Preface xi

About the Author xix

Part I The Fortune at the Bottom of the Pyramid 1

Chapter 1 ■ The Market at the Bottom of the Pyramid 3

The Power of Dominant Logic 6 The Nature of the BOP Market 10

There Is Money at the BOP 10 Access to B OP Markets 13 The BOP Markets Are Brand Conscious 14 The BOP Market Is Connected 14 BOP Consumers Accept Advanced Technology Readily 15 The Market Development Imperative 16 Create the Capacity to Consume 16 The Need for New Goods and Services 19 Dignity and Choice 20 Trust Is a Prerequisite 21 Benefits to the Private Sector 22

Chapter 2 ■ Products and Services for the BOP 23

A Philosophy for Developing Products and Services for the BOP 24

Twelve Principles of Innovation for BOP Markets 25

Making It Happen 28 Conclusion 46

Chapter 3 ■ BOP: A Global Opportunity? 47

Engaging the BOP 48

Local Growth Opportunities 50

Learning to Grow 50 Local Innovations and Global Opportunity 52 BOP Solutions for Developed Markets 53 Lessons for MNCs from BOP Markets 55

Captial Intensity 55 Sustainable Development 57 Innovations 57 The Cost of Managing 58

Learning to Live in a Network of Relationships 61

Chapter 4 ■ The Ecosystem for Wealth Creation 63

Market-Oriented Ecosystem 65

Ecosystems for a Developing Country 66

Learning the Sanctity of Contracts 68

Reducing Inequities in Contracts 69

Building Governance Capabilities Among the Poor 72

Chapter 5 ■ Reducing Corruption:

Transaction Governance Capacity 77

Are the Poor Poor? 78 TGC 81 Building TGC 83

The Andhra Pradesh e-Governance Story 85 eSeva 89

Center for Good Governance 90 Impediments 94

Lessons from the Andhra Pradesh Experiment 94 Appendix: List of eSeva Services 97

Chapter 6 ■ Development as Social Transformation 99

Development as Social Transformation 100

Breaking Down Barriers to Communication 102

BOP Consumers Upgrade 105

Gaining Access to Knowledge 106

Identity for the Individual 107

Women Are Critcal for Development 108

Evolving Checks and Balances 108

The Real Test: From the Pyramid to the Diamond 109

Innovative Practices at the

Bottom of the Pyramid 113

The Market at the Bottom of the Pyramid 115

Casas Bahia: Fulfilling a Dream 117 CEMEX: Innovation in Housing for the Poor 147

Known Problems and Known Solutions: What Is the Missing Link? 169

The Annapurna Salt Story: Public Health and Private Enterprise 171

Selling Health:

Hindustan Lever Limited and the Soap Market 207

Section III ■ Known Problems and Unique Solutions 241

Jaipur Foot: Challenging Convention 243

The Aravind Eye Care System: Delivering the Most Precious Gift 265

Section IV ■ Known Problems and Systemwide Reform 287

ICICI Bank: Innovations in Finance 289

The ITC e-Choupal Story: Profitable Rural Transformation 319

The EID Parry Story On CD

Part II

Section V ■ Scaling Innovations

The Voxiva Story 361

Innovations in Energy: E+Co's Investment in Tecnosol On CD

Section VI ■ Creating Enabling Conditions for the Development of the Private Sector

Citizen Centricity:

E-Governance in Andhra Pradesh On CD

Biography 381 Index 389


35 minutes of video success stories filmed on location in the Bottom of the Pyramid in India, Peru, Mexico, Brazil, and Venezuela

Casas Bahia (3:54) CEMEX (3:07) Annapurna Salt (4:05) Hindustan Lever Limited (4:16) Jaipur Foot (4:40) Aravind Eye Care (6:08) ICICI Bank (4:23) ITC e-Choupal (4:08) EID Parry (4:12) Voxiva (3:33) E+Co/Tecnosol (4:34) Andhra Pradesh (3:30)

Interactive practices text in PDF format

The EID Parry Story

Innovations in Energy: E+Co's Investment in Tecnosol Citizen Centricity: E-Governance in Andhra Pradesh



JL his book is a result of a long and lonely journey for me. It started during the Christmas vacation of 1995. During that period of celebration and good cheer, one issue kept nagging me: What are we doing about the poorest people around the world? Why is it that with all our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disenfranchisement? Why can't we create inclusive capitalism? Needless to say, these are not new questions. However, as one who is familiar with both the developed and the developing world, the contrasts kept gnawing at me. It became clear that finding a solution to the problems of those at the bottom of the economic pyramid around the world should be an integral part of my next intellectual journey. It was also clear that we have to start with a new approach, a "clean sheet of paper." We have to learn from the successes and failures of the past; the promises made and not fulfilled. Doing more of the same, by refining the solutions of the past— developmental aid, subsidies, governmental support, localized nongovernmental organization (NGO)—based solutions, exclusive reliance on deregulation and privatization of public assets—is important and has a role to play, but has not redressed the problem of poverty.

