Framework for Localization-in Action

In my previous posting, Framework for Localization – an Overview, I introduced a set of slides that illustrated the interrelationships among key participants in a business ecosystem (see Framework4Localization Overview posted on SlideShare).

The final slide below, “Complete Localization Framework,” summarizes all of the key elements in one view:

It provides the starting point for this posting which outlines steps one can take to use the framework as a tool to help localize a community’s business ecosystem.

The slides shown in this posting are part of a presentation, Framework4Localization – in Action, which you may view or download from SlideShare by clicking the link in the title.

Purpose of Localization

The purpose of localization is to increase a community’s self-reliance and improve its chances for long-term sustainability. Localization done well results in more businesses that start-up and scale-up in response to demand from community members and do so profitably so they, too, are sustainable. But in order for that to happen within a local context, the metrics of success must be clear and the processes for business development must be well-managed.

Slide 1 below recommends that community members establish portfolio management practices and market metrics as a first step in their localization strategy. Given the emphasis on self-reliance and sustainability, the metrics that relate to basic needs, e.g., gallons of water, calories of food, kilowatts of electrical power, square feet of living space, etc., met by the local economy take precedence over others that are more readily available through the global economy.

Slide 1

Because all businesses within the community function within a business ecosystem, seeing them within a “community portfolio” is a useful construct. The dynamics of adding new, expanding some, and redirecting others to build the local economy invite wise use of community assets to do so, in other words, portfolio management. As pointed out in an earlier posting, participation by community members on many different levels which includes “investment” of community assets they own or control, is essential for localization to work. In effect, portfolio management practices provide the guidelines by which community members can effectively exercise their participation.

Bear in mind, this is not a social experiment. Even though businesses are in a community portfolio, that does not give them the latitude to be mismanaged and perform poorly. Profitability remains their primary goal since that is the only way businesses can stay in business and the only way the business ecosystem can sustainably localize.

Businesses listed in the community portfolio can be anywhere in their development cycle from an innovative idea, to a business case preparing for launch, to a business already underway and looking to expand, to a mainstay in the business ecosystem needing to modernize and redirect. In addition to where they are developmentally, they also have a spot on the localization framework.

Slide 2 below shows the distribution of business ideas and cases that surfaced during a series of stakeholder sessions conducted in Lorain County, Ohio during 2010 – 2011. While this does not capture all of them, it does show the variety of ideas and cases in each category.

Slide 2

Typical of our experiences in these forums, participants generated more ideas and cases in production than any other area. But knowing how ideas and cases fit into the framework is useful information because it offers insights into how to design the localization strategy going forward and where to bolster the localization inroads already made. For instance, strong output from local food production is certainly a plus in the overal drive to localize a community’s business ecosystem. However, a preponderance of local food production compared to downstream, value-added stages may relegate market access to a smattering of direct sales to community members in the local economy through farmers’ markets and community-supported agriculture (CSA) subscriptions, or contracted sales to food aggregators / distributors or retail food chains in the global economy. The former lacks sufficient volume at marketable prices to cover the cost of operations whereas the latter runs counter to localization.

Value-added stages between production and consumption with insufficient businesses to create viable business-to-business connections and increase access to local markets become opportunity spaces for new or expanding businesses to fill. Slide 3 below outlines several value-added stages in a red border to designate them as opportunity spaces ripe for business growth in the Lorain County example.

Slide 3

As examples, among those opportunity spaces identified, “energy flows” and “waste flows” offer a considerable range of freedom for business development in composting, anaerobic digesters, and other waste-to-energy alternatives. Notice, too, the absence of established portfolio management practices. If left unaddressed, this deficiency leads to poor communication and coordination among community members about how to populate the community portfolio and how to invest community assets to advance those entries.

Sound portfolio management practices include the development of a strategy that localizes the business ecosystem as expeditiously as possible. With sustained profitability as the goal, preferred strategies increase the number of high-margin transactions closer to points of consumption. This both speeds those businesses directly involved toward profitability and increases the amount of revenue that can be distributed throughout the value chain. The result contributes to the profitability of the overall localized business ecosystem, which derives maximum benefit and return from invested assets.

