SELCO: Case Study Synopsis & Teaching Objectives

The SELCO solar energy product company case study is available here.

Case Background

Harish Hande established SELCO in 1995 as a solar energy company focused on meeting the needs of poor households lacking adequate access to electricity. Hande believed that solar energy’s decentralized method of providing electricity could play a role in bridging India’s economic divide and overcoming the country’s notoriously flawed electrical grid.

As SELCO began operations, Hande realized that solar solutions had to be customized to the particular requirements of each client group. Rural householders required different technical and financial arrangements than did urban street hawkers or midwives or schools. The company became noted for creating innovative solutions to bring solar energy to market segments that others considered impractical. Because of the intense design process, SELCO’s growth was slow, but steady. By the end of its first decade of operation, SELCO had reached more than half a million people by electrifying some 80,000 households, micro-enterprises and community facilities, making it one of the largest photovoltaic (PV) providers in the world. In 2001, SELCO broke even for the first time and managed to earn small levels of profit for a number of years afterwards, peaking at a profit of $88,380 in fiscal 2005.

Nonetheless, SELCO became the object of intense internal and external pressure to grow faster and reach more customers. This pressure led to a few missteps during SELCO’s next phase of operations, including an unsuccessful franchising scheme and unhappy investors who wanted higher returns. By 2009, SELCO had managed to overcome many of these problems and operations had stabilized. The company was attempting to institutionalize its design process by starting a separate innovation lab and was considering a number of targets for expansion. The case provides a look at the company at a crossroads — how could SELCO expand while avoiding the mistakes of the past?

Teaching Objectives

The case provides instructors with an excellent opportunity to discuss the strategy of a business with a social purpose and a heavy reliance on innovative design. The options facing SELCO regarding expansion encompass a wide range of possible strategies that will challenge student thinking. The case requires integration of numerous management disciplines (from marketing and finance to human resource management) with insights from design thinking processes and industrial product design approaches.

To understand SELCO’s future, students will have to grapple with SELCO’s past and extract lessons learned from the company’s 15 years of operation. Given the extensive material on the company and its stakeholders, instructors might structure the analysis as a group exercise. Alternatively, instructors can use the raw case format to focus on specific elements in SELCO’s history and use the overall strategic question as a framing device. Among other dimensions, the case provides ample material to discuss:

•  The pros and cons of different social interventions in emerging markets;
•  Constructing a business model that serves the needs of customers at the bottom of the income pyramid;
•  Building a financial and governance structure to support a business with a social mission;
•  Customizing product and service design to provide energy to individuals with few resources;
•  Institutionalizing an ad hoc, yet vital design process in a single organizational unit.

Case Resources

To prepare this case study, a team from the Yale School of Management visited SELCO for ten days and filmed 15 hours of raw video, including interviews, marketplace interactions, and solar panel installations. The case team then edited the videos, wrote introductory material, gathered documents from SELCO and identified relevant web links. Overall, the case consists of 25 web pages that contain nearly 13,000 words of text, 25 two-to-four minute video segments, and links to over 60 documents/exhibits.

Obviously, such a tremendous amount of material represents a challenge for both instructors and students to manage. One pedagogical strategy is to focus on a particular aspect of SELCO’s operations and assign only a subset of the web site as a basis for discussion. The paragraphs below discuss the resources available for the major topic (enterprise expansion) and a variety of other topics that could serve as the basis of class discussion.

Options for expansion
The case is framed by SELCO’s interest in expansion and most of the material is relevant to this topic. Instructors might want to anchor the discussion of expansion in a dissection of SELCO’s current business model, the nature of its brand and the macroeconomic factors that could influence the company’s success. Besides analyzing the company’s current position, instructors might ask about SELCO’s previous effort at rapid expansion — an effort to franchise SELCO dealerships. As Hande notes, this effort very nearly toppled the company, destabilizing both the operations and mission of the organization. Students have a wide array of expansion alternatives to discuss. SELCO’s management itself is interviewed discussing a number of options, including geographical expansion, product-line extension and serving even poorer segments of the population. Students generally suggest other alternatives as well.