Although NGOs worked tirelessly to promote local solutions and local entrepreneurship, the idea of large-scale entrepreneurship as a possible solution to poverty had not taken root. It appeared that many a politician, bureaucrat, and manager in large domestic and global firms agreed on one thing: The poor are wards of the state. This implicit agreement was bothersome. The large-scale private sector was only marginally involved in dealing with the problems of 80 percent of humanity. The natural question, therefore, was this: What if we mobilized the resources, scale, and scope of large firms to co-create solutions to the problems at the bottom of the pyramid (BOP), those 4 billion people who live on less than $2 a day? Why can't we mobilize the investment capacity of large firms with the knowledge and commitment of NGOs and the communities that need help? Why can't we co-create unique solutions? That was the beginning of my journey to understand and motivate large firms to imagine and act on their role in creating a more just and humane society by collaborating effectively with other institutions.

It was obvious that managers can sustain their enthusiasm and commitment to activities only if they are grounded in good business practices. The four to five billion people at the BOP can help redefine what "good business practice" is. This was not about philanthropy and notions of corporate social responsibility. These initiatives can take the process of engagement between the poor and the large firm only so far. Great contributions can result from these initiatives, but these activities are unlikely to be fully integrated with the core activities of the firm. For sustaining energy, resources, and innovation, the BOP must become a key element of the central mission for large private-sector firms. The poor must become active, informed, and involved consumers. Poverty reduction can result from co-creating a market around the needs of the poor.

We have to discard many of the "for and against" views of the world. For example, "are you for globalization or against it" is not a good question. Globalization, like all other major social movements, brings some good and some bad. Similarly, global versus local is not a useful debate. The tensions are real. Very early in my career, I learned that even within the multinational corporation (MNC) that is not a settled debate.

Similarly, the debate between small (e.g., microfinance) and large (e.g., multinational firms) is not a useful debate either. Large business can bring efficiency. NGOs can bring creativity to solve the problems that face us all. Certainly, I wanted to avoid the paternalism towards the poor that I saw in NGOs, government agencies, and MNCs.

This book is concerned about what works. This is not a debate about who is right. I am even less concerned about what may go wrong. Plenty can and has. I am focused on the potential for learning from the few experiments that are going right. These can show us the way forward. I do not want the poor of the world to become a constituency. I want poverty to be a problem that should be solved. This book is about all of the players—NGOs, large domestic firms, MNCs, government agencies, and most importantly, the poor themselves—coming together to solve very complex problems that we face as we enter the 21st century. The problem of poverty must force us to innovate, not claim "rights to impose our solutions."

The starting point for this transition had to be twofold. First, we should consider the implications of the language we use. "Poverty alleviation" and "the poor" are terms that are loaded with meaning and historical baggage. The focus on entrepreneurial activities as an antidote to the current malaise must focus on an active, underserved consumer community and a potential for global growth in trade and prosperity as the four to five billion poor become part of a system of inclusive capitalism. We should commence talking about underserved consumers and markets. The process must start with respect for Bottom of Pyramid consumers as individuals. The process of co-creation assumes that consumers are equally important joint problemsolvers. Consumers and consumer communities will demand and get choice. This process of creating an involved and activist consumer is already emerging. The BOP provides an opportunity to turbocharge this process of change in the traditional relationship between the firm and the consumer. Second, we must recognize that the conversion of the BOP into an active market is essentially a developmental activity. It is not about serving an existing market more efficiently. New and creative approaches are needed to convert poverty into an opportunity for all concerned. That is the challenge.

Once the basic approach was clear, the opportunities became obvious. The new viewpoint showed a different landscape and a focus on early and quiet attempts by some firms to explore this terrain. Unilever and its Indian subsidiary, Hindustan Lever Limited, was one such early experimenter. Around 1997, I found a kindred spirit in colleague Professor Stu Hart at the University of Michigan Business School (UMBS), who was approaching similar problems from a sustainable development perspective. We produced a working paper called "The Strategies for the Bottom of the Pyramid." Needless to say, not a single journal would accept the article for publication. It was too radical. Reviewers thought that it did not follow the work of developmental economists. Nobody noticed that we were offering an alternative to the traditional wisdom of how to alleviate global poverty. Thanks to the Web, various revisions of the working paper circulated freely. Surprisingly, a number of managers read it, accepted its premise, and started to initiate action based on it. Managers at Hewlett-Packard, DuPont, Monsanto, and other corporations started a venture fund and dedicated senior managers' time and energy to examine this opportunity. Meanwhile, the Digital Dividend conference organized by Dr. Allen Hammond and the World Resources Institute in Seattle in 1999 provided a forum to examine these ideas in depth. I have not looked back. Since 1997, I have used every possible platform—academic, managerial, and governmental—to push the idea of the BOP as a market and a source of innovations. During the last five years, slowly at first but now more rapidly, a large number of NGOs, academics, and managers have started to discuss the need for an alternate approach to poverty alleviation and the potential role of the private sector and entrepreneurship as one of the critical elements.

