive and are efficient.
 Systems: Look for markets which have well developed systems in place
 Support: A well developed chain of related and support industry is usually helpful

Analyzing Market Trend

We need to analyze the market trends carefully. We need to keep our eyes and ears open so
that we can quickly pick up signals of change. We need to consciously keep ourselves open
to such signals. In a simple manner, we could plot the market size (either in terms of total
production, or in terms of total value) of some of the commodities/ products that are/ can be
produced in the area, on a graph. Let us look at production of some crops in India, in million
Metric Tonne over the decade of 1990s.

Table 1: Production of Select Crops in India

Year Millets Potato Beans dry Soybean

1991 8.13 15.21 3.53 2.49
1992 12.28 16.39 3.87 3.39
1993 8.49 15.23 3.27 4.75
1994 10.30 17.39 3.06 3.93
1995 8.66 17.40 3.44 5.10
1996 10.94 18.84 3.51 5.40
1997 10.38 24.22 2.96 6.46
1998 10.60 17.65 2.75 7.14
1999 10.23 23.61 2.69 6.79
2000 8.68 25.00 2.63 5.09
2001 8.32 25.00 2.57 5.60
Growth in the 2% 64% -27% 125%
Decade

What does Table 1 tell us? It shows that the potato and soybean markets seem to be growing,
though potato market looks much bigger than the soybean market. Beans and millets markets,
however, seem to be stagnant, if not declining marginally. If our farmers are to produce these
four crops, it may be a good to help them improve their production of potato or soybean, whose
markets are growing.

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Please remember that though these are national level production figures, these give us a fair
sense of the market behavior. This also shows us that the potato and millets are more risky
as compared to beans or soybean.

Table 2: Various Information Sources for Understand Local Economy

S.No Particulars Information Needed Sources

1 District  Location  District Economic Census:

Background
 Rainfall District Statistical Office/
Planning Office in some districts
 Climate
 District Potential Link Plan
(published by NABARD for every
district)
 District Credit Plan (published by
the lead bank of every district)

2 Population  Rural - male, female  District Census Data: District

 Urban - male, female Statistical Office/Planning Office
in some districts
 Computed Annualised Growth
Rate - Rural, Urban
3 Literacy Rate  Rural - male, female  District Census Data: District
 Urban - male, female Statistical Office/Planning Office
in some districts
 Computed Annualised Growth
Rate - Rural, Urban
4 Workers  Rural - male, female  District Census Data: District
Participation Rate
 Urban - male female Statistical Office/Planning Office
in some districts
 Computed Annualised Growth
Rate - Rural, Urban
 Workers Classification as per
NIC
5 Land  Land Use Classification  Seasonal Crop Report: ICAR
 Cultivable Land Classification:
small, marginal, medium, etc.
both acre-wise and
landholding-wise
6 Agriculture  Cultivable Lands: Net, Gross &  Seasonal Crop Report
trend
 Reasons, for changes, if any
(Compare data  Major food crops: cultivable  NABARD: District Potential Link
with adjacent area, productivity & trends Plan
district or state
 Major Non-food crops:  LEAD Bank: Annual Credit Plan
averages)
cultivable area, productivity &  APMAC
trends
 Discussion with Stakeholders
 Availability of Market
Infrastructure
 Constraints in agriculture
production & marketing
7 Water  Irrigated Land: Net, Gross,  Seasonal Crop Report
trend
 Sources of Irrigating Water
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S.No Particulars Information Needed Sources

8 Animal Husbandry  Major animals reared:  Census of Animal Husbandry

Population, products
production
 Infrastructure for value addition
& marketing trends
 Marketing Trends and
Constraints
9 Forestry  Coverage, type & trend
 Forest Produce - kinds and in
Rs and trends
 Participation of JFM
 Scope for income generation
 Discussion with Stakeholders
10 Mining and  Major elements mined/quarried 
Quarrying
 Production - kinds and in Rs
 Employment opportunities:
Scope
11 Manufacturing  Units as per NIC 2 digit
classification,
 Persons employed
 Employment opportunities:
Scope
12 Services  Identify potential activities by
assessing current employment,
 employment absorption
capacity by calculating
Computed Annualised Growth
Rate, etc
13 Financial Services  Scheduled commercial Banks:
Loan outstanding sector-wise:
accounts and amounts
 Portfolio Analysis
14 Government  Performance status: Various
Schemes development schemes
 NABARD: District Potential
Credit Link Plan
 Discussion with Stakeholders
 Seasonal Crop Report
 NABARD: District Potential Link
Plan
 Directorate of Economics &
Statistics
Directorate of Economic and
Statistics
 Discussion with Stakeholders
 DIC
 Discussion with Stakeholders
 Random survey in at least five
market areas
 NABARD: District Potential
Credit Link Plan
 Lead Bank: Annual Report; RBI:
Banking Statistics
 Discussion with LEAD Bank
 Discussion with DRDA, Govt.
departments

How do we get the Information?

Many sources provide information on the global market trends and opportunities:

 Internet Search: Websites are the latest and most interactive sources of
information. They provide an opportunity to interact with specialists on the site who
respond to various queries. Also, Internet is a major source for tracking worldwide
trends and getting every kind of market information however specialized, in a
matter of minutes. (The information however comes at a price). You could look at
some of the sites like: www.agriwatch.com, www.commodityindia.com,
www.cmie.com
 Directories: Trade directories, economic databases, which are periodically brought
out and updated by research organizations, give the latest status of the markets
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  Publications: Business publications, such as Economic Times, Business Line etc.
give day to day information on the developments in the local, national and global
markets. Also, they are a very good source for obtaining data on sectoral studies
of various industry trends. Business magazines and special journals dedicated to
specific areas of interest can form a great secondary source of information

If you are getting impatient to start your intervention, you can right away start with these short
listed activities.

Industry Conditions

The third element of the external context is the nature and status of the industry, of which, the
livelihoods activity forms one part. Here we use the word ‘industry’ in a broader sense, to
include all economic activities. For example, production of paddy is a part of the cereal food
industry. Thus, it is important to assess the status of the industry, in which the livelihoods are
to be promoted. Is the industry growing and vibrant, or is it stagnant and dying? Are there
other related and supporting industries that extend their services? These related and support
industries often play a critical role in the chosen livelihood activity. Their presence or absence
creates conditions that make one livelihood intervention more effective or appealing than the
other.

