Complementing Managerial Capital with Business Information: A Field Experiment on International Consulting for Entrepreneurs in Uganda and Rwanda.

Lead Research Organisation: London Business School
Department Name: Marketing

Abstract

This research seeks to address a significant constraint to growth among businesses in developing countries: managerial capital. Managerial capital refers to the capabilities and confidence associated with managing cash, customers, competition, capital and constraints within businesses (cf. Bruhn, Karlan and Schoar 2012). Improvements in managerial capital offer the possibility of improved growth and prosperity. However, there exists substantial evidence that it is not abundant among micro and small businesses. In this research, we examine how managerial capital might help entrepreneurs in developing countries to transform their businesses: from micro- to small-sized enterprises and from small- to medium-sized enterprises. Despite the importance of this transformation for economic growth, few researchers so far have examined this phenomenon empirically.

The limited empirical work that has used experimental interventions to improve managerial capital has been inconclusive as to whether such interventions have an impact on firm growth, job creation or poverty alleviation. One potential issue is that existing studies typically involve offering business skills programs to a broad mix of entrepreneurs, the majority of whom are self-employed out of necessity and would prefer jobs in the formal sector. Greater selectivity in the recruitment of candidates for managerial capital programs might offer greater potential for impact. In addition, to the best of our knowledge, no study has delivered a consulting program to micro sized enterprises or one in which the participants concentrate on a single business function (e.g. finance or marketing). Prior interventions have also tended to focus on improving finance/accounting practices (e.g. book keeping) or efficiencies in operations (e.g. quality control), either of which can lead to improvements in bottom-line profits. Little emphasis has been placed on the enhancement of marketing and sales practices, which have the potential to increase top-line revenues and, in turn, stimulate firm growth and job creation. Further, researchers have not yet examined the impact of complementing managerial capital with access to business intelligence to improve productivity.

We seek to answer these research questions, and address the limitations of prior work, by implementing a randomized-controlled trial (RCT) that focuses on a more homogeneous group of firms, uses a more intense intervention, provides consulting programs that focus on only one dimension of managerial capital per project, and improves access to business information. In part 1, a screening tool will be implemented to identify a homogenous sample of 900 'high growth potential' micro and small enterprises in four urban areas across Uganda and Rwanda. Next, in part 2, participants will be exposed to a high quality Consulting Program provided by GROW Movement (www.growmovement.org). This managerial capital intervention represents a novel model for delivering free, high quality business advice to the world's poorest entrepreneurs via emails, mobile phone calls, and Skype video conferencing. Participants will be randomly assigned into one of three consulting groups: 300 participants will get a consultant who focuses on a "Marketing/Sales growth project". 300 participants will get a consultant who focuses on a "Finance/Accounting growth project". 300 participants will be assigned to a control group that does not receive any intervention. In part 3, within one week of beginning the GROW program, all 'treated' participants (n = 600) will receive an additional business information tool that complements their consulting service and allows them to track and analyze key business metrics. After completing the GROW program, all 900 participants will have their business practices and performance outcomes measured using post-intervention surveys conducted at months 6 and 12.

Planned Impact

This project will inform policy in multiple ways. For each stakeholder group below we outline specific outputs against which the success of the project can be assessed for impact.

PROJECT TEAM (EFFECTIVE IMPLEMENTATION)

Implement all elements of the proposed research project within the timelines prescribed. Some key deliverables include:

(1) Sample: identify a sample of 900 potentially transformational entrepreneurs across two countries (i.e. entrepreneurs who qualify and are interested in participating in the project).

(2) Program for Evaluation: offer the consulting program and information technology tool to these 900 entrepreneurs.

(3) Compliance: achieve a compliance rate of 65% (i.e. 400 of 600 'treated' entrepreneurs complete their consulting program and implement the ICT tool in their business).

ACADEMICS (NEW KNOWLEDGE)

Make theoretical and methodological contributions that create new knowledge and make advancements in the relevant academic fields. Outputs will include:

(1) Conduct a mixed method data collection approach (as outlined in this proposal) that includes:
-3 qualitative interview rounds.
-6 quantitative survey rounds.

(2) Construct a harmonized dataset (across two countries) that can be:
-Analyzed for writing academic and policy papers.
-Made publicly available via the ESRC and IPA websites.

(3) Publish three journal articles, each focused on a different area of contribution:
-Theoretical (e.g. develop a new conceptual framework for understanding the antecedents and outcomes of managerial capital, including which dimensions of managerial capital are more closely linked to certain economic and social outcomes).
-Substantive (e.g. provide insights on how to design and offer training/technology programs that can help developing country entrepreneurs to build business capabilities, overcome constraints to growth, and enhance enterprise development).
-Methodological (e.g. outline the electronic survey tools and interview techniques that can be used when working with micro and small businesses in developing countries, including how to locate business owners, motivate them, track them over time, overcome recall bias, minimize demand effects, and improve the accuracy and precision of measuring firm outcome variables).