The publication of the two articles, "The Fortune at the Bottom of the Pyramid," in Strategy + Business (January 2002) with Stu Hart, and "Serve the World's Poor, Profitably" in the Harvard Business Review (September 2002) with Allen Hammond, facilitated the process of widespread discussion within corporations. Today, the discussion is not about "whether" but how fast and where. We have come a long way.

In the fall of 2002, several MBA students at the UMBS came to me and said that they would like to work with me on BOP issues and that they were intrigued by the ideas they had seen in print as well as my message in numerous lectures on campus and outside. I was not easily convinced. I imposed extraordinary demands on them to convince me that they really cared. They convinced me overwhelmingly. They were ready to travel, explore opportunities, and endure the painful task of assembling convincing evidence. That was the start of the now widely accepted XMAP projects (a variant of International Multidisciplinary Action Projects [IMAP], which UMBS has long supported with faculty mentoring.) The X in XMAP stood for experimental. The enthusiasm of the students, especially Cynthia Casas and Praveen Suthrum, provided the glue and helped see the project through administrative difficulties. I am grateful to all the MBA students whose dedication made this book possible.

The book is in three parts. In Part I we develop a framework for the active engagement of the private sector at the BOP. It provides the basis for a profitable win—win engagement. The focus is on the nature of changes that all players—the large firm, NGOs, governmental agencies, and the poor themselves—must accept to make this process work. Part II describes 12 cases, in a wide variety of businesses, where the BOP is becoming an active market and bringing benefits, far beyond just products, to consumers. The cases represent a wide variety of industries—from retail, health, and financial services to agribusiness and government. They are located in Peru, Brazil, Nicaragua, Mexico, and India. They represent a wide variety of institutions working together— subsidiaries of MNCs, large domestic firms, startups, and NGOs. They are all motivated by the same concern: They want to change the face of poverty by bringing to bear a combination of high-technology solutions, private enterprise, market-based solutions and involvement of multiple organizations. They are solving real problems. The BOP consumers get products and services at an affordable price, but more important, they get recognition, respect, and fair treatment. Building self-esteem and entrepreneurial drive at the BOP is probably the most enduring contribution that the private sector can make. Finally, decision-makers do not often hear the voices of the poor. We tend to make assumptions about how they feel. Part III (video stories on CD) is an attempt to tell the story primarily from their perspective. Each of the research teams— MBA students—went with video cameras and recorded their conversations with the BOP consumers as well as with the company managers. We collected well over 100 hours of video as part of the research. We present 35 minutes of the story from the point of view of the BOP consumers, the so-called poor. They are the primary storytellers. They tell us in their language—from Portuguese to Hindi— their view of what the involvement of the private sector and the resultant transition have meant for them. The three parts—the rationale for and the approach to private-sector involvement, the in-depth case studies, and the voices of the BOP consumers—are all an integral part of the book. They are intended to focus not only on the intellectual but also on the emotional arguments for encouraging private-sector engagement.

No research of this nature can be done without the active support of firms and managers. They gave us open access, their time, and their insights. Their enthusiasm was infectious. None of us who was a part of the research need any more convincing. We do know that the entrepreneurship and inventiveness of dedicated managers can bring a sea of change rapidly. That is true across the world. We could not have documented the richness of the transformation taking place at the BOP through the efforts of dedicated management teams without an unstinting effort by the students. The names of the students who were involved in developing the cases stories are given at the end of the book.

Research of this nature, on the cutting edge, cannot take place in an academic institution without the active support of the dean. Dean Robert J. Dolan bet on the initiative. Associate Dean Michael D. Gordon remained a constant source of encouragement to me and to the students in all stages of the project, from obtaining enough video cameras to providing substantive inputs to the research. His deep belief and commitment to the research agenda were critical to the project. Several of my colleagues provided support. I owe special thanks to Associate Dean Gene Anderson, Associate Dean Izak Duenyas, and colleagues Andy Lawlor and Jan Svejnar, former Director of the William Davidson Institute.

It was fortuitous that Kofi Annan, Secretary General of the United Nations, constituted a special commission on Private Sector and Development under the auspices of the United Nations Development Program and its Administrator Mark Malloch Brown. As a member of the Commission, I had a chance to share my ideas with the members of the Commission and staff and found a very useful platform for dialogue. Nissim Ezekiel, Yann Risz, Sahb Sobhani, Jan Krutzinna, and Naheed Nenshi showed great willingness to debate and challenge many of the ideas presented in this book. I have benefited from their dialogue. It is my hope that the body of work represented in this book influenced the thinking of the Commission as well.

