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Bottom of the Pyramid
Alex Steffen, 30 Aug 04

It's the central premise of transcommercial enterprises that

"Transcommercial enterprises won't see doing the right thing as good PR or a desirable goal... if it doesn't interfere too much with profits. Instead, they'll see doing the right thing *as* the path to profits. If there's a conflict between doing the right thing and doing the profitable thing, that just means that there's a market opportunity for figuring out how to make the right thing more profitable."

It's easier and easier to make the case that this is becoming true when we're talking about the environment and business. But does it hold true when we shift the discussion to poverty and business?

CK Prahalad thinks so. In his new book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits,he argues that serving the poor represents a vast untapped market. As his press release says: "Largely ignored by most traditional companies because they only have a small, often fixed amount of money, the poor are an invisible market, but only because we’ve been socialized to think that way." Or, as he explains in the extended PDF excerpt here:

"Turn on your television and you will see calls for money to help the world’s 4 billion poor—people who live on far less than $2 a day. In fact, the cry is so constant and the need so chronic that the tendency for many people is to tune out these images as well as the message. Even those who do hear and heed the cry are limited in what they can accomplish. For more than 50 years, the World Bank, donor nations, various aid agencies, national governments, and, lately, civil society organizations have all fought the good fight, but have not eradicated poverty. The adoption of the Millennium Development Goals (MDG) by the United Nations only underscores that reality; as we enter the 21st century, poverty—and the disenfranchisement that accompanies it— remains one of the world’s most daunting problems. The purpose of this book is to change that familiar image on TV. It is to illustrate that the typical pictures of poverty mask the fact that the very poor represent resilient entrepreneurs and value-conscious consumers. What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win–win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable. This collaboration between the poor, civil society organizations, governments, and large firms can create the largest and fastest growing markets in the world."

Anyone read this yet? What do y'all think? Are Prahalad's ideas worldchanging, or just a smoke screen for privatizing essential services (as some of his critics have charged)? Is the bottom of the pyramid a place for entrepreneurship, and, if so, who wins and who loses here?
(thanks Suhit!)

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Comments

Alex, I heard some of CKs talk at the Fortune Brainstorm conference in July. It sounded very plausible but I've yet to read the book - it's on my massive do to list.

also related, I meant to write up about the amazing work of the Acumen Fund.

more soon I promise...


Posted by: Cameron Sinclair on 30 Aug 04

I saw a couple of business school monkies talking about this topic at Sustainable Resources 2003 and they were definitely in the "exploit the hell out of the poor" camp.

That said, I think it could be done cleanly - the poor need stuff like the rest of us, they just need *different* stuff. Cheap, rugged solar radios, water purifiers, birth control options. The dollar-a-day majority of humanity still buys and sells. They should get access to scientific and technological progress too!


Posted by: Vinay on 30 Aug 04

This is finding ways for a $2/day person to spend a few cents. Why not instead increase their capital (a la Grameen Bank) and/or increase their income through a 'basic income' (citizens income) scheme?

-- John


Posted by: John on 31 Aug 04

there was an economist article on him the other week :D

http://www.economist.com/people/PrinterFriendly.cfm?Story_ID=3104498

cheers!


Posted by: glory on 31 Aug 04

Are Prahalad's ideas worldchanging, or just a smoke screen for privatizing essential services (as some of his critics have charged)?

The second that you said. As long as we can figure out how to avoid having money distributed (and constantly redistributed) on a log log plot, those economical practoices will just make the graph steeper and steeper. You can suceed in saving some families, but the aim of the book is to get an entrepreneur much richer, thus increasing the social division.


Posted by: Pietro on 31 Aug 04

The metaphor of the 'bottom of the pyramid' is an important one. Who is Prahalad trying to speak to? Is his audience at the top or the bottom of the pyramid?


Posted by: Paul on 31 Aug 04

Hi:

I think the idea is simple. Basically start making products and services which can be used by people more down the pyramid.

For example: Prahalad is working with the TATA group and have come out with decent hotels for lodging at Rs. 1000 ($20) a month. This is not exactly for the bottom of the pyramid, but they are geting there.

