Organizing for Commercialization Capability in Microcredit Institutions
ORGANIZING FOR COMMERCIALIZATION CAPABILITY
IN MICROCREDIT INSTITUTIONS
Abstract
Contextualized-driven theories for organizations in developing countries are scarce.
In this paper, part of this gap is intended to be filled up; building on how some
specialized microcredit institutions are organized to create and capture value. These
organizations compete at the bottom of the pyramid (BOP) in emerging markets,
trying to create social and economic value. The empirical domain in this paper refers
to specialized microcredit financial institutions in the Colombian landscape. The
theoretical domain relies on the resource based-view of the firm, applied to the
mentioned context. The unit of analysis is the commercialization capability in its
organizational environment: organizing for commercialization capability. These
microcredit social enterprises differ from the traditional banks, because those refer to
a “out of the office” commercial human interactions and the deployment of a service
relationship between the credit analyst (employee) and the micro-entrepreneur
(customer). The main findings are the organizational categories that interact with
each other (system) in order to create social and economic value to microentrepreneurs: active corporate governance, microcredit social strategy, management
capability in microcredit, relational culture and motivated human talent.
Key Words
Social enterprise, microcredit, bottom of the pyramid (BoP).
Introduction
Microcredit institutions co-create value through commercial human interactions with
poor micro-entrepreneurs in developing countries. This research is relevant because
it addresses a gap in the resource based-view of the firm: contextualized findings in
deep poverty environments. This is a qualitative investigation base in a multiple case
approach. This is why I have tackled the phenomenon from the perspective of the
internal actors in the organization, which means that interviews are the main source
of data, however, I have triangulated them with documents and observations.
Firms develop and deploy specific resources and capabilities to compete in
different economic, social and geographical contexts. However, there is little research
understanding how organizations configure their resources and capabilities in
specific contexts in order to create value for customers (Sirmon, Hitt & Ireland, 2007),
and especially for those at the bottom of the pyramid (BoP) –low income consumers- in
developing countries (Seelos & Mair, 2007). These specificities around BoP consumers in emerging markets- have also triggered a new academic research field that had its
Organizing for Commercialization Capability in Microcredit Institutions
tipping point in 2004 with Prahalad´s book The fortune at the bottom of the pyramid
(Prahalad, 2004).
Microcredit practices have been extensively studied from the financial and
economic perspectives. A huge amount of academic literature has been related to
financial models for firms and microcredit impact in economic development.
However, the organizational, strategic and marketing perspectives have been
understudied. This fact is an additional gap in the literature I want to fill up with this
research.
Under this view, it is relevant to research microcredit organizations that
configure their resources and capabilities in order to structure a value creating
commercialization capability, based on the human interaction between the seller
(credit analyst) and the customer (micro-entrepreneur). So, the main research
question: How do microcredit Colombian social enterprises organize themselves for
configuring their commercialization capability?
The conceptual domain relied on the resource based-view of the firm (RBV) theory
and the relationship marking (RM) theory. They were the lens to approach to the
research questions and our cases. These two theories are blended here in order to
create a conceptual framework for iterating with the empirical domain supported on a
qualitative methodology. I derivate an emergent contextualized model to explain how
microcredit social enterprises organize for building the commercialization capability.
Literature review
Firms´ superior performance can be analysed from their specific resources and not
only through products (Wernerfelt, 1984). In other words, firms´ strategy and
performance, when creating value through competitive advantages, can be explained
through their specific resources (Barney, 1991).
Resources are classified as tangible and intangible (Wernerfelt, 1984; Barney,
1991; Hall, 1993). Some examples of tangible resources are cash, equipment, and
buildings. Examples of intangibles resources are organizational culture, copyrights,
know-how, and data bases (Hall, 1993). Otherwise, resources that lead to a
competitive advantage are rare, valuable, immobile, durable and inimitable (Barney,
1991). Capabilities are functional skills or routines that combine and coordinate
resources (Grant, 1991; Helfat & Peteraf, 2003). One capability for example is service
delivery.
Resources and capabilities can be owned by firms, but also have access to
them through third parties (Helfat & Peteraf, 2003).Thus, under this framework,
strategy is understood as a set of resources and capabilities that exploit opportunities
in the competitive landscape and allow the firm to get an above average performance
(Grant, 1991). However, resources and capabilities should be adapted to different
contexts in order to create the adequate value to customers (Sirmon et al., 2007).
Organizing for Commercialization Capability in Microcredit Institutions
In terms of the bottom of the pyramid markets in developing countries, little
research has been done through RBV perspective (Seelos & Mair, 2007). Thus, in this
paper, the RBV and the BoP markets are brought together for understanding how
social enterprises organize their commercialization capability in circumstances of
deep poverty.
