CASE STUDY 1 SELCO 2009: Determining a Path Forward Harish Hande and the company he founded, SELCO, provide solar electricity for lighting and power to India's poor. For the work of his company, Hande has received numerous recognitions; he is frequently cited as one of the top social entrepreneurs in India and an example for the entire developing world. The road to SELCO's success, however, has not always been smooth. Hande cofounded SELCO (with Neville Williams) in 1995 to sell and service photovoltaic (PV) systems in his home state of Karnataka, India. During its initial years of operation, the company expanded deliberately as it gained capital and experience. 1. Then in an ill- fated attempt to scale-up during the early 2000s, SELCO created a franchised dealer network, seriously hurting the company financially and deviating from its mission to help the poor. As the company was recovering from this move, the 2. price of solar panels spiked and sales declined. Investors put pressure on Hande to lay off employees and contract the organization. With the help of the World Bank's commercial finance arm, the International Finance Corporation (IFC), Hande was able to restructure the company in 2008. SELCO remained a for-profit business, but Hande was able to seek new investors more aligned with its mission. In addition, Hande was able to keep his sales and service organization intact, complete with its core of highly motivated employees. Most importantly, SELCO was able to continue devising innovative solar solutions. The company had become known for redesigning off-the-shelf solar electric components to suit the particular needs of the urban and rural poor. The SELCO design process began with an extensive needs assessment of a particular segment or activity. Whether designing for street vendors, midwives, or rural farmers, SELCO created solutions for the particular needs of its target market. Sometimes this meant redesigning the solar equipment and sometimes this meant restructuring activities so that solar energy could power a client's needs. 1 From his field research, Hande realized early in SELCO's history that the success of solar installations for the poor would depend on designing creative financing solutions for its customers. Many thought the capital expense of purchasing solar panels and batteries put this technology out of the reach of those at the bottom of the income- generating pyramid. But SELCO spent time cultivating India's banks and microfinance organizations to convince them of the efficacy of solar power. Over time, the company formed partnerships with these institutions to craft financial instruments that allowed entrepreneurs and families to repay the capital expenses associated with installing solar equipment However, SELCO's careful process of needs assessment, design, financing, and service was time-consuming and costly. The company had provided energy solutions for over 100,000 households in its fifteen years of existence, allowing customers to increase their income and quality of life. However, India's developmental problems were daunting; over 400 million individuals were in poverty. Observers frequently wondered if SELCO's activities could be scaled up to extend solar energy's benefits to more people. In 2009, SELCO was considering its plans for how the company might expand. The company decided to institutionalize its design process by building an innovation center. SELCO also added products that provided energy solutions beyond solar. Some within the company were hoping the company would go "deeper" and look at designing solutions for even poorer members of the Indian population. Others were hoping that the company would go "wider" and expand beyond its current geographical areas in Karnataka and Gujarat. Whatever its direction, the strategic choices the company made at this point in its evolution would be crucial to determining its continued success. Marketing: Word-of-Mouth SELCO's management believed that its customers could be reached via traditional marketing channels. The rural poor lacked access to the most basic of lighting services, let alone televisions, radios and the Internet. Moreover, India has the largest 2 illiterate population in the world, according to the United Nations Development Programme, with the bulk of the illiterate living in the country's rural areas. From the start of its operations, SELCO relied heavily on word-of-mouth to sell its systems, customizing its outreach for its target audience. "When our technicians went out to bring our systems, there was a lot of hype created around it," says Thomas Pullenkav, SELCO's vice president in charge of marketing. The installation team would inform locals of an upcoming installation in the area to attract people to stop by and watch the process. In addition, "we would drive in a slightly noisier vehicle than what was required in the area, so a lot of people were aware... [The technicians) came and unloaded the systems and created a lot of noise around the installation...so that people came and watched us and saw what was happening... [That gave us a lot of free publicity." Apart from the literal noise-making, SELCO also organized "tea parties" at the homes of satisfied customers. People from around nearby villages were invited to watch a demonstration of how the solar systems worked. Later, staff at the local Energy Service Center followed up with a sales call to each participant. Often, the partnering financial institutions that would be involved in providing the loans for these products would also be present. The banks themselves played an active role in marketing SELCO's products at their own branches when they identified potential customers who could afford and benefit from the systems. Another method of marketing that SELCO often employed was a user demonstration program, where the company installed a system in the house of an influential and/or wealthy member of the village as part of a one-to two-month trial period. The program kicked off with a tea party similar to the one described above. At the end of the trial period, SELCO technicians returned to the household and began the process of disconnecting the system. The experience of living with lighting, along with family and social pressures, eventually induced most customers to take a loan and purchase the system. 3 Possible New Directions for SELCO In 2009, SELCO's management was considering how to grow their enterprise. The company had weathered crises with its distribution system and ownership structure. And through all its travails, SELCO had managed to build a reputation for providing innovative, affordable and reliable energy systems for individuals and organizations. Now with the company on a more solid foundation, SELCO's management could contemplate new directions to take their enterprise. There were a number of different directions SELCO could go. Some in the company urged that the company consider "going wider;" expanding geographically. Others wanted the company to extend the services it offered to existing customers and still others wanted the company to "go deeper" and create products for new customers even lower on the income-generating pyramid. While following any one of these growth opportunities would not preclude pursuing others, the company would have to establish priorities as well as weigh the risks of any given course of action. Geographical expansion - Over it 15 years, SELCO had grown organically largely in Karnataka, a state in southwestern India. SELCO's one major geographic expansion had been facilitated by its partnership with the SEWA bank and had allowed the company to set up satellite offices and service centers in Ahmadabad the largest city in Gujarat, a state in the far western part of India. But that left the majority of the country without SELCO representation. There would be a number of costs associated with geographical expansion. SELCO's reputation for service and reliability were founded on company-owned service centers, making expansion a resource-intensive proposition. Furthermore, SELCO's business model required deep involvement with local banks and relied on word-of-mouth marketing - relationships that required time and energy to cultivate. Brand extension - With its venture in cook stoves, SELCO had already begun branching into offering other energy services and products, whether developed in- house or manufactured by others. The company's incubation lab was working on numerous other energy efficient products that would be useful for SELCO's customers. 4 However as with any company, new products brought the risk of brand dilution. In addition, expansion into products and services with which the company did not have experience could hurt the company's reputation for reliability. Cultivating new customer segments - SELCO's products had never been targeted at the poorest of the poor - the company's products were aimed at those with some ongoing means to generate income. However, SELCO could harness its considerable innovative capacities to try creating products for those even lower on the income- generating pyramid. What such products were and how customers would pay for them remained an open question. Replicating the company - Hande believed that as SELCO gained success, other entrepreneurs could learn from the company's experiences and adapt the structure for other locales. He expressed an interest in training a new cadre of entrepreneurs and teaching them "the tricks of the trade". However how these entrepreneurs could raise capital and how they would structure their relationship with SELCO remained another open question 5 SECTION 1 All questions in Section 1 must be answered by referring to CASE STUDY 1. D. In order to grow its business, Selco had to make a critical decision. Present Selco's step-by-step decision-making process based on SIX (6) decision-making processes. (18 marks)