Institutional conditions
All livelihood activities, and for that matter, all economic activities, are bound by some
institutional context. Apart from state policies and tax laws that govern the activity, there are
local norms, social arrangements that also infringe upon livelihood choices. Often these local
institutional arrangements, which express themselves as Social Norms, help people manage
their risks and vulnerability.

Presence of various institutions such as promotional, research and training institutions,

producer associations, also significantly influence the choice of livelihoods. Together such
elements define the Institutional Conditions, which forms the fourth element of the external
context influencing the choices in a livelihood intervention.

The 3-E Exercise (Explore the External Environment) for Understanding External
Context

We will now look at an exercise to Explore the External Environment, in short the 3-E Exercise.
This is an exercise designed to collect and consolidate information about various elements of
the external context (Demand Conditions, Factor Conditions, Industrial Conditions and the
Institutional Conditions as describes in Module III).

Step 2.1 : Identify Key Informants

 Identify at least three key informants or players in every selected activity

o It is useful to choose people from different interest groups because they will help
us build different perspectives on the chosen livelihood activity

Step 2.2: Develop Questionnaire for Assessment

 Generate simple questions, which helps assess conditions of various factors, which limit
livelihood choices in the area. (A sample set of questions has been indicated in Table 1
below).

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 o Take care to formulate the question in such a way, that you get answers to the
same question from all the respondents
o For example: If your question was, “Is the raw material available?” The dairy farmer
may respond about the availability of fodder, while the dairy plant manager may
respond about availability of liquid milk. To avoid such a mix up, formulate the
question precisely: “Is adequate green fodder available?” or “Is adequate liquid
milk available?’ depending upon what you want information on.

Step 2.3: Scoring by Key Informants

 Ask different key informants to assess each of these parameters on a scale of 1-5, where
1 is highly unfavorable and 5 is highly favorable, individually
o Only the respondent should give the score and we should not prompt him in any
way. If necessary we can use some PRA methods to help them score, but
evaluation should come only from them.
o It is necessary to go to at least three Key Informants. If we have the time and the
resources, we can definitely seek views of more.
o Score the responses of the Key Informants in the columns and find out the average
score on each of the 25 parameters.

Table 3: Format for 3-E Exercise

SN Activity Response (1 to
10)
A Factor Conditions for collective enterprises
1 Availability of Raw Materials
2 Availability of Skilled and willing SHG Members
3 Availability of credit
4 Availability of subsidy
5 Availability of Infrastructure (electricity, water, roads, storage,
etc.)
6 Access to information
7 Access to services
8 Proximity to resources
B Demand Condition for collective enterprises
1 Availability of demand aggregators
2 Proximity of demand aggregators
3 Competence to meet demand
4 Competence to create demand
5 Adaptability to technology induction
C Industry Conditions for collective enterprises
1 Availability of market leaders for product
2 Availability of market leaders for process
3 Availability of market leaders for services
4 Availability of process maturity with technology
5 Opportunities for process outsourcing
6 Existence of enabling policies
7 Awareness to adapt environment friendly activities
D Institutional Conditions for collective enterprises
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 SN Activity Response (1 to
10)
1 Presence of efficient Promotional Agencies (Very Efficient =10;
Inefficient/Not Present =1)
2 Existence of Functioning Producer Organizations
3 Existence of brand owners
4 Availability of incubators, innovators and R & D institutions
5 Members capability/role in governance
6 Ability to manage economy of scale
7 Ability to manage economy of scope
8 Ability to manage economy of integration

Step 2.4: Compare Scores of Different Activities

o Place the scores obtained by different activities in column totals at the end of each
column, and work out the averages of the score in the rows.
o Examine the column totals. Compare and see which activities have got high
scores. For instance in the table above, stone cutting has got the highest score
followed by dairy, goat rearing, leather and carpet making.
o The activities, which have scored high totals, are likely to have had favorable
conditions for most of the elements. Poor people may find it easier to work in such
a sector than the one where many conditions are unfavorable.

Step 2.5: Identifying Bottlenecks

 Now examine the row scores. The row that gets the lowest score indicates bottlenecks
 For example: In the stone cutting industry absence of appropriate organization of the
producers and availability of credit in dairy seems to be the critical bottlenecks.

Step 2.6: Identifying Interventions

 Chose an intervention point which can help overcome a bottleneck in the activity, and
which suits your own internal context.
 For example, given that credit is a ruling bottleneck in spread of the dairy activities,
you may chose to extend credit yourself, or

One important element of the Internal Context; the people, we have already assessed in the
3E Exercise.

3.0 Stage II: Deciding on intervention

Step 3: Analysing Value addition
Step 4: Knowing economies
Step 5: Deciding on Value Chain

Step 3: Analyzing Value addition5

5 This section is prepared by KV Raju for classroom discussion

13
Under the present technology conditions material, labour and capital have emerged as key
factors of production. Factor owners make contributions with fixed pay off rewards or
proportionate share of value. Any of the factor owners can take lead and come forward to
organise production of goods and services. Those coming forward and taking lead usually
negotiate fixed rewards for securing contributions from other factor owners and retain claim to
residual for themselves.

It is but natural for those who are assuming risks to try negotiating on conservative estimates
of value generated and highlights uncertainty and risk. Whereas, others who are negotiating
for fixed and definite return tend to base their negotiations on optimistic, if not on
exaggerated, estimates of value generated and to undermine the risk and uncertainty.

The divergence in the estimated and realised value of goods and services produced may leave
those who assumed risks better off or worse off. If they emerge better off, others will feel
jealous, cheated and exploited. If, the risk takers do not emerge better off but become worse
off, others feel relaxed and congratulate themselves for having wisely negotiated a fixed and
definite return for their contributions. Fixed pay off factor owners do not receive benefits due
to increased productivity and/or increased value realisation than anticipated and the demand
for extending their claims beyond fixed pay off rewards derives force and legitimacy from this.
Labour based production (fruit gathering and hunting), land based production (agriculture)
systems were first to emerge. The advent of new methods of mass production and large-scale
marketing make it almost impossible to organise production of goods and services in the
absence of capital on a large scale.

