Achieving Sustainability, Scale, and Impact in
Community Development Finance:
Strategic Collaborations for Success
Federal Reserve Bank of Dallas
Dallas, Texas
October 10-11, 2006
A Partnership between the Federal Reserve System and the Aspen Institute
New Pathways to Scale
Kirsten S. MoyThe Aspen Institute
Gregory A. RatliffThe Aspen Institute
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Achieving
Sustainability,
Scale, and
Impact
in Community Development
Federal Reserve Bank of DallasOctober 10-11, 2006
Kirsten Moy and Greg Ratliff
The Aspen Institute
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Supporters Conference Partner: The Federal Reserve System
Research Partners
The F.B. Heron Foundation
GE Money
Deutsche Bank
Past Supporters
The John D. and Catherine T. MacArthur Foundation
The Fannie Mae Foundation
Support for Related Research
The Annie E. Casey Foundation
Forum Participants - you!
Thank you!
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Aspen InstituteEconomic Opportunities Program
Workforce Development
Microenterprise
Access to Capital and Credit
Practice Areas
Connect the poor and underemployed to the mainstream economy
Facilitate learning
Applied research to stimulate dialog and action
Goals
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Conference Goals• introduce a new framework for scale and sustainability for the
field of community development institutions
• explore the feasibility of collaborative models with potential for promoting scale and sustainability in the community development field
• provide a forum where stakeholders can share information and participate in the exploration and design of shared infrastructure, collaborative fundraising and pooling models
• encourage future dialogue and action on implementation of collaborative models, initiatives and platforms where appropriate
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
What is Scale?
More capital
More customers
More effectiveness
“Economies of scale” usually refers to the
development of mass markets and progressive cost reduction through
increased business volume. Can the industry groups assembled
achieve this kind of scale?
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Why Pursue Scale? To reach more people
To provide access to services to as many low income people and communities as possible on a permanent and sustainable basis
To tap into economies of scale
To become more sustainable
To have greater impact in low income communities
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
But But … scale itself is not necessarily a suitable proxy
for success.
And the very characteristics - high customization and high touch - that helped make each group successful in the past are barriers to achieving greater impact because they lead to high cost delivery.
In other words, there’s no “economy of scale” if the cost to deliver the service goes up with increasing volumes.
So we need to better understand what scale is,
and the dynamics of getting to scale.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Model for Taking an Innovation to Scale
Source: Alan Okagaki & Associates
IdeaIdeaExperiment-Experiment-
ationation(Innovation(Innovation
& Refinement)& Refinement)
EarlyEarlyReplicationReplication
(Innovation(Innovation& Refinement)& Refinement)
BestBestPracticePractice
InnovationInnovationat Scale!at Scale!
the fantasy short cutthe fantasy short cut
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEMA Better Model for Taking an Innovation to
Scale
Source: Alan Okagaki & Associates
IdeaIdeaExperiment-Experiment-
ationation(Innovation(Innovation
& Refinement)& Refinement)
EarlyEarlyReplicationReplication
(Innovation(Innovation& Refinement)& Refinement)
BestBestPracticePractice
StandardizationStandardization InfrastructureInfrastructureBuildingBuilding
Wide ScaleWide ScaleRoll OutRoll Out
InnovationInnovationat Scale!at Scale!
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
New Innovationat Scale!
Source: Alan Okagaki & Associates
Idea
Experiment-ation
(Innovation& Refinement)
EarlyReplication
(Innovation& Refinement)
BestPractice
StandardizationStandardization InfrastructureInfrastructureBuildingBuilding
Wide ScaleWide ScaleRoll OutRoll Out
the keys to scale
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Our Process Research
Publications
Conferences
Interviews
y
z
Case Studies
Banknorth Group
7-11 VCOM
Visa
Ace Cash Express
Allied Capital
The Reinvestment Fund
Fannie Mae Self Help
ACCION
Dell
Unified Western Grocers
Carpet One
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Lessons from the
Case Studies
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Lessons1.Profitability was the primary driver of product
development. The ability to produce a diversified yet complementary set of products was critical to achieving scale.
2.Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up.
3.Geographic expansion was central to generating sufficient volume of transactions to reach scale.
4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.
5.Technology investments often led to increased efficiency and cost savings.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Lessons6. Companies partnered to gain specific knowledge or
expertise, or to access a needed component of the product or service.
7. Capital was raised several times; the volume of capital raised was tens of millions in every instance.
8. Several organizations changed their legal structure to accommodate growth.
9. Regulatory changes often supported or enabled growth and expansion.
10.Different management skills were needed at different points in the growth process.