Slide 4 below draws attention to those transactions that occur within the opportunity spaces closest to the points of consumption.

Slide 4

In the case of localizing the food system in Lorain County, that meant focus on food preparation for quick delivery of ready-to-eat calories to consumers. Potential venues include schools, health care facilities, food trucks / carts, farm-to-table dining experiences, take-home meals for employees, and home deliveries.

Those business ideas and cases that emerged through this kind of gap-filling / start-closest-to-the-points-of-consumption strategy provide ample opportunities for community members to participate. Slide 5 below points out those areas of participation that are oftentimes discounted or forgotten compared to their more notable value-added counterparts.

Slide 5

These data management services identify, record, and track utilization of community assets through tools and techniques that include mapping, modeling, information flows, decision support, and portfolio management. In actuality, the processes that account for community assets build a formidable knowledge commons and know-how value network. These can be combined with available land, facilities, equipment, etc., under the control of community members to create highly adaptive business models and develop innovative solutions to address roadblocks along the way to start-up, scale-up, and sustainability.

Accounting for assets is an important step in any localization strategy. Slide 6 refers to the set of templates and tools available on LocalFoodSystems.org (LFS) that enables entrepreneurs, business ecosystem participants, and community members to begin documenting their assets and developing their strategies to apply them.

Slide 6

Note that the categories and color-coding listed in the legend for the LFS site correspond to the Framework4Localization diagram.

Click Business Ecosystem Map (see screenshot below) and, as the previous slide suggests, get your business on the map…and into your business ecosystem.

Also, check the LFS site frequently for new features you might find useful as you further develop your business ideas and cases.

Epilogue:

Lorain County participants led one of the first initiatives in Northeast Ohio to load their business ideas and cases into a “Community Investment Portfolio” and use it to shape the rollout of their localization strategy. Today, this strategy is encapsulated in The Oberlin Project.

Look for future postings on this blog which explore the general concept of a community investment portfolio in more detail and note how it has evolved over the past two years to become an effective economic and business development tool.

Originally posted to Sustainable Local Economic Development by Steve Bosserman on Saturday, August 25, 2012

Want to Localize? Participation Is Required!

In a globalized business ecosystem, the market can be anywhere in the world and the customer is merely a transaction entry in a database. However, as a business ecosystem localizes, the market becomes the community and the customers are the people who live there. They have faces and names. They are known for who they are to one another: relatives, friends, associates, acquaintances, neighbors, and community members. And if self-reliance is their motivation to localize, they have a vested interest in applying their resources to relieve their dependence on the globalized ecosystem for their basic needs. In other words, they are prompted to participate.

Participation by community members is the key determinant in how fast and to what degree a business ecosystem localizes. To accelerate localization and impact the local economy requires that community members do as many of the following as they choose:

  • Buy local whether they think it’s a good deal, financially, or not–it may very well not be!
  • Believe in the principles and values associated with self-reliance as the motivator
  • Advocate on behalf of localization within the community as a way to achieve self-reliance
  • Influence legislation regarding taxes, regulations, and subsidies to favor localization
  • Invest in local businesses as entrepreneurs, resource providers, and stakeholders of all kinds

As you can see, there are many ways community members can choose to participate in localizing their business ecosystem. In fact, there’s really no reason why a community can’t expect 100% participation by all of its members in that each one makes a CONSCIOUS, INFORMED DECISION whether and in what ways to participate.

The presentation, Achieving 100% Participation in Local Agriculture Systems (click on link in title to view / download from Slideshare) I delivered during the grant projects encapsulates this concept. As an example, slide 15 defines “100% participation” in more detail:

In addition, my posting, How Do You Participate in YOUR Local Economy?, introduces the “100% Participation in Local Economies” diagrams and further explores the five ways in which community members can participate as initially outlined above. An example of the first diagram is embedded below:

Because of the direct association between participation and successful localization, a market network strategy that engages and encourages community members to take action is both necessary and quite different than one that attempts to tap into a global market. This will be the topic for my next posting. Meanwhile, have fun ramping up your participation!

