Harvard Case - Sarvajal: Water for All
"Sarvajal: Water for All" Harvard business case study is written by n D. Macomber, Mona Sinha. It deals with the challenges in the field of Finance. The case study is 28 page(s) long and it was first published on : Feb 9, 2011
At Fern Fort University, we recommend that Sarvajal pursue a hybrid growth strategy focusing on both organic expansion in existing markets and strategic acquisitions in new geographies. This strategy will leverage Sarvajal's existing strengths in technology and analytics, operations strategy, and business model innovation while mitigating risks associated with rapid expansion.
2. Background
Sarvajal is a social enterprise operating in India, providing safe drinking water to low-income communities through a unique business model. The company utilizes a network of decentralized water purification plants and a fleet of delivery vehicles to distribute purified water at affordable prices. Sarvajal faces the challenge of scaling its operations while maintaining profitability and social impact. The case study explores various options for growth, including organic expansion, acquisitions, and a potential IPO.
The main protagonists in the case are:
- Anurag Kumar, Founder and CEO of Sarvajal, who is passionate about providing clean water to all and seeking a sustainable business model.
- The Board of Directors, who are grappling with the company's growth strategy and the potential risks associated with different options.
- Investors, who are interested in Sarvajal's social impact but also seeking a strong return on investment.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Porter's Five Forces Framework:
- Threat of New Entrants: The water purification industry in India is relatively fragmented, with limited barriers to entry. However, Sarvajal's unique business model and strong brand reputation create a competitive advantage.
- Bargaining Power of Suppliers: Sarvajal has a diverse supply chain, mitigating supplier dependence. However, the cost of raw materials and energy can impact profitability.
- Bargaining Power of Buyers: Sarvajal's target market is price-sensitive. However, the company's focus on quality and reliability provides a competitive edge.
- Threat of Substitutes: Other sources of clean water, such as bottled water and public water systems, exist. However, Sarvajal's affordability and accessibility make it a viable alternative.
- Competitive Rivalry: Sarvajal faces competition from both established players and new entrants. The company's focus on innovation and social impact differentiates it from competitors.
Financial Analysis:
- Profitability: Sarvajal's financial statements show a strong track record of profitability, with a high return on investment (ROI) and positive cash flow.
- Capital Structure: The company relies heavily on debt financing, which poses a risk during economic downturns.
- Growth Strategy: Sarvajal's organic growth strategy has been successful, but further expansion requires significant capital investment.
- Valuation: The case study highlights the challenges of valuing a social enterprise with a strong social impact but limited financial data.
4. Recommendations
Sarvajal should pursue a hybrid growth strategy:
1. Organic Expansion:
- Focus on existing markets: Invest in expanding the network of water purification plants and delivery vehicles in existing regions to capture untapped demand.
- Improve operational efficiency: Implement activity-based costing to optimize manufacturing processes and reduce costs.
- Leverage technology and analytics: Utilize data-driven insights to improve route planning, inventory management, and customer engagement.
- Develop a strong pricing strategy: Balance affordability with profitability, considering factors like customer segmentation and competitive pricing.
2. Strategic Acquisitions:
- Target new geographies: Identify regions with high demand for safe drinking water and limited competition.
- Focus on complementary businesses: Acquire companies with expertise in water treatment technologies, logistics, or distribution networks.
- Conduct thorough due diligence: Assess the financial health, regulatory compliance, and social impact of potential acquisition targets.
- Develop a clear integration strategy: Ensure smooth integration of acquired businesses into Sarvajal's existing operations.
3. Financial Strategy:
- Diversify funding sources: Explore options beyond debt financing, such as equity financing, private equity, or venture capital.
- Optimize capital structure: Reduce reliance on debt by increasing equity financing to mitigate financial risk.
- Consider a strategic IPO: A successful IPO could provide access to significant capital and enhance brand visibility. However, Sarvajal should carefully consider the implications of going public and ensure alignment with its social mission.
5. Basis of Recommendations
This hybrid growth strategy aligns with Sarvajal's core competencies and mission:
- Core Competencies: Sarvajal's expertise in technology, operations, and business model innovation are key to successful expansion.
- Mission: The strategy balances profitability with social impact, ensuring access to clean water for underserved communities.
The strategy also considers:
- External Customers: Expanding into new geographies and offering affordable pricing will increase access to clean water for more people.
- Internal Clients: Employees will benefit from opportunities for growth and development within a larger organization.
- Competitors: The strategy will enable Sarvajal to compete effectively by leveraging its unique strengths and expanding its reach.
- Attractiveness: The strategy offers strong potential for profitability, growth, and social impact, as evidenced by Sarvajal's existing track record.
Assumptions:
- Sarvajal can secure the necessary funding for both organic expansion and acquisitions.
- The company can successfully integrate acquired businesses into its existing operations.
- The demand for safe drinking water will continue to grow in target markets.
6. Conclusion
By pursuing a hybrid growth strategy, Sarvajal can achieve its ambitious goal of providing clean water to all while maintaining profitability and social impact. This strategy leverages the company's existing strengths, mitigates risks, and positions Sarvajal for sustainable long-term growth.
7. Discussion
Alternatives:
- Purely Organic Growth: This approach would be slower and more capital-intensive, potentially limiting Sarvajal's ability to scale quickly.
- Purely Acquisition-Based Growth: This strategy could lead to integration challenges, cultural clashes, and potential dilution of Sarvajal's social mission.
Risks:
- Execution Risk: Successfully implementing a hybrid growth strategy requires careful planning, coordination, and execution.
- Financial Risk: Acquisitions and expansion can strain financial resources, potentially leading to debt accumulation or financial distress.
- Regulatory Risk: Navigating the regulatory landscape in new geographies can be challenging and costly.
Key Assumptions:
- The demand for safe drinking water will continue to grow in target markets.
- Sarvajal can successfully integrate acquired businesses into its existing operations.
- The company can secure the necessary funding for both organic expansion and acquisitions.
8. Next Steps
Timeline:
- Year 1: Focus on organic expansion in existing markets, exploring potential acquisition targets.
- Year 2: Complete one or two strategic acquisitions in new geographies, further invest in technology and analytics.
- Year 3: Consolidate acquired businesses, optimize operations, and consider an IPO if market conditions are favorable.
Key Milestones:
- Secure funding for organic expansion and acquisitions.
- Identify and evaluate potential acquisition targets.
- Develop and implement integration strategies for acquired businesses.
- Monitor financial performance and adjust strategies as needed.
By taking these steps, Sarvajal can position itself for continued success, expanding its reach and impact while achieving its mission of providing clean water to all.
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Case Description
Entrepreneur wrestles with business model using SMS and RFID technology, franchising, and leasing to rapidly grow off-the-grid water purification business without subsidies. The company seeks to provide potable water services to rural and urban India where the public infrastructure does not exist. Past efforts have been stymied by rural operations problems including expensive technologies, challenging maintenance issues, cash management problems, lack of capital, and lack of a business model that makes sense for retail operators without subsidy. Using a franchising model that relies on seasoned local entrepreneurs, communication technology that monitors flows and quality, payment technology that takes cash out of the equation, and a "capital light" leasing model, the company hopes to create and share a new business model. If successful, the model can be copied by other social entrepreneurs with a market-based pricing scheme to provide other forms of infrastructure in emerging markets.
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