Next Generation Business Strategies for the Base of the Pyramid New Approaches for Building Mutual Value (paperback)

More and more enterprises are seeking to craft winning "base of the pyramid" (BoP) ventures, serving the world's four billion poorest customers while alleviating poverty at the same time. Early first-generation ventures focused primarily on selling products to this massive and growing under-served market. Many of these initiatives did not scale, and some have failed. Crucial lessons have been learned along the way, and innovators are now succeeding with a more sophisticated and nuanced approach to "BoP." These second-generation business strategies have remained invisible to many leaders in the for-profit, non-profit, and development communities--until now. In this book, Ted London, Stuart L. Hart, and nine leading BoP thought and practice leaders show how to apply today's most significant BoP innovations, techniques, and business models. London, Hart, and their contributors go beyond providing low-cost products and extending distribution reach, demonstrating how to promote market development, innovation, and capability creation "with" BoP new customers, not "at" them. Readers will learn how to reconceptualize their opportunities, create sustainable business ecosystems, design new technologies with BoP in mind, and even transform entire sectors through collaborative entrepreneurship. From start to finish, this book shares proven, "on-the-ground" insights for building scalable, profitable businesses that are sustainable, and truly can help alleviate social ills.

Ted London, co-editor, is a Senior Research Fellow at the William Davidson Institute (WDI) and a member of the faculty at the University of Michigan’s Ross School of Business. At WDI, he directs the Base of the Pyramid Initiative, a program that champions innovative ways of thinking about more inclusive forms of capitalism. At the Ross School, he lectures on the opportunities and challenges inherent in developing new business models to serve BoP markets. An internationally recognized expert on the intersection of business strategy and poverty alleviation, London focuses his research on designing enterprise strategies and poverty-alleviation approaches for low-income markets, developing capabilities for new market entry, building cross-sector collaborations, and assessing the poverty-reduction outcomes of business ventures. His numerous articles, chapters, reports, and cases emphasize creating new knowledge with actionable implications. His article, “Making Better Investments at the Base of the Pyramid,” (Harvard Business Review, 2009), for example, offers a pioneering perspective on listening to the voices of the world’s poor to enhance mutual value creation. Over the past two decades, London has also directed and advised dozens of leadership teams in the corporate, non-profit, and development sectors on designing and implementing market-based strategies in low-income markets. Prior to his arrival at the University of Michigan, London served on the faculty at the University of North Carolina, where he also received his Ph.D. in strategic management. Before that, he held senior management positions in the private, non-profit, and development sectors in Africa, Asia, and the U.S.

Stuart L. Hart, co-editor, is the Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. He also serves as Distinguished Fellow at the William Davidson Institute (University of Michigan) and is Founder and President of Enterprise for a Sustainable World. Hart is one of the world’s top authorities on the implications of environment and poverty for business strategy. He has published more than 70 papers and authored or edited seven books with over 5,000 Google Scholar citations in all. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. With C.K. Prahalad, Hart also wrote the path-breaking 2002 article “The Fortune at the Bottom of the Pyramid,” which provided the first articulation of how business could profitably serve the needs of the four billion poor in the developing world. His best-selling book, Capitalism at the Crossroads, published in 2005, was selected by Cambridge University as one of the top 50 books on sustainability of all time; the third edition of the book was published in 2010.

Acknowledgments     xvi

About the Authors     xvii

Dedication to C.K. Prahalad     xxiii

The Big Picture by C.K. Prahalad     xxvi

Foreword by Y.C. Deveshwar     xxxiii

Introduction: Creating a Fortune with the Base of the Pyramid     1

Ted London, William Davidson Institute & Ross School of Business, University of Michigan; and Stuart Hart, Johnson School of Management, Cornell University

The introduction, by co-editors Ted London and Stuart Hart, conveys the core message of the book: that the next generation of BoP business strategies won’t be about “finding a fortune at the base of the pyramid,” but rather, about “creating a fortune with the base of the pyramid.” The shift from “fortune-finding” to “fortune-creating” has implications for how BoP ventures are organized, and how their strategies are conceived and implemented. Co-editors London and Hart introduce the three core sections of the book--Roadmaps for Success, Strategic Opportunities, and Effective Implementation--and explain how the contents of each can help venture leaders approach the challenges and opportunities of BoP markets.

PART ONE: ROADMAPS FOR SUCCESS

Chapter 1  Building Better Ventures with the  Base of the Pyramid: A Roadmap     19

Ted London, William Davidson Institute & Ross School of Business, University of Michigan

Ted London’s chapter addresses how venture leaders can maximize the chances that their business development efforts in BoP markets will succeed. Which business practices should guide your efforts--and which ones should you be sure to avoid--as your venture moves through the stages of designing, piloting, and scaling? How do you craft initial business models, effectively test these approaches, and create sustainable competitive advantage? Using the perspective of “creating a fortune with the base of the pyramid,” London provides a set of guiding principles (a “roadmap”) that answer these and other critical questions relevant to both existing and start-up BoP ventures.