Providers of each factor are trying to claim a major chunk of the value generated for them,
often disregarding the claims of others. Aggregation by absorption and elimination by
displacement or replacement are the methods employed to achieve complete control over
production and supply of goods and services. The level of technology moderates this struggle
and forces material, labour and capital factors to coexist in the process of production of goods
and services. The distribution of the value realised from the goods and services jointly
produced by these factors is based on their relative negotiating strengths backed by their
relative scarcity rather than their objective contributions to the production of the same.

Step 4: Knowing Economies

Economies of scale: In microeconomics, economies of scale are the cost advantages that
an enterprise obtains due to expansion. There are factors that cause a producer’s average
cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run
concept and refers to reductions in unit cost as the size of a facility and the usage levels of
other inputs increase.

Economies of scope: Economies of scope are conceptually similar to economies of scale.

Whereas 'economies of scale' for a firm primarily refers to reductions in average cost (cost per
unit) associated with increasing the scale of production for a single product type, 'economies
of scope' refers to lowering average cost for a firm in producing two or more products. The
term and concept development are due to Panzar and Willig (1977, 1981).[1] Here, economies
of scope make product diversification efficient if they are based on the common and recurrent
use of proprietary know-how or on an indivisible physical asset.[2] For example as the number
of products promoted is increased, more people can be reached per dollar spent. At some
point, additional advertising expenditure on new products may start to be less effective (an
example of diseconomies of scope). Related examples and distribution of different types of
products, product bundling, product lining, and family branding.

14
If a sales force is selling several products they can often do so more efficiently than if they are
selling only one product. The cost of their travel time is distributed over a greater revenue
base, so cost efficiency improves. There can also be synergies between products such that
offering a complete range of products gives the consumer a more desirable product offering
than a single product would. Economies of scope can also operate through distribution
efficiencies. It can be more efficient to ship a range of products to any given location than to
ship a single type of product to that location. Further economies of scope occur when there
are cost-savings arising from by-products in the production process. An example would be the
benefits of heating from energy production having a positive effect on agricultural yields.

A company which sells many product lines, sells the same product in many countries, or sells
many product lines in many countries will benefit from reduced risk levels as a result of its
economies of scope. If one of its product lines falls out of fashion or one country has an
economic slowdown, the company will, most likely, be able to continue trading. Not all
economists agree on the importance of economies of scope. Some argue that it only applies
to certain industries, and then only rarely.

Economy of Integration: Backward and forward integration are strategic initiatives

companies may perform to reduce risks and interdependencies with external business
partners in the supply chain. Fundamentally, companies may increase their control over a
wider scope of the supply chain by performing backward and/or forward integration, and
increase their own decision-making power over key resources and competencies important to
the competitiveness of the organization.

Backward integration can involve a purchase of suppliers in order to reduce supplier

dependency with regard to e.g. timely deliveries, quality concerns, innovation ability etc.
Forward integration is a strategy in which companies expand their activities to control the direct
distribution of their products. This might be required, if companies would potentially benefit
from handling e.g. the shipping of own products directly to customers, or the retail selling of
own brands in brand stores. There might be various good reasons for companies to perform
either backward or forward integration, but such strategic initiatives should always add specific
value to the company, and should always be aligned with the overall strategy of the company
and with customer needs and wants.

Step 5: Deciding on Value Chain6

Value chain precedes a well identified supply chain. The supply chain is one of the most
innovative, complex and dynamic chain that any organization can hardly ignore. Supply chain
approach in the world today is widely accepted as a complex phenomenon because of the
agents and processes involved and the need for performance management. During study of
a value chain it is necessary to incorporate a broader and more balanced approach of
identifying and measuring the overall integration issues which are vital for the ongoing supply
chain.
The concept of value in supply chains concentrates on the internal operations of individual
participants. It does not cover the various inter-relationships, combinations or integrations that
occur along the chain. Good planning starts with a clear understanding of the for the ideal
supply chain operating in a given environment. Unless you know what the required results
expected from the plan are, you will not reach it. Assuming that these needs are captured
adequately by whatever method is used, and then appropriate can be determined. If there is
uncertainty about what the actors in the chain want from the overall chain or system, perhaps
because they are unfamiliar with the capabilities of technology, or the extent of the chain
capabilities, then there could be fuzzy and hard to determine. In that case, methods more

6
Altenburg, T. (2006), “Governance patterns in value chains and their development impact”,
The European Journal of Development Research, Vol. 18 No. 4, pp. 498-521..
15
suited for such circumstances should be used – including prototyping or evolutionary
acquisition. Determining value is not about getting the value right; it is about getting the right
value. With inappropriate, you can make a Type III error i.e., “Provide a Good Solution to the
Wrong Problem.” The success of a value chain depends upon a system that reflects, as much
as possible, the wishes and wants of the range of people involved in influencing the system
or influenced by the system.

There are many types of value. Unfortunately, there is a tendency for planners to concentrate
only upon the value that indicate desired features or capabilities of a product, process, system
or indeed total supply chains. This concentration can lead to the neglect of other that may not
be so visible but are essential to the success of a plan. The can describe the different aspects
of performance or conformance. A shortfall in any one of these outcomes will lead to difficulties
in implementing the plan. Effectiveness refers to functions to be provided: able to prepare
documents, able to monitor performance, able to calculate. The assessment of effectiveness
is measured in terms of value added to the organization’s objectives. The capability refers to
the features of a systems or its necessary output. A capability provides the desired features
or attributes. Capacity refers to the throughput of the chain. It is the flows, which include
physical capacity, information and financial flows. The capacity of the system is a measure of
its ability to support the required number of users over the required time for the required
number of tasks. All these must be integrated.

Achieving value in the total value chain needs overall alignment of similar goals and objectives
of all actors and is crucial to develop the value from the chain. All actors must be aware of the
tangible outcomes such as financial, product and service quality; intangible outcomes of the
holistic chain and the outcomes of relationships. Value is achieved from both the tangible and
operational aspects as well as the intangible and managerial/entrepreneurial aspects of the
total chain. In developing this holistic supply chain scorecard further to incorporate both the
tangible and intangible value adding concepts, the following diagram emerges.