Originally posted to Sustainable Local Economic Development by Steve Bosserman on Saturday, August 11, 2012

The Economics of Happiness and Meaningful Work

Recently, one of the community activist groups in our area hosted a screening of the prize-winning movie, The Economics of Happiness, followed by a Skype interview with Helena Norberg-Hodge, one of the co-directors and founder and director of Local Futures – Economics of Happiness, formerly known as the Institute Society for Ecology and Culture (ISEC).

It’s definitely worth seeing, if you haven’t already done so. In addition to information available on the Local Futures website, a YouTube film clip offers a quick overview of the main themes explored in the movie: The Economics of Happiness – Official Trailer.

In her commentary on the Skype call, Ms. Norberg-Hodge emphasized the importance of launching and supporting community-based initiatives that rebuild the local food economy and deliver education for action.

She encouraged attendees to mobilize democratic action and draw upon the power of the electorate to influence politicians to enact, rescind, or amend laws regarding taxes, subsidies, and regulations so that locally-sourced products have an even playing field with their globally-sourced alternatives.

Her rationale suggested that the resulting decentralization of corporate and governmental structures would increase the number of jobs. It would also provide community members with meaningful work based on values and skills resurrected from a nearly lost ancient wisdom inherent in our cultural roots. In many instances this worthy work translated into farming using simple tools and adhering to millennia-old agricultural practices.

While Ms. Norberg-Hodge did not openly discount technological developments, the significance of them as a defining force on the pace and degree with which our civilization continues to advance received short schrift.

The loss of jobs today comes primarily as a result of technology. The machine replaces human labor–period. Our challenge is to figure out what we do with our time as the machine continues to eliminate the need for us to spend it in drudgery. The increased redistribution of power as decentralization takes hold opens the door for a new definition of meaningful work WITH the machine, not against it.

No doubt, localization will give us the opportunity to learn how to invest our time in our personal development, care and support for one another, and adaptive community cultures. That would be a dream worth making a reality. But if the future of localization means becoming reacquainted with a shovel, rake, and hoe for hours on end, that seems more like a nightmare! Better to master the machine for our well-being rather than our destruction.

Originally posted to Sustainable Local Economic Development by Steve Bosserman on Wednesday, August 8, 2012

Rules and Choices for a Sustainable Local Economy

Economies are social systems within which we make choices based on needs, wants, and means. People regulate economies through rules that set taxes, tariffs, fees, standards, licensure, certification, patents, etc. These rules reflect the priorities of the people who enact them through their governance structures be they for small local groups or large global agencies.

The intent of rules is to limit choices in favor of those that produce the desired behavioral outcomes on a consistent basis. Such rules make the economic system more effective (do the right thing) and efficient (do it the right way).

Oftentimes, rules from multiple levels of jurisdiction apply to the same set of choices. For example, cooperatives, municipalities, county, state, and federal offices and agencies, the European Union, the United Nations, professional societies, industry-wide private sector groups all have a hand in defining various regulations to monitor and manage the supply of basic needs such as food, water, energy, fuel, manufactured goods, etc.

Unfortunately, competing or unclear interests behind the rules or insufficient diplomatic moxie to enforce them results in a complex legal and financial landscape in which to make choices. From a business perspective, this dense web of rules becomes a barrier to entry for all but those that have a global market, deep pockets, and easy access to resources to sort through the alternatives, invest in the opportunities, and pay the consequences for any misstep. It also fosters a dependency by people and their communities, neighborhoods, and rural areas on global players to supply them with basic needs. This places communities at risk for survival if supply chains are disrupted whether by natural disasters, climate change, pandemics, fossil fuel shortages, political turmoil, even a down Internet, to mention some of the more obvious.

As explored in the posting, “Business Models for a Local Economy,” the primary purpose of a local economy is to meet the needs of its participants whereas the purpose of the global economy is to satisfy their wants. Such distinctly different purposes result in different rule sets. Governance structures proliferate at all levels to administer rules of the global economy. Far fewer are in place for local economies. However, several types are available. Among these are policy councils, buying clubs, and co-ops for food, family, education, housing, etc.