According to Prahalad & Ramasvamy (2004), firms should orient their
business models, structures, systems and processes towards the co-creation of value
with costumers. For these authors, value is co-created in the interaction with
customers and consumers. Thus, the organizational configuration, in this case,
understood as resources and capabilities combinations, should be oriented to cocreate value to customers (Sirmon et al., 2007) and with customers (Prahalad &
Ramasvamy, 2004). The organizational conformation must be constructed under a
customer-oriented framework.
On the other hand, relationship marketing theory (RM) is a perspective that
sheds light on how companies attract, develop and manage commercial relations
with individual customers (Berry, 1995; Morgan & Hunt, 1994). Those relationships
have been considered resources (“relational resources”) on which competitive
advantages rely or emerge (Hunt, 1997). Under this framework of high employeecustomer contact services (Berry, 1995), managing relationships take a special
interest. This is the case of the microcredit industry in developing countries.
RM has developed several constructs that have special impact when applying
them to microcredit services, where the human interaction between the credit analyst
and the micro-entrepreneur is frequent, face-to-face, and deploy outside the bank´s
branches. In other words, microcredit is a business built up “on the street”, at the
micro-entrepreneurs´ homes, the place where normally micro-businesses also take
place.
The first RM relevant construct in this research is the “relational benefit”
(Gwinner, Gremler & Bitner, 1998). This concept implies that commercial relations go
beyond the simple transaction and include the value created from long lasting
relationships (Gwinner et al., 1998). In the case of microcredit, this means that firms
give some additional benefits for clients besides simply “selling a credit”.
This approach includes into the business model the benefits that the customer
(micro-entrepreneur) derives from the personalized relationships with firms and
their sellers (credit analyst). Between the human beings that frequently interact with
each other (employees and customers) emerge some sort of friendship that has been
call “commercial friendships” in the service RM academic literature (Price &
Arnould, 1999).
Firms develop and deploy specific resources and capabilities when competing
at the bottom of the pyramid markets (BoP) in developing countries (Seelos & Mair,
Organizing for Commercialization Capability in Microcredit Institutions
2007), and configure their organizational components in a specific way in order to
create and capture value when interacting with individual customers
(commercialization capability).
Social enterprises (SE) create social and economic value simultaneously (Dees,
1998). A business model with high social impact is deployed though these
organizations (Dees, 1998). It is a business model where both economic and social
value are created, and this is the argument to call them “hybrid organizations” (Mair
& Noboa, 2003).
In sum, resources and capabilities in contexts of deep poverty in developing
countries have been understudied (Sirmon et al., 2007; Seelos & Mair, 2007) as well as
the relationships developed by social enterprises with their individual customers in
order to create social and economic value simultaneously. In this point, “relational
benefits” and “commercial friendships” play an important role to understand this
topic.
Microcredit has been addressed from the economic and financial perspectives,
but has been understudied from the organizational, strategy and marketing
perspectives. Thus, to tackle these gaps, I place this research in the frontier or
boundaries between the organizations and marketing fields.
Methods
This qualitative study aims to develop a grounded theory (Strauss & Corbin, 1990)
from a multiple-case design through the literal replication logic among a series of
cases (Eisenhardt, 1989; Yin, 2003). This means that each case is treated as an
experiment to confirm or disconfirm the observations found in the previous cases
(Eisenhardt, 1989; Yin, 2003). A unit of analysis has been chosen: The
commercialization capability in the organizational context. Thus, this research fits in
Yin´s type 3 -multiple-case design with a unit of analysis- (Yin, 2003, pp. 39-53).
This qualitative approach has been chosen due to the nature of the research
question -“how” for contemporary events within contextual conditions- (Yin, 2003,
pp. 7-9 and p. 22) and to the lack of academic literature (incompleteness) for this
specific topic (Eisenhardt, 1989; Golden-Biddle & Locke, 2007) and empirical domain.
Sampling
A purposeful sampling (Miles & Huberman, 1994; Patton, 2002, pp. 230-242) was
conducted, taking into account that chosen organizations fitted adequately in the
research question purpose. Moreover, this is being combined with the possibility to
gather rich information from the settings and to accomplish the replication logic
through “multiple experiments, with similar results (literal replication)” (Yin, 2003,
p. 53). The a priori informants´ willingness to collaborate with the investigation has
Organizing for Commercialization Capability in Microcredit Institutions
also been an important matter (site availability1). Each CEO was contacted through a
Colombian non-profit organization within the industry that plays the role of a lender
for micro-financial institutions. This fact has allowed having the opinion of an expert
about how well the cases fitted to the research objectives, including a reputational
case selection (Miles & Huberman, 1994, p. 28). Besides, this person has helped the
researcher to have access to the key informants and get the green light from the
chosen social enterprises.
Four criteria were used to choose these cases in the Colombian context: 1)
social impact (outreach and growth), 2) auto-sustainability (financial viability), 3)
longevity (at least 10 years), 4) recommendations made from a savvy expert in the
industry. Likewise, three chosen organizations were ranked by Forbes2 magazine
within the world´s top 10 performance micro-financial institutions.