The diagram covers the tangible and somewhat easily measured components that support or
impact the operational capabilities. These include the financial flows, the informational flows
and the process and procedural flows. The industry standards, regulations and corporate
governance aspects need to be included to balance the overall stakeholder satisfaction levels.
All these aspects will improve or constrain the flows and operational performance of the total
chain. The tangible aspects are important as the operational efficiencies of the total chain will
operate more efficiently when all the flows and processes align smoothly. Core business
processes are related activities that combined create value as they sequence the activities
within and between the participants along the chain. When the procedures and processes
integrate smoothly there is little disruption to the physical, informational or financial flows. The
16
governance of these processes and policies of the organizations along the chain need also to
align. Governance is listed together with regulations and industry standards. It could be an
overarching managerial component as it affects the financial, regulatory and information flows.
The approach to industry standards, regulations and external environmental pressures such
as political, economic and social all need to be considered under this scorecard grouping.
Every participant along the chain needs to comply with the overall decisions and coping
approaches to regulatory, economic, political and societal pressures. If one area of the chain
does not comply with a regulation then further along the chain the good or process may be
held up to accommodate the compliance of a regulation. The asset management of the
information technologies required for order and invoice processing, visibility and accuracy of
billing and notifications and linkages to appropriate members inside and outside of the chain
needs to be managed so that disruptions do not occur. Accuracy, visibility and flexibility all
add value to a supply chain.

The second issue covers the intangible and more difficult to measure components and these
are the managerial and entrepreneurial aspects of the chain. These include the collaborative
and relationship management aspects, the strategic and financial targets and goals and the
alignment along the total chain. It also covers the management of change and innovation.

4.0 Stage III: Designing the Intervention

Step 6: Overlaying competence (intervening organisation)
Step 7: Design of livelihood organisation
Step 8: Creating pro-producer value chain
Step 9: Mustering Financial Resources
Step 10: Initiating and initializing operations

Step 6: Overlaying Organizational Competency

The 3-E Exercise gives us a fair amount of information about some of the potential activities
in the area. Apart from the information, the dialogue with three key informants of these
activities is also a very enriching process. By completing this exercise, we become quite
familiar with:

 Some of the activities that can be taken up by the people in the area for their
livelihoods;
 Factor and demand conditions for production of these activities present in the
area; and
 The major bottlenecks in taking up this activity.

We now need to choose the exact intervention that we need to start with. We can also plan
for some interventions that we could take up later, and prioritize/ sequence them. This choice
needs to be made on the basis of the capacity of the organization that will have to make the
intervention.

It is important for us to recognize that livelihood intervention is a complex task. Therefore, we

need not have all competencies within the organization for us to say that the organization has
the competency. There could be different stages of competency of the organization.
 It already has the competency
 It can build the competency within the existing people in the organization.
 It can choose to collaborate with some other organization, which has the
competency.
 It can hire in new people and build the competency.
 Required competency may not be available at all.
17
Similar analysis is also applicable for not only the human resources of the organization, but
also on financial resources, infrastructure and so on. In these cases also we need to ask:
 Do we have to resource (which in turn will make the organization capable) within
the organization?
 Is there some other organization we can collaborate with who can bring in the
resource.
And so on…
This analysis involves two steps.

Step 6.1: Identifying intervention that can help overcome bottlenecks

Step 6.2: Assessing Need for Services in Livelihood Promotion: Livelihood Triad
Step 6.3: Assess whether the organization has the competence required for the task or
can acquire such competency in collaboration with some other agency.
Step 6.4: Pulling out additional Strengths: Collaborative Polygon

Step 6.1: Identifying intervention that can help overcome bottlenecks

Identifying the specific interventions that can help overcome a bottleneck identified through
the 3-E Exercise is a creative task. For this we need to consult a variety of stakeholders, look
at efforts done by other organizations. Many suggestions would have come during the
interaction with the key informants during the 3-E Exercise. We need to consolidate these
ideas. For example, in the dairy intervention in the above case, if credit is a major bottleneck
identified, we could choose from the following:

 Making credit available through our organization’s micro-finance activities

 Making credit available by collaborating with one of the micro-finance agencies working
in the area
 Making credit available by promoting a new people-owned micro-finance agency in the
area
 Making finances available by linking the producers with banks in the area.

The first step is to generate all these ideas. We could use any of the brainstorming
processes for generating such a list.

6.2 Assessing Need for Services in Livelihood Promotion: Livelihood Triad7

The endeavour called livelihood promotion is very complex. Though many development
organizations have attempted to extend a wide variety of services, there are few, which have
attempted to address it in its full range. One of the very good examples of providing them
could be the Self Employed Women’s Association (SEWA), which has over 750,000 members.
The Livelihood Triad includes micro finance services (MFS), livelihood promotion services
(LPS), and institutional development services (IDS)

Micro-finance services (MFS): Savings and credit through the SEWA Bank, district level self-
help group federations linked to the SEWA Bank and insurance services through Vimo SEWA.

Livelihood Promotion Services (LPS): the SEWA staff takes up livelihood identification in
the retail outlets and the market facilitation center, which then informs various occupational
cooperatives about market opportunities. The producers are also provided a number of
training programs in both technical and commercial aspects of their occupation, linked with
input suppliers and equipment makers. SEWA also runs a chain of retail outlets for marketing

7
This section is extracted from Datta et al. 2004. A Resource Book for Livelihood Promotion, BASIX and New
Economic Foundation pp. 19-28
18
the products of its members, and a market facilitation center to link them with overseas
customers.

IDS

Livelihood
Triad

MFS LPS
Figure 3: Livelihood Triad

Table 4: Services Required for Livelihood Promotion

MICRO FINANCE SERVICES LIVELIHOOD PROMOTION INSTITUTIONAL DEVELOPMENT

(MFS) SERVICES (LPS) SERVICES (IDS)

 Savings  Identification of  Formation of groups,

 Credit for consumption
as well productive needs
 Insurance, for lives and
livelihoods
 Commodity futures, to
reduce price risk
 Financial orchestration
livelihood cooperatives, federations,
opportunities etc. of producers
 Productivity  Capacity building of the
enhancement above
 Market linkages -  Accounting and
Input supply, output management information
sales systems
 Local value addition  Performance management
systems
 Risk mitigation (non-  Policy analysis and sector
insurance) work

Institutional Development Services (IDS): SEWA itself is a registered trade union and
places a lot of emphasis on member organization and member education. It has also adopted
the cooperative form for organizing those of its members who need to come together for their
work on a day-to-day basis. SEWA also undertakes policy research and advocacy work. It has
collaborated for decades with researchers in the field of gender issues, informal sector and
micro-finance, and through them influenced thinking and policy. Ela Bhatt has been a member
of the National Commission on Labor as well as member of the Planning Commission of India
as also a Rajya Sabha MP and has actively tried to draw attention to the cause of self-
employed poor women.