11.The ability to adapt to changing market conditions allowed organizations to continue growing.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Product Innovation Organizational Innovation
Industry Innovation
Design for scale (e.g., standardization, simplification &
refinements)
InfrastructureTechnology
CapitalPartnering
ManagementNew organizational structures
Regulatory policyStrategic positioning
Industry intermediariesIndustry infrastructureNew sources of capital
imp
ac
tAchieving Scale
ac
tio
ns
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Product Level Needs
Practitioners have an urgent need for investment in the following areas of product development: Market research to improve understanding of
current and emerging community needs. Patient capital for experimentation, reinvention
and refinement of products. Pilot testing and eventual roll-out of quality
products that make it through a rigorous development process
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Organizational Level Needs
Practitioners have an urgent need for investment to support organizational growth: Infrastructure to integrate larger, often physically
distributed, operations. Technology to increase efficiency, promote cost
savings and higher quality services to low income customers.
Capital to support broader organizational needs e.g., research and development, operational cash flow, expansion capital
Management expertise to guide larger institutions.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Industry Wide Needs
Improved competitive positioning of the industry possible through a series of investments in: Infrastructure to support the day-to-day
operations of organizations in the industry Industry standards Industry specific technology: e.g., cost
accounting or portfolio management software Branding, marketing and communications to
support the industry Industry intermediaries that broaden the range
and increase the sophistication of the product and service mix offered by organizations
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
CUSTOMERSCUSTOMERS INDUSTRY MEMBERS
INDUSTRY MEMBERS
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
INVESTORS & FUNDERS
INVESTORS & FUNDERS
POLICY MAKERS& REGULATORS
POLICY MAKERS& REGULATORS
Basic Model of Key Players
Industry leaders play a powerful role in setting standards and creating standardization in the industry.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Industry Structure 1
CUSTOMERSCUSTOMERS INDUSTRY MEMBERS
INDUSTRY MEMBERS
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
INVESTORS & FUNDERS
INVESTORS & FUNDERS
POLICY MAKERS& REGULATORS
POLICY MAKERS& REGULATORS
Industry Structure 1: The Corporation -Customer Dynamic
In most industries, direct interaction between the customer and the industry member is a primary factor.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Industry Structure 2
CUSTOMERSCUSTOMERS INDUSTRY MEMBERS
INDUSTRY MEMBERS
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
INVESTORS & FUNDERS
INVESTORS & FUNDERS
POLICY MAKERS& REGULATORS
POLICY MAKERS& REGULATORS
Industry Structure 2: The Small Players Dynamic
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Industry Structure 3
CUSTOMERSCUSTOMERS INDUSTRY MEMBERS
INDUSTRY MEMBERS
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
TRADE ASSOCIATIONINDUSTRY
INTERMEDIARY
INVESTORS & FUNDERS
INVESTORS & FUNDERS
POLICY MAKERS& REGULATORS
POLICY MAKERS& REGULATORS
Industry Structure 3: Subsidy Dependent
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
In industries dominated by smaller players …
… industry networks and other forms of affiliation become more important as agents for successful scale and growth.
Access to common infrastructure can enable networks of organizations to work cooperatively to deliver greater volumes of product with increased efficiency
Networks facilitate access to capital often at a lower cost of capital
Strong training and development efforts through network services support the development of management talent
Sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Key Issues Facing the Community
DevelopmentIndustry
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Cooperative and collaborative systems can contribute to stronger organizations and a stronger industry. The emergence of a strong industry structure will position the community development field for scale and growth.
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Collaborative Business Models Could Help Organizations:
Retain local control and ownership Lower cost of operations and improve long term
sustainability Access larger pools of capital Reduce effort devoted to fundraising and access a more
diverse universe of funders Access better management talent and specialized
expertise Generate better pay and benefits for employees Access more up to date technology and infrastructure Increase ability to reach more people and create greater
impact
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
New Approaches To Fundraising: Questions To Consider
How is the world of philanthropy changing, and what does it mean for community development?
Can CBOs effectively raise money from individuals? What does it take?
Is the Internet playing an expanded role in structuring/formalizing giving relationships?
What new organizations, platforms and portals are emerging to provide a different kind of “giving infrastructure”?
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Collaborative Business Models: Unified Western Grocers Housing Partnership Network ACCION New Mexico El Paso Affordable Housing CUSO
New Approaches to Fundraising: Kintera, Inc. Calvert Foundation UBS Financial Services
THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM
Achieving
Sustainability,
Scale, and
Impact
in Community Development Contact Information:
Kirsten Moy and Greg [email protected] and
The Aspen Institute