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close this bookInternational Best Practice in Micro and Small Enterprise Development - Working Paper 2 - Micro and Small Enterprise Development and Poverty Alleviation in Thailand - Project ILO/UNDP: THA/99/003 (ILO-ISEP - ILO - UNDP, 2000, 80 p.)
close this folder2. Assessing business development services
View the document(introduction...)
View the document2.1 Indicators of good practice
View the document2.2 Assessment of MSE needs
View the document2.3 Assessing performance of BDS providers

(introduction...)

A large number of studies, reports and guidelines were used for this review. However, the main source of information is a report published by the Donor Committee on Small Enterprise Development that is made up of representatives of the major international agencies, donors and non-government organizations involved in MSE development. This Committee commissioned the preparation of guidelines on the issue of BDS, based on an extensive review and analysis of the approaches used in the area of BDS by the members of the Committee (Business Development Services for Small and Medium-Sized Enterprises: Preliminary Guidelines on Donor-Funded Interventions). These Guidelines were published in 1998 by the ILO, which was assigned the responsibility for this task. Following the publication of these Guidelines, the Committee organised two regional workshops for a further exchange of ideas and experiences relating to the provision of and access to BDS by MSEs: in Harare (Zimbabwe) in 1998, and in Rio de Janeiro (Brazil) in 1999. Papers presented at these two workshops were also used in the preparation of this working paper. Other major reports on the issue of BDS were also reviewed.

Some of the examples of best practice reviewed here are also based on a number of technical assistance projects (completed or on-going) implemented by the ILO in a large number of countries in Asia, Africa, Latin America and Central Europe.

In the context of this working paper, the term "international best practice" refers to a range of approaches for promoting access to quality and sustainable BDS, which have been successfully applied in a number of countries or have been proven particularly promising. It should be stressed that these approaches would not necessarily succeed in other countries or even replicated in the country where they were originally developed for a number of reasons. Firstly, the structure of the economy and cultural factors largely determine whether an approach may succeed or fail. Secondly, experience shows that potentially good approaches are more likely to succeed if they are initiated by individuals who exhibit drive, motivation, honesty, and inventiveness.

Therefore, it is possible that the replication of some of the approaches that have been successfully applied in other countries may not succeed in Thailand if the economic structure and cultural factors are not conducive to replication. In other cases, the approaches may need to be adapted specifically to the Thai environment. In all cases, the successful replication of promising approaches can depend to some extent on the choice of the individuals assigned the task of replication.

The main objective to facilitating access to quality BDS by MSEs is to help them improve their overall performance. Achieving this objective should lead to their growth - that is, that they employ more workers and become more profitable. Good practice, therefore, has to be seen in relation to this overall objective.

2.1 Indicators of good practice

This section discusses the meaning of good practice and the use of benchmarks for assessing the performance of service providers. Good practice in BDS interventions is defined here with respect to four essential levels of impact and four broad performance criteria. The impact should be measured at the enterprise level (i.e. changes in the behaviour and capacity of the owner of the enterprise); the meso or service provider's level (i.e. changes in performance); the household level (improvements in living conditions resulting from the better performance of the MSE); and at the macro level (changes to the policy and regulatory environment resulting from the provision of sustainable and better quality BDS). However, this working paper will focus on impact at the enterprise and meso levels only.

The main performance criteria used to measure good practice are:

· Outreach - i.e. number of enterprises and organizations reached by the interventions;

· Efficiency - i.e. how resources are used by the service provider for implementing its interventions;

· Effectiveness - i.e. whether or not the interventions achieved their stated objectives; and

· Sustainability - as previously defined in Chapter 1.

It may be difficult to measure the performance of business development service providers based on the above criteria, especially because there may be conflicts between some of the criteria (e.g. strong outreach may be achieved to the detriment of impact at the enterprise level).

Given the above criteria, it is necessary to develop qualitative and quantitative indicators of good practice. One may choose one or more indicators when taking into consideration the specific objective. While it is possible to find long lists of indicators in the literature, it will be necessary to develop practical indicators that reflect local circumstances.