Governance structures for local economies establish the rules by which members of communities, neighborhoods, and rural areas have more options available so they can choose to meet their needs through local sources. In effect, such “rules management” facilitates “Business Model Development within a Local Economy”, which drives two fundamental “localization” processes:

  • Integration across all value-added steps from the point of consumption back to the points of production
  • Utilization of community assets and resources without reliance on outside funding

The combination of these two processes, under the auspices of a local governance structure, gives interdependent local businesses and support organizations the competitive edge to prevail over their global counterparts when meeting needs of community members. Furthermore, members have opportunities to minimize economic leakage, reinvest their assets, and retain vital resources in the community through an effective portfolio management effort. This collective effort, then, is the foundation for sustainable local economic development.

The diagram below offers another way to view these critical interrelationships.

The integration of value-add steps–a function of rules management–flows from the point of consumption to the points of production, whereas the utilization of community assets and resources–a function of asset management–flows from identification and location to inclusion in an infrastructure project and business case portfolio.

The center of the diagram lists a wide range of professional services required to accomplish the tasks and complete the activities associated with rules management, business ecosystem functionality, and asset management. Social networking and innovation, which characterize asset management, and entrepreneurship and commercialization, which result from rules management, form the backdrop to conduct these transactions.

As the graphic suggests, services are transactions–the lifeblood in social system behavior. Nothing gets done between and among people without transactions. However, some methods and processes require fewer transactions than others. Furthermore, a healthy local economy incurs fewer transaction costs, either internal or external, to meet the needs of its members than a global economy. This is simply because the sustainability of the community is in the hands of those who live there. It’s in their vested interest to manage it. And given the choice to do so, which a vibrant local economy does, members will act on behalf of their collective sustainability.

Community members, represented by the orange-colored background, have the rules in hand to manage the context and the choices available by which they can:

  • Meet their needs
  • Sustain their community for generations to come
  • Assure themselves of a reasonable quality of life
  • Build on a firm foundation to participate, successfully, in the global economy

These outcomes of constitute the primary purpose for a sustainable local economy and the healthy development it catalyzes and encourages.

Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Wednesday, September 8, 2010

Metrics for Local Economic Sustainability

Business models within a local economy engage community members, focus on meeting the physiological and safety needs of members, integrate across value-added steps, utilize community assets and resources , and apply output and performance metrics so that community members can keep score.

Although listed last, the significance of applied metrics cannot be overstated since it is through them the functionality, impact, and cost of the organization or cluster of organizations built upon the business model are measured. However, carefully crafted metrics have the capability to expand the business model beyond its basic purpose to drive solvency and sustainability of an organization or cluster of organizations to deepen the resolve to establish a fully functioning local economy, spur creativity and innovation to find business solutions, increase the rate and degree of adaptiveness, and significantly improve the odds of long-term sustainability for the community-at-large. The quality of the metrics, e.g., the relevance of the scorecard, within the framework of a local economy, shape the design of a business model so that the performance of the organization or cluster of organizations achieves these broader objectives. What are these metrics, then?

The graphic below builds on the basic flows of assets and work functions introduced in the posting, “Does Your Community Meet the Needs of Its Members?” The spreadsheet table superimposes traditional and alternative measurement systems across the two flows in order to motivate, track, and compensate progress. These complement the output metrics already identified in the posting.

The interplay between these two systems of metrics is the engine that strengthens and sustains a local economy. Let’s start with output metrics. The purpose of a local economy is to meet the needs, e.g., food, water, energy, housing, etc., of people within a given community, neighborhood, or rural area. The success of a local economy in delivering these needs to local points of consumption is determined by output metrics. For instance, food can be measured in calories, water in gallons, energy in kilowatts, housing in livable units, and so on.

These same output metrics apply to the work functions associated with delivery of a specific need. For example, food preparation, food processing, and food production provide calories, water recycling yields gallons of potable water, deconstruction and repurposing result in units of usable materials, parts, and components, etc. The more efficient these work functions, the more effective they are in delivering needs and the more sustainable the local economy. How to manage and improve work function operations, then, is of considerable importance.

Work functions or work modules are not independent of one another. They are highly integrated value-add steps that span from the point of consumption to the points of production. The key to managing and improving their operation rests in increasing the degree of integration among them. This requires a highly collaborative effort among those who are responsible for carrying out the tasks associated with each step whether they do so under the auspices of separate businesses or support organizations. For this reason, there is a direct association among the roles community members play: holders of the output metric scorecard; “owners” of the work functions; and leaders of work function integration into clusters of for-profit and support entities in their local areas.