No project of this size can be done without the active support of a wide variety of people. Cynthia Shaw (UMBS) and Fred Wessells provided editorial assistance in reducing the mountain of data we had collected on each case story into a manageable document. Russ Hall provided additional editorial support and helped in considerably improving the case studies and the text. Many of my colleagues, including Prof. M. S. Krishnan, Prof. Venkat Ramaswamy, Prof. Michael Gordon, and Ron Bendersky (Executive Education, UMBS) helped with detailed suggestions for improving the text. Hrishi Bhattacharyya (Unilever), Allen Hammond (World Resources Institute), and Jeb Brugmann and Craig Cohon (Globalegacy) provided useful insights. The Wharton Business Publishing team has been exceptional in its support and belief in the message. Jerry Wind (Wharton) accepted the idea of this book with great enthusiasm. The editorial team led by Tim Moore and including John Pierce and Martin Litkowski was remarkable in their support. Their commitment to this book has been a source of strength. Patti Guerrieri was always willing to help and produced yet another revision of the manuscript with patience and quiet competence. Kimberly Ward (UMBS) oversaw the entire project, and Brian Greminger worked magic with the videos. Both of them, by their dedication to the students and to the overall project, were a source of inspiration. Finally, the students stayed with the project for over a year, always managing to do more and accommodating what must have appeared to be random demands on their time.

The biggest supporters of this project were my family. Our children, Murali Krishna and Deepa, and the latter's husband, Ashwin, kept me going when I was willing to give up the idea of writing a book-length manuscript. As always, my wife, Gayatri, was my source of strength. She deeply believed in the cause and accompanied me to a wide variety of on-site visits, be it Jaipur Foot or the Shakti Amma. She willingly created the space and time for me to work on this project.

It is my hope that this book will provide the impetus for a more active engagement of the private sector in building the marketing ecosystems for transforming the BOP.

C. K. Prahalad San Diego

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About the Author

C. K. Prahalad

"...he may well be the most influential thinker on business strategy today."


Internationally recognized as a specialist on corporate strategy and value-added of top management in multinational corporations, he has consulted with many of the world's foremost companies. In addition to being the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan, he serves on the board of Directors of NCR Corp., Hindustan Lever Ltd., and the World Resources Institute.

A prolific author as well, his book, Competing for the Future (co-authored with Gary Hamel), was a national bestseller and was the Best Selling Business Book of the Year in 1994. He also co-authored Multinational Mission: Balancing Local Demands and Global Vision (in 1987 with Yves Doz) and The Future of Competition: Co-Creating Unique Value with Customers (in 2004 with Venkat Ramaswamy).

He has been named among the top ten management thinkers of the world in every major survey for over ten years.

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The Fortune at the Bottom of the Pyramid

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5

Chapter 6

The Market at the Bottom of the Pyramid

Products and Services for the BOP

BOP: A Global Opportunity?

The Ecosystem for Wealth Creation

Reducing Corruption: Transaction Governance Capacity

Development as Social Transformation he objective of this section is to build a framework for poverty alleviation. We start with a simple proposition. If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up. Four billion poor can be the engine of the next round of global trade and prosperity. It can be a source of innovations. Serving the BOP consumers will demand innovations in technology, products and services, and business models. More importantly, it will require large firms to work collaboratively with civil society organizations and local governments. Market development at the BOP will also create millions of new entrepreneurs at the grass roots level—from women working as distributors and entrepreneurs to village-level micro enterprises. These micro enterprises will be an integral part of the market-based ecosystem. It will require organizational and governance innovations as well.

The vision that is presented in the following pages is the co-creation of a solution to the problem of poverty. The opportunities at the BOP cannot be unlocked if large and small firms, governments, civil society organizations, development agencies, and the poor themselves do not work together with a shared agenda. Entrepreneurship on a massive scale is the key. This approach will challenge the prejudices about the "role and value added" of each group and its role in the economic development at the BOP.

In these chapters the reader will find the opportunities for co-creation among the various players. More importantly, the poor themselves are willing to experiment, learn, and change. While we will focus on the role of the private sector, the importance of collaboration across the various groups will become obvious. The interconnectedness of the approach to economic development and social transformation as visualized below will become obvious.

Part I outlines how that can be accomplished by isolating principles from successful, large-scale experiments involving the entire private sector ecosystem. Most of the examples of successful experimentation are taken from the case studies included in Part II of the book. The bottom line is simple: It is possible to "do well by doing good."

The Market at the Bottom of the Pyramid

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