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