The Problem

Poverty in Madagascar has remained persistently high and somehow complex, despite many attempts to reduce it through anti-poverty policies and interventions. As shown in the Macro Poverty Oulook, the share of the population living in poverty (US$2.15 in 2017 PPP) was 81.7% in 2020, 81% in 2021 and 80.6% in 2022.

One of the reasons why past anti-poverty policies have had less than desired success in reducing poverty is the limited understanding of its determinants. Empirical investigations of the determinants of poverty often use linear specifications that regress objective measures of poverty such as income or consumption against observable indicators theoretically justified to explain poverty.

To uncover the root-causes this analysis used a systems thinking approach to characterize a high-level, dynamic, and multi-dimensional view of the poverty trap with Causal Loop Diagrams (CLD) generated from focus group discussions in 6 provinces across the country.

The Solution

The World Bank organized a series of focus groups across a variety of diverse communities within judiciously selected communes in Madagascar. The aim was to identify, understand, and address the unique poverty challenges they face, and to enrich these findings with qualitative data. These focus groups were intentionally structured to spark discussions about the primary obstacles encountered by the communes. Insights from participants across different ages and genders were used to deconstruct these challenges into several root causes. Each root cause was further distilled into simpler, more comprehensible sub-causes.

The causes and their corresponding sub-causes were reanalyzed after deconstructing the poverty issues faced by each commune. This allowed for diligently examining the intricate interconnections that define these challenges. Special emphasis was given to understanding the interactions among various sub-causes and the overall impact on the system. Specifically, we identified reinforcing patterns or loops that sustain poverty and negate efforts by both individuals and policy interventions to alleviate it. In the end, insights shed light not only into the economic determinants of poverty but also the cultural, political, and behavioral intricacies across different demographics, including gender, age, occupation, and community type (rural/urban).

Analyzing poverty by amplifying the voices of the impoverished and evaluating qualitative data was influenced by a seminal World Bank book titled “Voices of the Poor: Crying out for Change.” This report harnessed focus groups across 23 countries to relay the experiences of the impoverished in their own words. In doing so, it underscored significant multidimensional aspects of well-being that had not been previously explored in conventional poverty analyses.

In addition to highlighting the voices of the impoverished and the crucial subtleties pertaining to their circumstances, this project incorporated systems thinking tools. This innovative approach enabled us to evaluate the qualitative data from the focus groups and discern the pivotal narratives and relationships explaining the perpetual cycle of poverty experienced by many households.

The Causal Loop Diagram is a partial representation of the multi-dimensional poverty trap from the perspective of urban households. The CLD identifies eight feedback loops representing the urban poverty trap that inhibits the group’s ability to:

• secure high income livelihood opportunities (R1)

• alleviate impact of cost of living (R2)

• uplift socio-economic status (R3)

• participate in decisions (R4)

• develop resilience to shocks (R5)

• mitigate increasing cost of business (R6)

• mitigate shocks to business (R7)

• enhance skills (R8)

Outcomes

Clearly addressing one or few sub-causes will not generate an overall change required in poverty trap situation.  The systems thinking exercise proposes a portfolio of upstream and downstream entry points and pathways to improve the ability of communities to move out of poverty over time. This will inform design of projects by the World Bank to activate the identified entry points.

In particular, the project resulted on a list of potential interventions that are directly linked to the feedback loops driving the system. For example, one of the potential interventions could be to promote business and entrepreneurship. Stakeholders in the focus groups thought that training, mentoring, infrastructure, and financing support could help circumvent the current low levels of business and economic activities (R1), and to diversify employment opportunities (R8).

Do you want to know more?

Connect with Amitaksha Nag, Francis Muamba Mulangu

The Problem

MasterCard, a major credit card company, once held a dominant market position US Market Share with only one primary competitor, Visa. They woke up one day and realized that, after six years of steady decline in revenues and market share, they had lost their leadership position. The company was stymied. Everyone was blaming each other. The erosion continued despite every effort to turn things around. Conventional wisdom, based on past experience, was not working. It was pretty desperate, nobody knew what to do, and it was feared that they would be out of business in the next five years if they couldn’t turn the “death spiral” around. Despite multiple initiatives to slow or reverse the decline, nothing seemed to work. Our work began with a more limited focus, but soon our objective became finding a solution to reverse the market share decline. It became clear, given the changes in the marketplace, that a new way of understanding the forces at play was necessary.