There is no better example of holistic livelihood promotion in India than SEWA. There are
other examples, such as the NDDB, CDF, SIFFS, BAIF, MYRADA and PRADAN, all of whom
have used different combinations of this strategy. It is possible to conceptualise this work in
the form of a “Livelihood Triad”, as shown in Figure 3.

19
The rationale behind this is as follows: Micro-credit in particular, and micro-finance (including
savings and insurance) in general, is helpful for the more enterprising poor people in
economically dynamic areas. However, for poorer people in backward regions, a whole range
of other livelihood promotion services (input supply, training, technical assistance, market
linkages) needs to be provided. Likewise, it is not possible to work with poor households
individually as they need to be organized into groups, informal associations and sometimes
cooperatives or producer companies, all of which requires institutional development services.
Other services include training and capacity building, information-education-communication
(IEC), marketing support, etc.

Step 6.3: Assess Organization’s Competence

Having generated the list of possible interventions, we need to check for ourselves, if we have
the competence and the mandate to take up that intervention. We can use the following Table-
6 to facilitate this analysis. Let us remember that, the mission of the organization influences
these choices. If the mission of the organization is to extend ‘any services necessary for
supporting livelihoods’ we could explore all the choices above. But if the mission is ‘to extend
any non-financial services necessary for supporting livelihoods’, the choice will be limited to
options 2 and 4 above.

Use a Scale of 1 to 5 to assess the competence of the organization, where 5 is Competence

Available for Use within the Organization, 1 is where it will be extremely difficult to mobilize
this even from the organizations known to us. This level of analysis is often good enough for
us to start the livelihood intervention process. However, in case we are planning a large
intervention, and would like to be much more accurate, we can also undertake a sub-sector
study.

Table-5: Assess Organization’s Competence

Sl Interventions MFS LFS IDS Total
No Strengths Strengths Strengths Strengths
1 Through our organization’s micro-
finance activities

2 In collaborating with one of the

micro-finance agencies working in
the area
3 Promoting a new people-owned
micro-finance agency in the area
4 Linking the producers with banks
in the area

Step 6.4: Pulling out additional Strengths: Collaborative Polygon8

Over the years, the economy has become specialized, dynamic and complex. Thus, on one
hand services required for supporting large numbers of livelihoods have become more diverse,
on the other it has become necessary for agencies providing any of the services to be more
specialized. For example, while setting up the Sriniketan Experiment, Tagore recognized that
the weavers needed inputs in design and some related skill development. Most of the raw
materials were produced locally and so was the marketing of the cloth, which the weavers
were accustomed in doing. However, with the development of the industry, today the raw
material comes from distant markets. The fabric manufactured by him also goes to markets
8
This section is extracted from Datta et al. 2004. A Resource Book for Livelihood Promotion, BASIX and New
Economic Foundation pp. 19-28
20
that s/he neither has information about nor has access to. Thus, the range of services required
for supporting livelihoods have become wider: it includes supply of raw material, marketing, in
addition to helping them design.

Figure 4: Collaborative Polygon

Collaborative Polygon

Effective intervention in livelihoods requires

collaboration between agencies with complementary
strengths.

Credit
Provider
Input Output
Supplier Processor/
Marketer
Rural
Producer

Research Extension
& Training Agency

But, earlier the designer could also help in skill building, as a trainer. But today, with the
rapidly changing tastes for design, increasing competition, the designer has to become
specialized in designing only to remain effective and efficient. Thus, for providing the larger
number of services required today, larger number of specialists are required. This also has
serious cost implications in the era of reducing margins and the cherished value of making
things available to the ultimate consumer at the lowest possible price.
This problem is addressed by creation of collaborative arrangements indicated above. For
supporting livelihoods, services are required in input supply, output marketing, infrastructure,
technology development, research, training, community organization among others. In today’s
economy one agency cannot develop the competency of providing all of them. Thus, an input
supply company needs to collaborate with an output marketing company, which in turn needs
to collaborate with a credit provider, and build a collaborative polygon.

In various forums of livelihood practitioners the need for collaboration for addressing the
problem has been acknowledged. However, it has also been recognized that effective
collaboration requires not only appreciation of the competencies of the other partners, but also
making space for each of them.

Step 7: Design of Livelihood organisation

As discussed earlier, livelihood involves participating in a value chain, adding some value to
some resources to make them more useful to self or others, who are willing to pay for the
value-added product. The nature of these value addition functions are not the same. More
often than not, these are performed by different enterprises. Therefore, many livelihood
initiatives require planning for several enterprises. Ownership and management of these
enterprises depend upon the nature of value addition function performed, the investments
required and the control proposed.

21
For example, in the Anand Pattern Co-operatives promoted by NDDB, which has affected the
livelihoods of many, the milk production function is performed by individual milk producers.
But, processing this milk into skimmed milk powder and butter oil requires a much larger scale.
Therefore, the dairy plant is created at the district level. As this requires a larger investment,
this is owned by a collective. But if this dairy plant has to be at the district level, one more
value addition function, such as collecting milk from different individual milk producers
becomes necessary. This is done by a third set of enterprises — the Village Level Cooperative,
which is owned by all the milk producers in the village. Whereas, the district level plant is
owned and managed by a collective enterprise, the entire village level cooperatives in the
district. After the milk is processed and converted into long table-life milk-products like butter
and cheese, these can be marketed across the country through a Producer Company.

