Reposed from TriplePundit.com:
2010 marked the 10th anniversary of the equally venerated and vilified concept of “Base of the Pyramid” first proposed in an academic paper by then business academic CK Prahalad. The concept gained considerable steam in business circles to become one of the millennium’s business game changers. “Base of the Pyramid” refers the more than four billion people globally with per capita incomes below $1,500 (purchasing power parity), or sometimes defined as about 60% of the world living on less than $2 a day. Since the idea was first introduced by C.K. Prahalad and Stuart Hart in their book The Fortune at the Bottom of the Pyramid. This book provided inspiration and rationale among corporate leaders from Coke to Danone who sought to identify new markets of growth, despite the increasingly competitive market conditions of the developed world. These early Pyramid pioneers proposed that corporations would miss great opportunity if they chose to ignore the pocket change of the poor. After all, even the Poor deserve the opportunity to attain consumer status through the conveniences of our modern markets, so the first book on the topic postulates.
Now, Hart and colleague Ted London are setting a new, values-based protocol business at the base of the pyramid, that lifts the role of poor from consumerist pauper to partner.
The concept has since attracted criticism from across the economic development party lines. On the one-hand, development agencies and NGOs have levied harsh criticism against corporate entrée into developing markets as sellers. To many, (present author included), corporate growth through base of the pyramid market penetration has seemed eerily similar to imperialist policies of colonial resource extraction. As wolf in sheep’s clothing, would corporations enter a community lacking say, laundry detergent, and offer individually portioned, cheaply wrapped “sachets” to people who essentially lack clean water in which to wash their clothes (much less, to drink)? Are not the poor in need of social assistance and good-old-fashioned intervention by development workers, “aid” and the volunteership of do-gooders?
On the other hand, companies, while enticed by the prospect of future profits, have been unsure how to manage the complexity or the responsibilities associated with entering poor markets in developing world. Assumptions both about poor people’s lives and their needs have led some companies down a path of error. In one instance, cited by University of Michigan Prof. Ted London, a company with the bright idea of selling refrigerators to poor women in India created a prototype that bombed it’s first time out.
Not surprisingly, they certainly made their product cheaper, something akin to what London described as a mini-college dorm refrigerator. Yet the company in question missed a primary tenet of good marketing—product design starts with consumer-centric understanding of both rational and emotional needs. The company was trying to sell something women in India did not recognize to be valuable, and they reject the initial product.
This sort of business attempt is characteristic of what Professor Hart describes as BoP 1.0, or “Structural Innovation”. In this early conceptual framework, the BoP population is considered producers and consumers. Companies conduct “Deep listening”, otherwise known as traditional market data capture through oft-misguided surveys and financial trends. BoP 1.0 companies leverage R&D to reduce price points and alter existing technology. They are seeking to grow their share through extended distribution, and take an arms-length approach to NGO and community-based groups. Worse yet, once operating, such companies have a tendency to “cooking the social books”, says London.
Business cases have proven that simply offering a cheaper, simplified version of Western products is not the best route to success in poor, developing economies. London admits that arrogance has characterized the thinking (and poor decisions) of some Western Business leaders, who would have the poor accept anything the West offers. Such companies go about “pitching” benefits to poor communities, rather than what Hart sees as the mandate to “partner” with poor communities, or what he calls BoP 2.0.
Hart describes BoP 2.0 as an “embedded innovation” protocol. Companies engage developing markets in “deep dialogue (i.e. mutual learning)”. BoP 2.0 initiatives require humility that enables business leaders to honor the vision and imagination of the community in which they seek to operate. One important distinction of BoP 2.0 is the demand for new, sustainable technology that might otherwise be held back in Western markets. Such technology is often considered disruptive to current infrastructure in developed economies, but can introduced with greater ease and scale in poorer communities, in which no previous infrastructure exists, but where earth-friendly innovation is sorely needed. These companies match their capabilities with the capabilities (read, investment of human and environmental resources) by the community. For this approach to be successful, it requires direct personal relationships between business leaders, community leaders, and NGOs to align their efforts in achieving the greatest positive social and economic impact. Hart’s BOP-protocol.org offers in-depth case studies on how SC Johnson in Nairobi, Kenya and Dupont subsidiary Solae in Andra Pradesh, India have approached their respective “embedded innovation” processes.
The refrigerator manufacturer in question, Indian conglomerate Godrej and Boyce, apparently learned from their mistake, and changed their approach. They conducted research (to think!) by inviting women to share their desires, their vision, their designs, and through such due diligence, launched a completely innovative product called the “ChotuKool”, created with and for Indian market. GizMag.com reported, “The villagers will also act as marketers and will earn a commission of approximately $3 per fridge sold. This fridge is targeted at households who earn approximately $5 a day, of whom there are almost 100 million in India.” Launched in 2010 and retailing at about $69, the appliance is a market hit, Hart pointed out.
Now with the launch of their latest book Next Generation Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value, Professors Stu Hart and Ted London, put forth a revised vision for Base of the Pyramid business, based on principles of co-creation. Co-creation, they say, is the true north for Base of the Pyramid market development. Top companies provide the scale and access to technologies that evade entrepreneurs in the developing world. Yet would-be entrepreneurs among the poor have invaluable understanding of the social, environmental and economic context of their communities.
However, co-creation raises some concern about intellectual property rights and ultimately ownership of such corporate-community ventures. When pressed on the topic, Hart acknowledged that both parties deserve due compensation, but was not able to cite a specific example in which ownership of a major corporate venture was shared with the community. Presumably, co-ownership may be more attainable for communities that “co-create” with smaller venture firms and social enterprises. Ultimately, this underscores a shortcoming among major corporations that fail to extend co-ownership equity to communities.
Hart and London, let’s call them optimists, propose that co-creation, bringing companies and communities together to develop custom solutions for poor markets, can provide mutual benefit to both parties. Companies retain deep brand loyalty in co-creator communities, and local people involved with the development gain improved income and professional training.
The concept of co-ownership underscores a radical competitive advantage for smaller, more flexible (albeit, well-funded), mission-driven enterprises that develop radical co-ownership models within developing communities. Companies that prove their social mission by sharing wealth and leadership with the locals have an opportunity to establish fast credibility, but more importantly, they have the opportunity to radically transform business into community partnership with greater ease and sincerity. Hart and London need no further than Cleveland, OH to see Evergreen Cooperative Laundry‘s worker-owner model in action, and expanding. The organization was designed to address the unemployment and low-income disparities of Cleveland’s working class.
By a long-shot, if multinational corporations ever embrace the worker-owner model in their approach to become “embedded” developing markets, they’ll have plenty of explaining to do to workers back home in the West, who are still struggling to lift themselves out of the lower half of the Pyramid.