The Solution

The company called in the System Dynamics group of PA consulting as part of a larger project to change the company’s fortunes. System Dynamics (SD) and PA consulting were chosen because of their ability to look at the problem in a whole new way: people within in the company were thwarting each other’s efforts, and a more holistic approach for the organization was necessary. SD provided the necessary perspective by looking at the system as a whole, without losing crucial details.

Among the early modeling insights, was a simple recognition of the perilous situation in which MasterCard found themselves. The fact was that the company’s clients, credit card issuers, tended to focus all of their marketing efforts on the market leader, while ignoring the runner-up. In this case, when Visa was king, clients only promoted Visa’s product to the detriment of MasterCard. This was a case of a common systems trap called “Success to the Successful” and, if left unchecked, would surely have led to the demise of the less successful entity, MasterCard.

MasterCard also learned that there was a limit on spending due to minimal payments. Customers would not use the cards to the full advantage if they were not being paid off. Counter-intuitively, the best observed solution for this problem was to create a higher minimum payment, to allow for increased monthly spending.

We designed, built and tested a model of the US credit card industry and market–the cardholders, the choices they made using different cards, the businesses that accepted the cards. The model simulated MasterCard performance and that of each of the main competitors-Visa, Amex, Discover.

We tested ideas that came from all parts of the organization, but none had a significant and lasting impact. At one point they told us, “Just go experiment and let us know what you can find that WILL make a difference.” After several analyses, we identified four factors that when COMBINED would have that significant, lasting market share benefit being sought. A few discussions quickly identified “co-branding” (though we didn’t know what to call it then) as a strategy that would “pull all 4 levers”. We just described it as partnering with consumer-facing companies.

The outcome

PA consulting worked to collect real world experience, expert interviews, quantitative and qualitative data, and cultural factors. The information was cross checked, and at first, client focused. But a unique benefit of SD is its ability to scale upwards to encompass the entire market and capture the inherent complexities within the system. This model was scalable and could be moved from department to department to test a wide variety of initiatives. Hundreds of factors could be tested within the model’s nonlinear and time delayed system, to find the true leverage points which would allow MasterCard to regain and improve their market share. Consequently it was discovered that efforts such as increased value added assurance and increased issuer preference held the most value while conventional solutions like increased advertising held little leverage. This led MasterCard to be the first to market with the technique called co-branding, a partnership between a credit card brand and company, which allowed them to regain 6 points of market share.

Co-branding revolutionized the industry. Today, if you have a credit card, it is likely co-branded–the GM MasterCard, the Target MasterCard… Co-branding had the advantage of being a win-win-win… a win for the consumers, as the “points” gained by consumers provided noticeable discounts on their purchases…a win for the co-branders, who achieved higher customer loyalty as a result…and a big win for MasterCard, gaining almost exactly the market share and the timing predicted by the modeling. They hit the ground running and it was years before Visa and others could mount a similar set of alliances.To the MasterCard member banks the increase was worth billions in relative market share. Since then, co-branded cards have taken off in the United States and have redefined profits within the industry.

For MasterCard, System Dynamics changed not only the way the company saw itself, its competitors and its products, but it also helped drive the creation of an entirely new product line. MasterCard was able to efficiently understand their strategic resources and move on to a new field of growth by recognizing the key leverage points within their own system, identified thanks to the work done by PA consulting.

“In the end, everyone took credit for the work.”―Sharon Els

Do you want to know more?

• System Dynamics for Business Strategy: a Phased Approach

MasterCard Case: Part 1

(Narrated by Ken Cooper) 9:47 minutes

MasterCard Case Part 2 – The Back Story

(Narrated by Ken Cooper) 3:07 minutes

System Dynamics XMILE Webinars

On November 19, 2013 David Starr from Cooper Human Systems, and Sharon Els from PA Consulting Group presented their work in a webinar hosted by Steve Adler from IBM, and Karim Chichakly from isee systems.

This webinar was the third in the Big Data, System Dynamics, and XMILE webinar series jointly sponsored by IBM, isee systems and the OASIS XMILE Technical Committee. The series was showcase exemplar applications of System Dynamics in the areas of environment, business, health care, and public policy. (Nov 2013)