Social interventions in emerging markets
The case describes India’s rapid growth and growing divide between rich and poor. A crucial challenge to India’s growth is its electrical system. Even for those with access to the grid, service is unreliable. But nearly 40% of India’s population (over 400 million individuals) has no access to the grid and must use dirty resources (such as kerosene) for their energy needs. But is Hande’s approach to the energy problem going to significantly improve the lot of those with no access to energy services? The case discusses a decades-old debate between soft path (decentralized) and hard path (centralized) approaches to energy. Can SELCO’s soft path solution help India’s poor or is solar energy merely a small-scale, stopgap remedy? The case provides data on rural electrification in the U.S. during the depression as a comparison. Even if soft path solutions are viable, does SELCO’s slow rate of growth limit the company’s impact? What importance does India’s growth have to SELCO’s strategy? How is SELCO tied to world markets for PV supplies?

Constructing a business model
SELCO’s target market consists of individuals and businesses near the bottom of the income pyramid. This population is hard to serve, and SELCO’s primary products (solar panels, batteries and inverters) represent a considerable investment. The case details SELCO’s business model by providing students with an overview of the company’s finances, employee recruitment, marketing, consumer financing, service and product development. As becomes evident in the case, SELCO’s business model tightly weaves a number of distinct elements together. Instructors will find that SELCO’s experience in providing solar electricity can be mined for a number of insights on the importance of considering all aspects of how a product is procured, used and serviced. While Hande and his team have demonstrated that this model works, instructors can open a discussion on the importance of various aspects of the company’s strategy. How might SELCO become more effective? Are there approaches to marketing, financing and service that could be redesigned? What should be its future approach to product development?

Financial and governance structure
In the case, Hande discusses his conviction that it is best for SELCO to be structured as a for-profit organization. And yet, as the case chronicles, some of SELCO’s biggest problems have come from struggles to align the interests of its investors with its social mission. The question of whether to structure a social enterprise as a business or as a nonprofit is an important one for many entrepreneurs with a humanitarian mission. The case allows discussion of this topic as instructors take students through some of the problems SELCO has confronted. For example, SELCO’s management faced pressure from its investors when supplies of photovoltaic panels declined. The resulting crisis was resolved through a “cramdown” of existing investors and the recruitment of fresh capital from investors more aligned with the company’s mission. Instructors may want to raise the question of whether the new capital structure continues to be a traditional for-profit business or whether Hande has fashioned a hybrid structure. What difference has the governance structure made to the decisions Hande has executed regarding SELCO’s future?

Product and service design
Utilizing text, photos and videos, the case describes a number of examples of SELCO’s innovative product design. In order to customize solar technology for users near the bottom of the income pyramid, the company has assisted in redesigning the value chain for its customers, reframed assumptions about energy use, engaged in critical client needs assessments, and worked to redesign bank financial products to be suitable for its clients. Instructors can have students mine the case site for lessons about designing products for emerging markets. For example, based on SELCO’s success with sewing centers, instructors might ask students whether there are other ways that reconsidering energy requirements for western-designed appliances or machines can help Indian entrepreneurs or families adopt sustainable energy sources. Based on SELCO’s success in adapting miners’ helmets for midwives and flower pickers, instructors could ask whether there are other ways to adapt common designs to new uses that would make sustainable energy available to other segments of the Indian populace?

Institutionalizing the design process
In 2007, SELCO established an innovation department as an independent unit within the company. The department works with Hande and senior management to come up with ideas for new products based on sustainable energy sources, including those that go beyond SELCO’s offerings in solar energy. The innovation department presents opportunities and challenges for the company. The new group became a locus for technology-based partnerships with Indian and international technical organizations, including universities, research institutes and other companies. These collaborations open up the possibility of finding new technologies that could help the poor with their energy needs, improving their quality of life and income-generating potential. On the other hand, SELCO’s success in innovation has always come from the field experiences of its technicians and managers. Could centralizing innovation hurt this flow of ideas? Might the innovation department invest in ideas that take SELCO outside its distinctive competence in solar energy?