ENTREPRENEURS (INCLUSIVE GROWTH)

While completing rigorous and innovative research is in itself important, this project also aims to enhance firm productivity and stimulate growth. This can be measured in multiple ways; however, we will start with the following outcomes:

(1) Improve the economic outcomes of 900 entrepreneurs by:
-Increasing business sales by 20% per month on average.
-Increasing business profits by 30% per month on average.
-Creating 1 decent job on average per business (900 total jobs created).

(2) Improve the social outcomes of 900 entrepreneurs (and their families) by:
-Increasing household spending by 20% per month on average (e.g. food, health, education).
-Enhancing economic empowerment and responsibility in financial decision-making (particularly for female entrepreneurs).
-Increasing perceptions of happiness and overall wellbeing.

(3) Improve the lives of at least 13,500 people across the two developing countries involved in this project:
-900 entrepreneurs participating in the project (i.e. direct beneficiaries).
-1,800 employees in the participating firms (i.e. direct beneficiaries: each firm will have 1 employee on average at the beginning on the project; and we expect to create 1 decent job on average per business by the end of the project).
-10,800 household members (of entrepreneurs or employees) whose lives are enhanced by the economic and social improvements realized by the 2,700 direct beneficiaries (i.e. indirect beneficiaries: the typical household size could be very large, but we assume it to be 5 with 1 entrepreneur/employee who directly benefits and 4 family members who indirectly benefit).

Publications

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ES/L012545/1 13/10/2014 30/11/2017 £329,229
ES/L012545/2 Transfer ES/L012545/1 01/12/2017 12/10/2018 £10,019
 
Description The first follow-up survey in Uganda was completed in autumn 2016, roughly fifteen months after the baseline survey was conducted. The preliminary results show that remote coaching seems to have affected the strategic focus of the business. The data show that those who worked with a coach implemented significantly more business pivots, on average, than those in the control group. The term "pivot" was first popularised by Eric Ries (2011) describing a business model innovation within a start-up setting (i.e. a "structured course correction of a business model"). Through this research, we have expanded the definition of a pivot and developed the concept to clarify what it is (and is not). For the purposes of our analysis, we define a pivot as a deliberate shift in how the business model components are designed to create and deliver value for customers (Anderson, Chintagunta and Vilcassim 2017). According to data from our first follow-up data, 214 entrepreneurs in the treatment group implemented at least one business pivot following the intervention, compared to 117 in the control group.

To further understand these results and the benefits of connecting entrepreneurs and business professionals across international markets, we will use the data from our final follow-up survey (conducted in autumn 2017) and the administrative data from the session reports on the partner's online platform. Data from the final follow-up survey will also be used to determine the social and economic outcomes of the intervention.
Exploitation Route In many cases, small business development programmes focus on teaching entrepreneurs different business skills-for example, record-keeping, budgeting, market research, etc.-as a means of improving their performance. While these business practices are important, they are often made at a tactical level and only implemented for a short duration after the intervention.

A pivot, on the other hand, focuses on the strategic level of the business, requiring a more fundamental change in how the business creates and delivers value to customers. The change is permanent, and therefore we expect the changes in business performance to be more sustained over time.

If proven to work, business pivots can be taught and encouraged by small business development practitioners as a means to stimulate firm growth. Prior to that, however, further research needs to be done to better understand the dynamics and potential impacts of pivots and innovation in small, developing country firms. We therefore hope that our findings, once finalised, can be used and built upon by other academics and researchers exploring entrepreneurship in developing countries.
Sectors Education,Government, Democracy and Justice

 
Description Private Enterprise in Low-Income Countries (PEDL)
Amount £33,162 (GBP)
Funding ID 4019 
Organisation Centre for Economic Policy Research 
Sector Charity/Non Profit
Country United Kingdom
Start 11/2016 
End 10/2017
 
Description Consultation with the World Bank on their work with Kampala Capital City Authority (Kampala, Uganda) 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact We were approached by the World Bank to assist in compiling a report-using the data from this project-on the constraints facing small businesses in the greater Kampala area, and how these constraints can be addressed. This report will form part of the Bank's Non-Lending Technical activities to the Government of Uganda and the Kampala Capital City Authority on how to stimulate enterprise growth and job creation.
Year(s) Of Engagement Activity 2016
 
Description Policy workshop hosted by BRAC Uganda 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact About 100 people drawn from government, NGOs and universities attended the workshop organised by BRAC, Stockholm University and the IGC in Kampala, Uganda to present and discuss findings from research on skills training, youth labour markets and small firm expansion. The presentation on the present study drew a lot of attention to how a cost effective intervention like remote coaching could help 1000s of entrepreneurs in developing economies with increased penetration of internet especially in the sub-Saharan region.
Year(s) Of Engagement Activity 2017
URL https://www.theigc.org/event/enhancing-youth-employment-small-firms-growth/
 
Description Research Roundtable (Kigali, Rwanda) 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact IPA Rwanda (our research partner), together with the International Growth Centre (IGC) Rwanda and another research firm, Laterite, organised a Research Roundtable discussion in November, at which this project (amongst others) was presented. The event was attended by local researchers and members of the public.
Year(s) Of Engagement Activity 2016