This paper reports on DFID-funded research by ITDG to develop analytical tools that help development practitioners understand livelihoods involving micro / small-scale enterprise (MSE). The research concerned the roles which:

• private-sector markets play in livelihoods of micro-entrepreneurs and small-scale producers
• technological change (including poor people's own adaptability) has on livelihood opportunities and outcomes

Millions of poor people depend to a significant degree on earnings from MSEs – whether as business owners, employees or self-employed. Processes of technological change and market development are often highly significant factors in their livelihoods. However, weak analysis of these factors’ influence within SL approaches means that opportunities to enhance poor people’s livelihoods may be over-looked. Also, the pro-poor influence which SL advocates seek to have on the objectives and priorities of development programmes may be diminished.

The study focuses on two methodological tools which may be particularly useful to understand livelihoods that involve micro / small-scale enterprise:

• The concept of technological capabilities - a bundle of specific organisational skills and linkages that help determine people’s ability to generate and manage processes of technological change.
• The systems tool known subsector analysis – which models enterprise inter-relations, market channels and linkages in order to create a map of the institutional / market landscape for MSEs.

The 15 page report describes ITDG’s practical experience and lessons learned from applying these tools. It draws on two case-study reports generated by field research in Kenya and Ghana in April 2001. It also includes suggestions for revisions to SL frameworks for livelihoods that involve micro-enterprise.