Therefore, what we see is that livelihood promotion initiatives often involve promotion of
multiple enterprises to undertake different value addition functions. These need not be in the
same form. Their ownership will also be different, depending on the nature of the value
addition and the capital requirements. An appropriate mix of enterprises and other supporting
institutions need to be developed.9

Different Ownership Options

Before examining the various combinations of Ownership Models of Enterprises in the

livelihood intervention design, let us look at some of the most common forms of ownership of
enterprises. This poses questions such as: Who will own the plants and equipment required
for the value addition activity? What stages of the value chain are appropriate for individual
micro-enterprises? Which of it is appropriate for group enterprises and which stages requires
a formal structure like a cooperative or a producer company? Do they also own the activity?
Do they have the capacities to discharge the roles of the owner? What interest do they
represent? Is there some party whose say in management of the activity has to be considered?
Are we willing to give the power to the chosen group of owners?

All of these have significant legal implications. It would be helpful to consult someone who has
good understanding of the legal issues related to organizations

Livelihood Enterprise Owned by Individuals

Some parts of the production or value chain may be owned by individual producers. The cow
is owned by an individual dairy farmer. The tasar (silk) grainage promoted by PRADAN are
owned by individual entrepreneurs, who produce the seeds and sell them to cocoon
producers. Many of the support services required for livelihood activities are often owned by
individual enterprises. Many Community Resource Persons (CRPs) selected from the paddy
producers in Bihar, have been trained by BRLPS and PRADAN together to supply inputs to
farmers who adopt SRI. Many Livelihood Service Providers (LSPs) appointed by BASIX or
DHRUVA are also individual entrepreneurs who supply a variety of inputs to the producers.

Livelihood Enterprise Owned by a Collective of Producers

Some enterprises in the value chain, such as the enterprise which collects milk from individual
milk producers in the example of the Anand Pattern Cooperative, are owned by a collective of
all the milk producers in the village. In some cases, they are registered as a Co-operative. In
some cases they may be registered as Mutual Benefit Trusts or Producer Companies.
Examples of similar collectively owned livelihood activities include MEADOW, a watch

10Different mix of agencies/enterprises required for livelihood promotion and/or support has been
discussed by Pastakia, Astad (2007); ‘Making Institutional Choices for Livelihood Interventions’: A
research study based on on-line data collected through Solution Exchange

22
producing ancillary promoted jointly by MYRADA and Titan, fish marketing cooperatives
promoted by SIFFS, and a variety of Farmer Producer Organizations (FPOs) promoted by
Small Farmer’s Agri-Business Consortium (SFAC). These collectives can be registered under
different legal forms, such as cooperatives, partnership firms with an inter-se agreement
between the producer partners, mutual benefit trusts, producer companies, trade-union with
mutual trade license, to mention a few. Each of these forms have their own strengths and
weaknesses. The specific context in which these forms can be used and the process of their
promotion has been discussed in Institutional Development – An operational guide.10

Livelihood Enterprise Owned by the Livelihood Promotion Organization

In some specific cases, where either the producer’s collective or individual entrepreneurs are
not in a position to own the enterprise required for a particular function, livelihood activities
also need to be owned by the livelihood promotion organization. Examples of these include
several marketing organizations such as Dastkar, Daaram, Mother Earth, which market
handicrafts of a variety of producer groups. In these activities, often the individual producer is
not in a position to invest the capital required, but a fair system of pricing has not yet been
developed for it to be handed over to individual entrepreneurs. These livelihood promotion
institutions could be developed through CSR initiatives, by civil society or by the Government.

Livelihood Enterprise with Mixed Ownership

Often livelihood activities are organized in multiple tiers, with each tier performing different
functions in the value addition chain. This creates opportunities for having the structure and
ownership of different tiers being created differently. For example, in Marathwada, SHGs at
the village level have promoted a mutual benefit trust at the district level. These trusts in turn
have invested in Non-Banking Finance Company, Anik Financial Services Limited. What are
the advantages and disadvantages of such an arrangement?

Management of the Livelihood Enterprise

Management of the livelihood activity need not always rest with the owners. Even in large
corporations, owners engage a group of professionals to manage the enterprise. AMUL,
though owned by farmers of Khaira District, is professionally managed. There are such various
choices available to the practitioner.

Producer-Managed Livelihood Activities

Local producers very successfully manage many small livelihood activities that deal with local
markets. However, there are many functions in larger business processes that local producers
cannot replicate, or may find difficult to manage. For example, functions such as estimating
sales trends for broiler chicken in Bhopal or one of the major metros, negotiating prices with
urban consumers, surveying urban markets for consumer preferences in handicraft design,
etc. may be some functions that an individual local producer may not be able to handle.

Livelihood Activities Managed by Hired Professionals

Many producer-owned livelihood enterprises hire professionals to manage key functions of

their business. Managing business activities with a developmental focus involves special
people. Such special people, however, are in short supply. When hiring professionals to
manage producer-owned organizations, it may be challenging to build the capacities of local
producers to maintain control over the management.

10
Rama Kandarpa and Radhika Mathur (2007), Institutional Development – An operational guide,

23
Design Concept of Collective Organizations11

How do we, then, define `design-concept’ of a successful community based organization? Or

if we come across a lone example of a successful experiment, how do we figure out whether
it offers potential for a robust design concept or not? This, in our view, is one of the most
important questions in the development world, which has a powerful propensity to generalize
from singular success. Design-concept of an organization can be viewed as its central
architecture or configuration, particularly as it affects the relationships amongst its members,
employees and leaders. It subsumes a testable theory of why this particular method of
organizing has greater changes of success than several alternative ones.

In evolving the idea of the design-concept, it is useful to view a community (or member)
organization as consisting of three inter-connected entities as shown in figure 5: membership,
the `operating system’, and the governance structure, which is the elected board of the
members. The operating system provides a range of services members need; in turn, it
receives member business and capital from members to build it. Since members are too
numerous to hold the operating system accountable to itself, they use an elected board as
their governance structure.

Design principle 1: core purpose central to members

Robust design-concept of a community organization aims at purposes, which are central to
members and not to government, donor agencies or implementing organizations. In
understanding a cooperative that has failed, the first question one can profitably ask is: whose
purpose was it meant to serve? Canal irrigation cooperatives in many regions exemplify this:
most often, the purpose they are designed to serve is of the irrigation bureaucracy rather than
of members; it is therefore not surprising that they have not taken off. For a design-concept
to be robust, it is not enough that the purpose it serves be relevant to members; it must be
central, and it should be achievable through some form of organizational intervention.