There are two main types of indicators. Firstly, there are those pertaining to the service provider (internal indicators), such as efficiency and outreach, which measure the performance of the provider but may not give useful information on the impact of its services on the actual enterprises. Secondly, there are those pertaining to the ultimate objective of the provider's intervention, such as the creation of large numbers of growth-oriented enterprises.

While quantitative indicators (e.g. the number of enterprises serviced each year) may be easier to apply and to use in evaluations of the service provider, they can be misleading. For example, while the logbooks of a provider may show that contacts were established with thousands of entrepreneurs, it is plausible that only a few actually benefited from the services. The contrary could also be true - the number of entrepreneurs may be low, but most of them may have benefited significantly from the services.

Qualitative indicators are more difficult to apply, but can yield extremely important findings on both the business development service providers and their clients. These may include changes in behaviour, which could have important long-term effects on the enterprise than, for example, a short-term assistance in marketing. While one can find a large number of examples of indicators in the literature, it is best to develop one's own indicators to reflect local circumstances, intervention objectives, and the characteristics of the clients.

Responsibility should be assigned to the business development service providers to develop indicators of business development, although they could also benefit from technical assistance from specialised organizations. In assessing the service providers themselves, it may be necessary to involve relevant government departments or donors to decide which indicators to use. These "outsiders" may also use their own staff or consultants to assess the performance of the BDS service providers. In addition, the business development service providers may also wish to assess their own performance, whether they benefit from subsidies and external support or not.

2.2 Assessment of MSE needs

The importance attached to assessing the needs of MSEs before designing the development has been increasing over the past ten years, in parallel with economic and political liberalisation. People must express their wishes and be full participants in programmes that affect them directly. Some donors have been active proponents of this policy and apply it systematically in their technical co-operation programmes. The terms 'demand-driven' or 'demand-led' can now be found prominently in most project documents.

Another phenomenon, which may also explain the increased focus on needs assessment, is the gradual transfer of the business development activities from government to the private sector or semi-private bodies. Thus, business development services are being viewed as commercial activities, especially in the context of the increasing pressure to achieve financial sustainability. Consequently, business development service providers are beginning to behave like the owners of successful enterprises who pay special attention to market research, i.e. through carrying out market or needs assessments.

Needs vary according to a wide range of variables, including location, size of the enterprise, sex of the owner, type of sector, etc. Good practice means that the service provider should try to be as precise as possible in the assessment of needs.

Before describing various approaches to assessing the needs of MSEs, it is important to clearly define what is meant by MSEs' needs. In summary, there are three types of needs. These are:

· felt or perceived needs based on the entrepreneur's own assessment of the problems and potential solutions;

· logical or real needs, which are the result of the service provider's own analysis of the situation; and

· demand, as expressed by the entrepreneur who is willing to pay for assistance to solve a problem or pursue an opportunity.

Many donors and local service providers have carried out studies aimed at identifying the felt needs of entrepreneurs in countries such as Kenya, Dominican Republic, Zimbabwe and Malawi. Although the priority needs were not the same in the countries surveyed, all respondents in these countries mentioned three major service needs: credit, training and marketing.

In view of the three types of needs mentioned above, the consensus has been that business development agencies should respond by giving priority to the felt needs of the entrepreneurs, as well as their willingness to pay. However, this should not prevent the service providers from educating entrepreneurs about other "logical" needs they may have, but are not be aware of, or about the existence of new, more effective interventions. Many successful examples of service providers who decided to respond to the felt needs of the entrepreneurs clearly constitute examples of good practice. Two service providers in Kenya, ApproTEC and SITE, were able to recover 100 per cent and 50 per cent of their training and other costs respectively, partly because the trainees were ready to pay for services they regarded as being particularly important to them.

Various approaches to needs assessment have been developed and used in different countries. The more successful ones make use of five guiding principles2:

· The individual in charge of the needs assessment should be psychologically close to the MSE client. Such a person usually has a crucial influence in determining which needs will be assessed and, ideally, is also be in charge of the planned interventions.