Chapter 2  Innovation for the BoP: The Patient Capital Approach    45

Robert Kennedy, William Davidson Institute & Ross School of Business, University of Michigan; and Jacqueline Novogratz, Founder and CEO, Acumen Fund

Co-authors Robert Kennedy and Jacqueline Novogratz explain how social entrepreneurs and “philanthrocapitalists” are changing the BoP landscape by connecting innovative business approaches to “patient capital”--money that is expected to generate returns over a longer period than is typical of (say) venture capital. They identify four types of innovation that are proving critically important to success in operating in BoP markets, and show how a range of enterprises are applying these approaches in the field.

PART TWO: STRATEGIC OPPORTUNITIES

Chapter 3  Taking the Green Leap to the Base of the Pyramid     79

Stuart Hart, Johnson School of Management, Cornell University

Can the BoP teach the “ToP” (the “top of the pyramid”) anything? Author Stuart Hart says “yes.” In the old BoP model, Western entrepreneurs sought to sell goods and services to the BoP with little regard to environmental consequences. Today, Hart argues, the next generation of entrepreneurs are trying to develop distributed, smallscale, “small-footprint” products and services that are more appropriate to the BoP context--and may well point the way toward better models for the ToP, as well.

Chapter 4  Needs, Needs, Everywhere, But Not a BoP Market to Tap     103

Erik Simanis, Center for Sustainable Global Enterprise, Johnson School of Management, Cornell University

Market creation, argues author Erik Simanis, is fundamentally different from market entry. And although the BoP is a “basket of compelling needs,” it is not yet a “market” in the traditional sense of that term. As a result, entrepreneurs in the BoP context have to think in terms of market creation--and understand how to achieve that end in a uniquely challenging context. The wise venturer in the BoP space, Simanis writes, learns how to frame the value proposition and manage the innovation process (through seeding, base-building, and growth and consolidation) in ways that align business strategy with BoP opportunity. Through a sustained case study involving a soy-protein product, Simanis illustrates how to stay on track while building markets with the BoP.

Part Three: Effective Implementation

Chapter 5  A Micro-Level Approach to Understanding BoP Markets     129

Madhu Viswanathan, University of Illinois, Urbana-Champaign

“The devil is in the details,” as the old saying goes. In this chapter, Madhu Viswanathan makes the case that BoP markets have to be understood at the ground level--from the bottom up--if a venture is to succeed in those marketplaces. What are the marketplace-relevant characteristics of poverty? In the one-to-one interactional marketplaces of the BoP, the boundaries between “human” and “economic” issues tend to get blurred, long-term relationships tend to trump short-term ones, “rich networks” make up for resource constraints, and consumption and entrepreneurship can be two sides of the same coin. BoP entrepreneurs, therefore, have to concretize, localize, and “socialize” their products and services.

Chapter 6  Reframing Design for the Base of the Pyramid     165

Patrick Whitney, Institute of Design, Illinois Institute of Technology

By enabling breakthrough products, issues of design have come to the fore in the industrialized world, which is leaving behind economies of scale for economies of choice. Contrasting the Apple iPhone with the Chotukool refrigerator, author Patrick Whitney explores the provocative question of whether strategic design techniques that have proven themselves at the top of the economic pyramid might also prove useful--in identical or modified forms--when applied to base of the pyramid markets. His answer is “yes”--albeit with some important caveats.

Chapter 7  BoP Venture Formation for Scale     193

Allen Hammond, Ashoka

Social enterprises do good works. But unless they achieve a significant scale, they aren’t in a position to serve millions of BoP customers, or to help reshape economies. Author Allen Hammond argues for a combination of both bottom-up and top-down enterprise formation to better reach and serve BoP markets, and explains how that productive mix can be accomplished. Additionally, he suggests, BoP entrepreneurs can build business ecosystems (rather than stand-alone ventures) to support scale. Hammond explains how “hybrid” organizations can serve that purpose--and provides insights from a real-world example.

Conclusion: A Continuing Journey     217

Ted London, William Davidson Institute & Ross School of Business, University of Michigan; and Stuart Hart, Johnson School of Management, Cornell University

Co-editors Ted London and Stuart Hart look at “the journey ahead”--both in terms of the future of BoP-oriented ventures, and in terms of the research that needs to be done to help advance our understanding of the field, which ultimately will help those BoP-oriented ventures succeed. They present--and begin the debate about--five core assumptions that underpin the BoP domain, which collectively help set the BoP agenda of tomorrow.

Appendix:  Attendees from 2009 Conference: Creating a Shared Roadmap     233

Index     239

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