Design principle II: get the right operating system

The `operating system’ is the device organizations evolve and use to achieve purposes
important to their members; it includes the business enterprise of the cooperative, and
systems, structures, rules, norms that govern its working. Everything of significance we find
in a community organization -- other than members and their elected leaders --would generally
be part of the `operating system’. In a chit fund group, it is simple and includes the foreman
and a set of simple rules about the periodicity of instalments and meetings, about the disposal
of pooled funds and compensation to the foreman. In a marketing cooperative, it will include
office, storage and processing facilities, managers, employees, and norms of pooling and for
wholesaling, grading facilities and routines. The design-concept of a cooperative aiming at
purposes central to its members will be robust only to the extent that its operating system is
able to find, develop and sustain distinctive competitive advantages so as to out-perform its
competitors and/or alternative organizations. They typically do so by finding newer end-users
for member outputs, by forging newer linkages between members and the users of their
service/outputs, by modifying the technology used at intermediate stages, and, in general, by
finding innovative ways to addressing critical anomalies in the operation their sectors which
most restrict their members’ opportunity sets. Moreover, in cooperatives that gain enduring
success, their design-concepts ground their unique competitive advantages in their very
nature as a community organization.

11
Adapted from Tushaar Shah’ note on Design of Energetic Farmer Cooperatives. This abridged version is
prepared by Prof. K. V. Raju, IRMA

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 Figure 5: Basic Design of a Community Based Organisation

GOVERNANCE

SYSTEM

Performance
Demands
Transparency

Performance
Leadership

Rewards
Elects

&

Patronizes
Services
OPERATING
MEMBERS
SYSTEM
SYSTEM
Delivers
Services

Design-principle III: patronage cohesive governance

The potential of otherwise similar operating systems to generate value tends to vary over a
wide range. Ceteris paribus, the level at which the operating system actually operates as an
engine of value generation depends upon the quality and level of performance related
demands made upon it and of performance related support provided to it by members through
their governance structure. Owner-operated and investor-owned organizations, which are the
usual competitors with cooperatives, enjoy a structural advantage over them in this respect;
and robust design-concepts overcome their governance weakness by promoting design-
features that enhance the `patronage cohesiveness’ of its governance structures and
processes. Patronage cohesive governance implies, in the first place, that supreme policy
making authority for the organization is vested in the elected board of members to whom
managers are fully accountable. High levels of patronage cohesiveness ensure that achieving
purposes for which members patronize the cooperative remains the central talisman in the
governance of the cooperative. Patronage cohesiveness thus ensures the double
accountability crucial to success: of `operating system’ to the governance structure, and of the
governance structure to the membership. However, powerful the `operating system’ may be
as an engine of value generation, it must eventually degenerate unless the governance
structure is able to hold it continually accountable for serving purposes important to members.

Design principle IV: securing and retaining member allegiance

Shaping and managing member expectations and behaviour vis-à-vis the cooperative is the
constant and trickiest challenge that faces cooperative governance structures. In this, the
most crucial is its launch. The skill with which a new cooperative based on an otherwise robust
design concept is launched and run in has a decisive impact on its steady-state performance.
25
Cooperatives sustain member allegiance over a long period only to the extent that purposes
important to their members whom they serve cannot be served better through other means.
The moment new and attractive options become available, the cooperative should expect to
lose its patronage base unless it is able to surpass its new competitors through innovation and
improvement. In the long run, thus, there is no such thing as member-loyalty. Finally,
functional allegiance of members depends strongly and directly on the extent of `private’
benefits but weakly on the collective benefits conferred by the cooperative on its members.
Finally, robust design-concepts build and sustain member allegiance by progressively
evolving and enforcing a structure of rights of the members on the cooperative and of the
cooperative on its members by linking private benefits with patronage.

Design-concepts vary in the demands they make on domain conditions. Robust design
concepts – such as of chit fund groups – are likely to survive and work in hostile domain
conditions; fragile design-concepts, in contrast require highly favourable domain conditions to
work. Robust design-concepts differ from fragile ones in the effectiveness with which they
serve purposes important to their members better than existing or alternative organizations
do; and the proof of this is that organizations based on robust design-concepts come up
swayambhoo or with little external nudge, continuously propagate and improve themselves,
and resist, adapt or mutate when threatened with external assault on their design sanctity.
Fragile design-concepts do none of these.

Step 8: Creating Producer-member driven value chain

Step 9: Mustering Financial Resources
Step 10: Initiating and initializing operations

Step 8: Creating Pro-Producer Value Chain

“Pro-Producer12” as a concept is fundamental for existence and continuance of the

cooperatives globally. Though there are various sectors in cooperatives including farm, non-
farm, cases discussed in this series relate to producer members and therefore, the term pro-
producer is more appropriate for discussion through generally cooperative members are poor
as well. It is therefore, useful for the reader to debate on the issues related cooperative
principles that are “pro-poor”, “pro-producer” and “pro-member” before proceeding further on
case analyses. However, these issues deal with a fundamental and common question that
needs an answer: “why producers come forward to from these cooperatives and continue to
stay with it?” ILO has come forward with certain understanding on pro-poor strategies which
may be well mapped to pro-producer environment on cooperatives. First of these imperatives
are “pro-producer growth which means income of producers increases (e.g. of the lowest
quintile) equally or more than the average income”. It means producer members participate
directly in the economic growth, not rely on “trickle down” processes or social transfers. The
second is related to “gender equity” in the governance and memberships with the conditions
of freedom, equality, security, and human dignity. The third imperative is related to “inclusion”,
“participation” “transparency” and “accountability”. The fourth and most critical imperative is
“producer-member centrality” which means the cooperative needs to recognize capabilities
and potential of member households and their income centrality and map them with that of the
cooperative’s mission. It argues in favour of strong market orientation for the products and
services that cooperative is pursuing and ensure that producer members are aligned to this
strategy. This is likely to succeed through continuous innovation and interventions of the
cooperative and translating them for adoption at the member level.

Step 9: Mustering Financial Resources

Budgeting

12
Source: ILO (2006 ) Decent Work and Poverty Reduction Strategies (PRS) - An ILO Advocacy Guidebook:
A supplement to the PRS reference manual, Policy Integration Department, ILO Geneva
26
Having developed the Activity Plan and the HR Plan, we are now ready to move to the next
step of developing a budget. Though budgeting sounds a complicated work, its basic principles
are very simple. Any activity that is to be taken up requires some resources and every resource
is required in some quantity, which we need to estimate. There is also some prevailing price
of the resource.