Whereas independent agents dominate the play in the global economy, collective responsibility and leadership for meeting community needs rule the day in a sustainable local economy. The challenge is to match the assets and resources in the community with the work function clusters so they have the wherewithal to deliver according to the desired output metrics. The purpose of the community investment portfolio is to match infrastructure projects and work function clusters with assets and resources such that community members are confident the results will justify their investment. Performance metrics through multiple mediums of exchange indicate how well this match is made.

The posting, “Business Model Development within a Local Economy,” illustrates how a business model can “…execute the work functions required to meet needs and keep the organization sustainable.” Or put another way, a business model shows how to utilize all assets and resources in the community without precluding future availability.

The key is to use the assets and resources without changing ownership or without modifying them to where their original purpose is lost to others who might also use them. This is accomplished through various mediums of exchange such as alternative currencies, time banking, carbon credits, renewable energy certificates, and volunteering that provide liquidity of fixed assets, like land, water, facilities, equipment, housing, clothing, materials, etc., so they can be easily committed to the completion of prioritized work functions.

While money / currency remains a principal way to access resources, to buy or have a long term lease agreement limits access by other community members. It also runs the risk that ownership and control of assets and resources transfer to people outside the community. This imposes another set of restrictions on access and use and contributes to economic leakage, which weakens the community’s chances for sustainability. A Sustainable Seattle report, Why Local Linkages Matter: Findings from the Local Food Economy Study, offers an excellent overview about the consequences of economic leakage related to food sourcing choices and ways to return to a more sustainable path.

The commitment of assets and resources is associated with the completion of commissioned work functions. The same mediums of exchange that assure the flow of assets and resources also incentivize people to apply their skills, talents, and wherewithal to the tasks at hand and fulfill what is necessary to meet the needs specified by the output metrics. And, just as purchased assets often blocks the community from further access, employment often limits the person hired from participating in other work functions and the value exchanges presented by mediums of exchange other than money / currency for salary / wage.

A healthy local economy establishes sustainability through two features. First, it enables members of a community, neighborhood, or rural area to invest and reinvest its assets and resources as represented by multiple mediums of exchange into a portfolio of prioritized project and clusters. Second, it incentivizes community members to carry out the tasks associated with the integrated work functions in each project and cluster in the portfolio as they are prioritized and launched. When the combination of utilized assets and executed work functions deliver on the needs of community members the local economy is successful. And when this is done repeatedly, the local economy is sustainable.

Originally posted to Sustainable Local Economic Develop on Tumblr by Steve Bosserman on Monday, September 6, 2010

How Do You Participate in YOUR Local Economy?

The most important characteristic of business models in a local economy is universal participation by community members. In other words, all community members contribute to their local economy however they can. This may be counterintuitive if one thinks of business models from a typical global economy perspective. Let’s consider some of the main differences between the two economic views.

In a local economy, members are both the market for and the means by which their needs are met. This is quite the opposite of what happens in the global economy where those who produce, process, prepare, and distribute are often separated from one another by considerable distance and even further removed from the end-user or customer. Because of this, the consequence of buying decisions on a particular community does not impact consumer choices within the global economy.

As a result, the purpose of a local economy is to assure sustainability of the community that defines it. The community is the central focus. Community members contribute in whatever ways they can to establish, manage, and maintain the requisite level of business activity within the community that meets their needs. The intent is to advance interdependence among many businesses in the interest of resilience, adaptability, and self-reliance.

In contrast, each business in the global economy strives to be first to market, remain alone in that market for as long as possible, and be deemed best in the market among any other competitors should they appear. The business is the center of attention. A wide array of stakeholders comprised of management, employers, suppliers, and investors promote the business in an effort to gain acceptable returns. The objective is to survive in an intensely competitive environment that challenges the right of each business to exist on a routine basis.

Given participation in a local economy is so important, what does it look like?

