The Hack the System strategy identifies problems in a value chain that jeopardise value creation and which arise as a result of bottlenecks in a specific market system. Once the problems have been identified and understood, the strategy aims to address them with new services or products which are incorporated (often through a localised approach) along the value chain. It is not necessarily about finding ground-breaking or complex solutions to the problems presented, but rather assessing the situation from a different angle. In other words, it is about “thinking outside-the-box” in order to come up with something that hasn’t been thought of before and which will solve the problems at hand. Solving such problems will result in an overall improvement of the value chain while at the same time creating better conditions for it to expand into other local, regional and even international markets.
Turning challenges into opportunities
The Hack the System strategy follows an “inclusive” Value-chain Development (VCD) approach, in which interventions are geared towards supporting marginalised actors (such as smallholder farmers) better engage with market opportunities. If applied successfully, this strategy has the potential to have a positive ripple effect across an entire value chain. This means that several actors across the value chain can reap the benefits if the strategy is successful. Marginalised communities often struggle to connect to profitable markets or leverage the potential of their communities, as seen in the case of the fishing community in the Komodo Island. Often, socio-environmental businesses with limited resources, have inefficiencies in their value chain which they have failed to identify or address due to a variety of reasons, many of which will be caused by exogenous factors. By applying the Hack the System strategy, you are essentially adopting an advisor-type role in which you as an outsider, with a fresh perspective and the right knowledge and expertise (often obtained by building strategic partnerships), identify the problem and find the most appropriate solution to tackle it. The objective is to reach a win-win situation in which you, as the new company offering a valuable solution, have permanent demand from the specific value chain in the community. The value chain in turn, becomes increasingly more efficient thanks to your solution, resulting in a positive trickle-down effect in the community and even increasing its demand for your service/product.
Where there has been either a state failure or market failure that prevents a value chain from reaching its potential, the “Hack the System” strategy can step in to fill in the gap and contribute to a more enabling environment for the specific value chain to increase its value. This process is often called an “upgrading” of the enabling environment and as MITCHELL, J., Et AL. suggest in their paper, “Improvements to the support, services, institutional, legal and policy frameworks in which value chains operate are often a productive area in which development agencies can intervene to improve the functioning of a chain” MITCHEL, J., KEANE, J. AND COLE, R. 2009: vii). Social enterprises can equally play a significant role in improving the enabling environment of a value chain by inserting themselves strategically in the operating framework of that value chain through the introduction of a new service or product that can make the value chain more productive. Interventions falling under the inclusive VCD framework can vary greatly depending on the specific sector, context, existing opportunities and limitations etc. but one thing they should all have in common is their ability to bring about “significant and potentially long-lasting benefits” on the marginalised actors or communities it is addressed at and their respective value chains.
Moving towards a strategy
The Hack the System strategy has the potential to have a positive domino effect across a value chain while offering you as the social entrepreneur a unique market opportunity. Depending on what your product or service is and what market you operate in or intend to operate in, it might make more sense to adopt a B2B approach rather than a B2C approach. By identifying a bottleneck in an existing value chain you might find that your unique product or service might be well suited to solve it. This in turn can help marginalised actors across the value chain, who until now have been unable to reach their full market potential as a result of the bottleneck, access wider markets and become more successful.
A step-by-step process for adopting the strategy
Understand the current situation
Understanding the need, the potential and the barriers for marginalised market actors to increase the value of their products or service. These must be verified: On the one hand, the needs and potential of marginalised actors in a specific value chain . On the other, the limiting factors within the economic, ecological, social and institutional spheres that could proof to be obstacles when trying to reach the full potential of a value chain. They consequently have to be duly considered from the outset. Make sure to be on the ground and in exchange with the actors for this analysis. Having a clear understanding of the potential of marginalised actors and clarity on the limiting factors can also help you plan ahead and have strategies in hand to overcome them if the need arises. To establish an entrepreneurial solution to have value, it needs to improve the value chain you are targeting. The bigger the problem the bigger the need for a solution and the more guarantee of attracting customers as well as financing and other support from external actors.
Value Chain Analysis
Conduct a value chain analysis (VCA) specific to the sector and context you are targeting and identify any problems (ensure that the problem you have identified is not just temporary and that your solution will be needed in the long-term). Above all, remember that with this strategy you are adopting an inclusive VCD approach, so the services or products you come up with must (at least partly) be tailored to the specific needs of the marginalised actors in the value chain that you are addressing and must be geared towards empowering them as well as their communities. In this step you should really consider any trade-offs in your intervention (e.g. connecting a community to a new market can also mean that you are connecting competitors from that market to the community…) and be confident that the insertion of your new product or service in the value chain would benefit everyone affected by it.
Know your competition
Is anyone else trying to tackle that problem or are there any existing solutions out there that could easily solve it. If so, what sets you apart from them? Similarly, make sure that you have assessed who your competition is (if any) and what your USP and competitive advantage is.
Solve the problem
Using your expertise, knowledge and innovation, design a tailor-made product or service that solves the problem. If you have the ambition to establish a (social) enterprise, your solution can’t be replicated by your clients. It has to make sense for your clients to buy your service/product (in other words outsource) rather than doing it themselves.
Build a good relationship with your client
Gain your client’s trust by building a good reputation and showing how your solution will improve their value chain. Strategically inserting yourself in the market once you have your competitive advantage, gain and maintain customers and generate real impact. Remember that the more value your product or service brings to market the more your customers are going to be willing to pay for it.
Some things to consider
1. The importance of partnerships
Building strategic partnerships can not only increase the efficiency of your product or service but it can also accelerate its incorporation in the value chain and help you have a greater and even more sustainable impact in the relevant community. It is important to emphasise here the “strategic” element of such partnerships. Although the financial sustainability of your business is crucial, the approach underpinning the “Hack the System” strategy is that of inclusive business, in which the benefits of the product or service you are offering are felt across the entire community and contribute to more sustainable value chains. Multi-stakeholder collaboration, described by DEVAUX, A., ET AL. as the “mechanisms or structures that allow individuals with different stakes in a common resource or process to interact, improve their mutual understanding, develop trust, and engage in joint activities”, can also be a viable option for making inclusive VCD interventions more efficient. In order for partnerships and multi-stakeholder collaboration to truly benefit all actors involved, in particular the recipients of the intervention, the interests of the different partners and stakeholders should be aligned. The collaboration should also be founded on principals of trust, transparency and good communication to avoid misunderstandings and unnecessary set-backs in the process of applying the strategy.
2. Financing the solution
Although external funding (philanthropic funding or charitable donations for example), is often a viable option for financing a social project in marginalised communities, it is not always the preferred form of financing since it can conduce to harmful dynamics of dependency which are neither empowering nor sustainable. If you as a business can prove that your product or service will ultimately add value to the value chains in marginalised communities, allowing these to expand in their current markets and even tap into new ones, you will be in a better position to market your product/service to the community and gain community support. When the PPP (purchasing parity power) in the community is not high enough to cover the costs of your service/product, seeking finance through other mechanisms could be a viable option (Link to “financing” related factsheets).
Komodo Water is a perfect example of a social enterprise that follows the “Hack the System” approach to overcome obstacles in the value creation process of the fishing community in the Komodo Island, Indonesia. The initiative helps fishermen connect to higher-end markets by providing them with high-quality ice blocks which can allow them to keep the produce fresher for longer. By “hacking” into the fish value chain, or in other words, by better understanding the value chain and how it operates in the market sphere, Komodo Water has been able to think of something that no one had thought of before and which allows fishermen to increase the value of their produce/service.
Source: Ashoka Changemakers (2016-17)