Budget for that Resource = Quantity of Resources Required x Its Price Once we have
developed the budget for one resource, we have to do the same for all other resources. When
developing a budget, it is useful to think in four bundles.

People-Related Costs

From the HR Plan by this stage one would know the number of people required (Quantity),
their Remuneration (Price) and the period for which their services are required (months or
days, depending on whether the remuneration used was given as a rate per month or per
day).

Total HR Budget = No. of People x Average Remuneration x Time

In the example used earlier, we may require, say, two CRPs to conduct a training. They may
be given a remuneration of Rs 150 per day. Therefore for conducting 20 training programs the
People-Related Cost would be (20 programs x 2 persons x Rs 150 =) Rs 6,000 for the
complete year.

As people with different skills and capabilities may be required for different periods of time,
and whose services maybe available at different wages or salaries, it may be useful to do this
estimation for all the different categories of people required for the program. In the above
example, one may require a Training Coordinator at the District, who not only trains the CRPs
but also ensures delivery of the programs, for Makhana, paddy, dairy and two other activities.
That person needs to be paid a remuneration of Rs 30,000 per month. There are two ways
we can budget for her time. First, we can do the estimation of all the five activities together
(that is, adding number of training programs for paddy, dairy and so on) and add her cost to
that. The second method could be we divide her total cost, Rs 360,000 in the year into five
parts and add Rs 72,000 to the budget. There are two different parts of the related
administrative costs. Some of these maybe substantial and will have to be spent irrespective
of the quantity of work done, such as rent. Usually for such administrative expenses the
approved budget specifies their limits. Then there are other expenses, which are related to
the quantity of the work done, or which are also related to the number of people, such as
travel. These are estimated as a proportion of the total Remuneration Budget. These are
estimated as 10 percent of the Staff Cost. The percentage of cost permitted here, may also
be specified in the Approved Budget.

Specific Activity-Related Costs

For these costs use the same logic as before. For example, if as per the action plan we have
to conduct 20 training programs in Makhana Processing and each training program costs Rs
1,000 then the budget required for training will be Rs 20,000.

One-time Expenses

In addition to these three categories of expenses, sometimes we may have to budget for one-
time expenses, such as LCD Projector. Here too, the same logic needs to be applied. If we
need One LCD projector and it costs Rs 55,000 our total budget will be (1 quantity x 55,000
price), that is Rs 55,000 .

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The sum of these four components gives us the total budget.

We must remember that many of these numbers are estimates. Though we may plan to
conduct 20 training programs, in reality we may actually have to conduct only 18. Though we
expect that it would cost us Rs 1,000 to conduct a training program (not including the
remuneration to the trainer which would have been counted as a part of People Related Costs
and their Travel cost, which may have been counted as 25 percent of the Person Cost) it may
have actually cost us Rs 1,100 for a program. Therefore, budget is just our ‘best estimate’ and
not the real or actual cost.

Sources of Financing — Supplementing through Convergence

After developing the budget we need to worry about the sources of finance. This must be done
with a close eye on the main project. Most activities whose planning and execution is required
for promoting or supporting large number of livelihoods, are usually provided for in most
contemporary projects. However, this may require a careful study of the Inception Document.
Depending on the design of the program, many of the budget items may have been
reclassified under different budget items. For example, if our intervention requires purchase
of a few boats for plucking of Makhana, there is a provision of Community Investment Fund
(CIF) in NRLM, which is so designed that the community institutions can make some
investments into facilities to be used by all the members of the institution, in this case the SHG.
Therefore, the SHGs which are engaged for Makhana cultivation in some ponds can apply for
some support from CIF. Under NRLM there are provisions for remuneration support to CRPs
till the time when the community institution is capable to pay for their services. This provision
also needs to be formulated into the activity plan. So, while designing our activities, we have
to plan to utilize the services of the CRPs, wherever possible. For this, if some additional
training of the CRPs also needs to be organized, then there are suitable provisions for it in the
program.

But apart from the main program itself, if there are some additional activities required, such as
deepening of some of the ponds where Makhana can be grown. We need to explore other
programs being implemented in the district. The District Rural Development Agency (DRDA)
prepares a list of all Centrally Sponsored Programs in the district. In many districts this list has
also been uploaded in the website. In addition many departments such as the Department of
Agriculture, Social Welfare Department bring out their own lists. It may be useful for the
livelihood professional to get a copy of these programs. For example, the deepening of the
ponds can be taken up under MGNREGA. Today, both NRLM and MGNREGA place a great
deal of emphasis on convergence. Convergence is a process where activities of two or more
programs are done together, with the aim of benefiting the people.

Similarly, if one of the objectives of the project is ‘ensuring that all of them get immunized
against water borne diseases’ , it may be useful to explore whether such immunization is being
done under the National Rural Health Mission, which also aims to protect people from work-
related-health-hazards. However, each of these programs has its own requirements. For
example, for undertaking an activity under the MGNREGA, the local Gram Sabha is required
to pass a resolution. We may have to facilitate a dialogue between the SHGs or their
Federation with the Panchayat. However, only by studying the NRHM and MGNREGA
documents carefully and knowing these requirements beforehand, can we use them in our
activity plan?

Step 10: Initiating and Initializing Operations

After mobilizing the necessary resources, both financial and non-financial, the next important
step is to initiate action. At this stage, the action is primarily taken up by the members or
representatives of the community. Therefore, it is very important to design this process
28
meticulously. Apart from initiating the operations, it also helps build social capital around the
intervention. As improvement of the people’s livelihoods involve multiple stakeholders, this
event could be used to communicate the purpose and nature of this intervention to a wider
audience. A clear statement about the program also enables involvement of many other
stakeholders in the effort. A vast majority of livelihood promotion efforts suffer from ‘infant
mortality’, because this phase is not properly managed. In spite of the best planning, when
operations are initiated, things go very differently and many contingencies arise. Thus the
initiators have to come up with an implementation of one or even many alternate plans! This
causes a lot of stress, on both financial and human resources, and it becomes vital to remain
focused on the long-term goals to overcome this stage.

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