Then there is the 1 lk($2000) car again from the TATA group.

Prahalad gives examples of various companies across the world who are creating these products and services which should be helpful to a larger number of people and in turn helping them to move the economic ladder.

Lets take the example of Aravind Eye hospital in India. They provide cataract operations at the lowest cost possible, have more than 60% patients for free and still make a profit.

Now imagine creating a business like that. The entire value chain has to be different, the business processes, the cost structures etc.

Every single person (most of them from the bottom of the pyramid) who gets to see has now more chances to climb the economic ladder.

I can continue to give examples, but this is the basic idea.

Suhit


Posted by: Suhit Anantula on 1 Sep 04

I was part of the early BOP community in 2000 when this book was just a working paper and the ideas were just coming together. I have been using its framework for business model innovation with large companies since.

Biggest problem: most MNCs don't see it as an opportunity -- they simply can't connect to it intellectually and emotionally -- because they don't have the tools nor mental maps, because they still take as sacrosanct the key (in many cases maladpative) assumptions embedded in their business model. Big need: innovating these tools so they can connect to it a positive way. This is large part of what I'm working on, especially in the risk assessment context.

And yes, the BOP framework does scare me sometimes. There are some dark sides to this work as I've found working with large MNCs. The few that DO see opportunities see them within their existing business model and paradigm. That is, exploitation of new markets, a way to find customers of the future. In my view, the BOP is only positive provided the innovators start with a BOP perspective lens, and with assumptions based on new consumption models and sustainability, which was where Stuart Hart, the head of the BOP Learning Lab was taking this.

Above all, it is a real deal from an innovation process perspective, especially disruptive innovations. Nothing like seeing things through a totally different lens. Nothing like having things we take for granted -- say, basic services and infrastructure -- to force elegant design solutions. Curiously, almost always the business ideas that are developed are more sustainable: faster, better, cheaper and cleaner. At least that has been the case under my perhaps-not-so-unbiased facilitation.

Anyway, I wrote a Primer called Reperceiving Business From the Bottom Up, www.self.org/news/GBN_BOP_Paper.pdf, which looks this phenom from a broader lens.

Happy to talk more on and off line about these experiences.


Posted by: NIcole Boyer on 1 Sep 04

Personally I feel violently sick when I read BOP stuff. I feel that whatever the "truth" of the matter BOP will be used as a tool of exploitation and not of emancipation and liberation.

I feel that whatever merit there is in the idea of developing "sustainable" products for the poorest of the poor will be lost in the rush to develop micro-products that they don't need and seducing them into spending what little money they do have to profit MNCs. I found a powerpoint of Prahalad online someone and there was a drawing of an executive and he was clutching wads of dollar bills in each hand. That for me is the naked truth of BOP.


Posted by: Zaid Hassan on 1 Sep 04

In a way its fairly automatic that some things get cheap enough for the very poor to be able to buy. We all know the dollar stores and the massive bulk of realy cheap items you see in them. Well these same items and same ultra cost cut designs have enabled very poor people to get ahold of many interesting things.

Such as cloths... it used to be you looked at very poor people and if they had anything it was some nondescript cloth or some homemade stuff. Now in many pics you will see the uber cheap t shirt made for 10 cents sold for under a buck in zillions of locals world wide.

That the very poor can afford and do afford to buy cheapo clothing is in fact worldchangeing as making your own took a heck of alot of time and clothing realy does help alot.

Garbage dumps however likely have had far more impact then anything directly SOLD to the poor. With america shipping megatons of interesting stuff overseas to be dumped we have alot of useful bits of stuff winding up in the hands of the poorest people. Instead of mud huts people make trash huts and it takes alot less time to make em and can be done with alot less effort.

Instead of trying to find a digging stick you just grab a broken mop handle or hell even a working shovel its all at the dump.

Need a pot? Its there somewhere. Need a cup its sure to be there if a tad chipped or missing some bits. Need some rope? Dont need to make it just look in the trash.


Posted by: wintermane on 2 Sep 04



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