Data sources and collection
The data was collected from three main sources of evidence: 1) Interviews as the
primary data, 2) archival data (documents), and 3) non-participant observation.
Interviews were conducted in a top-down approach with semi-structured templates
(protocol guide) with open-ended questions.
This implies collecting data from different perspectives and levels within the
organization (Leonard-Barton, 1990). Documents were given to the researcher by
each one of the informants during interviews: Power points, statistics, financial
statements, publicity material, company´s memories, codes, manuals, magazines,
newspaper articles, etc. Organization´s Web sites were visited. During the interviews
(being within the organization setting) field notes were taken with details of the
interactions and the researcher´s impressions and observations.
Descriptive narratives (histories) were written by the researcher, including
and selecting quotes from the informants and triangulating different sources
(Eisenhardt, 1989). Four descriptive case reports (narrated neutrally), reviewed and
approved by the informant organizations, give the research a broader validity in
terms of reducing the researcher´s subjectivity (Yin, 2003).
Data analysis and conceptualization
As mentioned above, the general chosen strategy integrates the grounded theory, the
multiple case studies for analyzing the qualitative data, and the narrative and visual
strategy to present the findings. For general validity, this research use different
sources of data and triangulate them (different informants, documents and nonparticipant observations). Moreover, the organizations and the key interviewees
According to Leonard-Barton (1990, p. 263), this is a very important criteria and includes commitment and cooperation.
The top 50 microfinance institutions. Forbes: http://www.forbes.com/business/2007/12/20/microfinance-philanthropy-credit-bizcz_ms_1220microfinance_table.html. Accessed: January 10th, 2008.
1
2
Organizing for Commercialization Capability in Microcredit Institutions
reviewed the case reports, activity that increases validity (Yin, 2003) or credibility
(Lincoln & Guba, 1985).
The patterns and the relationships among categories will have to emerge from the
evidence during the cross-case analysis, which was made, as mentioned, through the
literal replication logic (Eisenhardt, 1989; Yin, 2003). This replication technique, on the
other hand, is our support for external validity (Yin, 2003). However, this research
doesn’t look for an external generalization understood as a universal theory derived
from a statistically representative sample, and rather it has been designed under the
replication logic and qualitative data interaction with the theoretical framework
looking for an analytic generalization (Miles & Huberman, 1994; Yin, 2003, pp. 32-34)
or internal generalization (Maxwell, 1996). Identifying and explaining the relationships
among categories completed the construction of an emergent contextualized theory.
The emergent model
A performance model emerged from the qualitative data. This model explains how
microcredit social enterprises organized the main organizational components (in
terms of resources and capabilities) in order to deploy the commercialization
capability. This model is depicted by Figure 1:
Microcredit
social strategy
Relational
Culture
Commercialization
capability
Active corporate
governance
Social and
economic
value
creation
Motivated
human talent
Management
capability in
microcredit
Figure 1. Organizing for commercialization capability
Conclusion
Organizing for commercialization capability in microcredit institutions implies
several organizational components oriented to structure the human commercial
interaction. These causal components are the following: Social strategy, management
Organizing for Commercialization Capability in Microcredit Institutions
capability, relational culture, active corporate governance and motivated human
talent. They are combined to deploy a social and economic creating value service
relationship with customers.
I argue that in the case of microcredit, the space where value is created relies
on the human interaction between the credit analyst and the micro-entrepreneur
(commercial friendship with relational benefits), because it is a process where
collaterals can be exchanged for information and deep knowledge of individual
clients, allowing their inclusion into the economic system -human empowerment-.
Contributive motivation seems to be distributed throughout the microcredit
organization. This means that senior managers and collaborators make sense of their
work in terms of its impact on other people, in this case, on micro-entrepreneurs.
This propels a pro-social behavior: serving and empowering the low-end segments of
customers with respect.
Future work for this article requires going deeper in the qualitative data in
order to comprehend the relationships among these organizational components. This
means to find in an accurate way, for example, the link between culture and the
commercialization capability or the link between strategy and culture, etc. This is
important for theorizing and stating propositions.
Some limitations must be mentioned. This work has been done in a specific
context: Colombia. Findings are limited to microcredit social enterprises in this
empirical domain. I refer here to microcredit and not to microfinance. Microcredit is
about loans, and microfinance is about loans, savings and insurance. The social
enterprises I study here were microcredit institutions. On the other hand, “richness”
and “replication logic” need further work in this article.
For future research, I think this research could be replicated in other Latin
American countries, so in this way a Latin American model could emerge. I also
think the model depicted in Figure 1 could be tested through a quantitative
approach.
Finally, some ethical elements must be mentioned. All the informants
consented to give the interviews and were authorized by their superiors. I kept their
anonymity and I did everything to protect their privacy and their integrity. The
informants agreed to use their comments for writing research cases.
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