· The MSE client should participate fully, both in the needs assessment and the design of interventions based on the assessment. This should yield better intervention design and develop a stronger sense of client ownership.

· A needs assessment exercise should not be a one-off activity. The service provider should visit clients periodically to determine if further assistance is needed.

· It is important to develop a tight focus, and problems and interventions should be described in detail. Generic interventions based on general statements are not normally very useful.

· It is very important to explain how support interventions should be delivered and carried out - for example, there may be few clients for a training course that is held at the wrong hour or the wrong day of the week.

2 Source: Committee of Donor Agencies for Small Enterprise Development, 'Business development services for SMEs - Preliminary guidelines for donor funded interventions', 1998, ILO

These guiding principles have been used in the development of a number of needs assessment techniques, two of which are described below.

i. Needs assessment based on a sub-sector analysis3

3 Source: ibid, page 26

This technique was developed by USAID under the GEMINI programme. A sub-sector is a vertically integrated group of (large and small) enterprises concerned with the same product. The rationale behind this needs assessment technique is that the enterprise in the sub-sector face similar constraints, which are different from those faced by enterprises in other sub-sectors. Interventions to address these constraints should, according to international experience, have a much greater impact than generic interventions.

The success of this needs assessment technique depends on a number of factors. First, it is important to choose the right sub-sector, based on discussions with representatives of the entrepreneurs in the sub-sector. Second, one should produce an accurate sub-sector "map" - a detailed description of the major characteristics of the sub-sector. Third, it is very important to understand the sub-sector dynamics: who are the main actors and what are the driving forces? What are the challenges, constraints and opportunities? Fourth, it is necessary to develop a sub-sector development strategy, and then plan the interventions accordingly. Examples of successful programmes based on this sub-sector approach are described with some detail later in this working paper.

ii. Action-research

Action-research is based on cycles of action, followed by reflection, then by further actions. Local service providers can learn by doing and they can share their new knowledge with their own clients. Since MSE owners and managers are more likely to be able to take account of the complexity of their own particular situations, the solutions that they themselves generate should be more sustainable. Action-research projects should come to an end once the approach developed through the project becomes operational and can be easily replicated by other business development service providers.

2.3 Assessing performance of BDS providers

A good assessment should be based upon solid monitoring of the BDS support. The cost of an assessment should not be excessive, and it should not exceed ten per cent of the total project budget. The assessment exercise should be both rigorous and practical, with clear recommendations for further actions.

While many manuals are available on how to assess the performance of organizations in general, assessing the performance of BDS service providers is a complex undertaking not normally catered for in such manuals. There are three major effects which are difficult to assess, and which could considerably reduce the reliability of the assessment. The first is that business development services are only one factor among many that affect the growth and competitiveness of enterprises. It is, therefore, necessary to isolate the effects of BDS, and this can usually be done by the use of a control group. However, many evaluators are reluctant to use this technique for ethical and cost reasons. Secondly, it is difficult to estimate the "snowballing" effect of the BDS, where other entrepreneurs who are not formally covered by the intervention obtain information and ideas from the same intervention. Finally, business services provided to an entrepreneur by a government agency or not-for-profit organization may actually have a negative effect on another entrepreneur who did not benefit from these services (e.g. cases of excess production of the same good in a limited geographical area), thereby creating a displacement effect. Thus, any negative effects should be set off against the positive ones.

The difficulties mentioned above clearly show that assessing the performance of a BDS service provider is very complex. It requires highly qualified staff and can be somewhat expensive. These kinds of assessments are very important in view of the large amount of money spent every year on promoting business development service providers. Countries cannot afford to ignore this issue and, therefore, government agencies and other organizations should carry out some extremely professional and in-depth assessments to determine whether the public investment in this area is justified. The assessments should not only focus on specific business development service providers, they should preferably cover the range of different BDS approaches used by a number of providers.