Essentially, community members participate in their local economy along five pathways of action:

  • They buy from local businesses
  • They believe that interdependent local businesses must be successful to assure community sustainability
  • They advocate on behalf of local businesses and the local economy
  • They administer to the rules of the local economy so that businesses within it have opportunities to function more effectively and efficiently
  • They invest in businesses

The following graphic recasts the five paths mentioned above as vectors positioned on a backdrop of concentric circles that represent level of participation as indicated by the teardrop scale at the bottom which begins with limited involvement at the status quo center and progresses through three levels to much wider participation in the outer ring.

The view below offers additional descriptors for each vector, level by level. Although this particular example relates to a local food system, the diagram applies to any product or service related to meeting the basic needs of a community.

But these details are not answers. They are merely placeholders to spur your thinking.

How do you participate in YOUR local economy?

What are the appropriate labels to indicate involvement by you and your community members?

Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Tuesday, August 31, 2010

Business Models for a Local Economy

Whether you want to go into business within the global economy to satisfy customer wants in markets around the world or a local economy to meet the needs of community members close to home, an effective business model is essential. However, a business model that applies in the global economy is different than one in a local economy. Why?

Two Economies:

The global economy is driven by people’s insatiable desire to have more than what is required to sustain their lives. In contrast, a local economy is focused on meeting the basic physiological (food, water, energy, housing, and clothing) and safety (security, education, and health) needs of its immediate members. In the former, I can live without it, whereas in the latter, I can’t.

In a global economy, customers have two choices: first, do they want something, in general—a car, for instance; and second, do they want a particular item within that general category—a specific car by make, model, year, and other specifications. Any number of factors influence customers in their decisions to buy at all and, if so, which ones. As a result, in the global economy, customers rule.

In a local economy, the market is automatically defined as all who live in the immediate area. The common factor is that everyone must have food to eat, water to drink, air to breathe, shelter as protection from the elements, energy to heat and cool the home, and clothing to wear outside. In addition, everyone must have a reasonable measure of security, means to manage their health, and access to education opportunities so they can better care for themselves and contribute to the sustainability of their local community. The capacity of a local economy to sustain community members predicts how well and for how long those members can participate in the global economy. As a result, in a local economy, the community rules.

Two Business Models:

Given the emphasis on customer choice, a successful business model in the global economy is one that:

  • Anticipates customer readiness for proposed products and services
  • Strengthens company readiness to deliver to customers
  • Adapts quickly to customer reaction and responses to what’s delivered

The net result is to establish and maintain a competitive edge among countless others who want the same outcome for their companies.

For further insights on the development and use of adaptive business models in the global economy, consider Steve Blank (@sgblank) an excellent resource. Steve brings his extensive firsthand experience in building early stage businesses to bear through informative posts about entrepreneurship, start-ups, and applied business principles on his website. Business models is one topic he treats particularly well. In his posting, “What’s a Startup? First Principles,” he describes what is a business model and how to apply it. He also contrasts it to business plans, an analysis he carries forward in a later posting, “No Plan Survives First Contact with Customers – Business Plans versus Business Models.”

In a local economy, community members can choose to source their needs from suppliers far afield from their community. However, to do so puts at risk long-term sustainability due to interrupted supply lines. As a consequence, business models for a local economy offer attractive choices to members so they can meet their needs from local sources.

Although its emphasis is primarily on food, the report, Why Local Linkages Matter: Findings from the Local Food Economy Study, sponsored by Sustainable Seattle through a community development program, Building the Local Food Economy – A Call to Action offers insight into business models within a local economy.

Key characteristics of business models for a local economy include the following:

  • Universal participation by community members
  • Initial focus on meeting the needs of community members without fail
  • Integration across all value-added steps from the point of consumption back to the points of production
  • Utilization of community assets and resources without reliance on outside funding
  • Application of performance metrics that deepen the resolve to establish a fully functioning local economy, spur creativity and innovation to find business solutions, increase the rate and degree of adaptiveness, and significantly improve the odds of long-term sustainability

As indicated by these qualities, business models that deliver the basic needs of community members within a sustainable local economy are quite different than those that satisfy wants of customers throughout the global economy. Given the importance of these local economy business models, they warrant further attention. Look for more details in future postings.

Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Sunday, August 29, 2010