In this special Q&A blog post, the GIM Initiative is pleased to introduce a new book, “Next Generation Business Strategies for the Base of the Pyramid”, by GIM Advisory Board members Ted London, University of Michigan, and Stuart L. Hart, Cornell University.
About the Book
In “Next Generation Business Strategies for the Base of the Pyramid”, Ted London, Stuart L. Hart, and six leading BoP thought and practice leaders show how to apply today’s most significant BoP innovations, techniques, and business models. The authors go beyond providing low-cost products and extending distribution reach by demonstrating how to promote market development, innovation, and capability creation “with” BoP customers.
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. This book shares proven, on-the-ground insights for building scalable, profitable businesses that are sustainable, and truly can help alleviate social ills.
About the Authors
Ted London is a Senior Research Fellow at the William Davidson Institute and a member of the faculty at the University of Michigan’s Ross School of Business. 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 teaching cases emphasize creating new knowledge with actionable implications. His 2009 article in the Harvard Business Review, “Making Better Investments at the Base of the Pyramid,” has helped launch a new perspective on working with the world’s poor to enhance mutual value creation. His 2011 book with Stuart Hart, “Next Generation Business Strategies for the Base of the Pyramid,” provides fresh insights on building scalable, profitable ventures that can truly help alleviate poverty.
Over the past two decades, London has also directed or advised dozens of leadership teams in the corporate, non-profit, and development sectors on designing and implementing on-the-ground business strategies in low-income markets. He serves on advisory boards for a variety of organizations and shares his latest thinking as a keynote speaker in venues around the world.
Before coming to 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. Prior to that, he held senior management positions in the private, non-profit, and development sectors on three continents.
Stuart L. Hart is the Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. He is also Founder and President of Enterprise for a Sustainable World. Before joining Cornell in 2003, he was the Hans Zulliger Distinguished Professor of Sustainable Enterprise and Professor of Strategic Management at the University of North Carolina’s Kenan-Flagler Business School, where he founded the Center for Sustainable Enterprise and the Base of the Pyramid Learning Laboratory. Previously, he taught corporate strategy at the University of Michigan’s Ross School of Business and was the founding director of the Corporate Environmental Management Program (now the Erb Institute’s Dual Master’s Program).
Professor Hart is one of the world’s top authorities on the implications of environment and poverty for business strategy. He has published over 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 pathbreaking 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. With Ted London, Hart is also the author of a newly released book entitled “Next Generation Business Strategies for the Base of the Pyramid”. His best-selling book, “Capitalism at the Crossroads”, published in 2005, was selected by Cambridge University as one of the 50 top books on sustainability of all-time; the third edition of the book was published in 2010.
Q&A with Ted London
How do we find out more about the idea of ‘market creation’ (i.e. “enhancing consumer demand, reducing transaction costs and facilitating the development of public goods?”)? The challenges of market creation (or rather the ignorance about the need for of market creation) are clearly a barrier to entry for many would-be BOP ventures.
We created this book because we felt it was time to reframe the conversation around the base of the pyramid domain. The domain had originally started with the idea that there was a fortune at the bottom of the pyramid. The implicit assumption behind that was that there was a fortune just waiting to be found.
That tended to generate debates on the exact size of the markets, how much money people have, and how we can modify current practices to serve this new market. This resulted, to some degree, in a view that these ventures were seeking their fortune at the expense of the BoP and led to questions about whether BoP ventures were good or bad for the poor. While initially useful, these arguments also constrained our ability to identify the full set of business and poverty alleviation opportunities in serving BoP markets.
Indeed, we need to be much more sophisticated in our thinking about business development for BoP markets. The big idea in our book is to present a different starting point. Instead of targeting how you can find a fortune at the base of the pyramid, we emphasize a focus on how you can create a fortune with the base of the pyramid. Framing BoP enterprise development this way leads to more interesting and relevant questions, including the critical idea of the need for market creation.
In the chapter I wrote, for example, I laid out a roadmap that BoP enterprise managers could use as they move through the stages of designing, piloting, and scaling. In each of these stages, I identified two key principles that these managers need to consider in order to enhance the likelihood of enterprise success. In the design stage, the very first part of enterprise development, I emphasize the importance of market creation and the associated need to craft solutions with the BoP as well as development sector partners. This message is reinforced at the end of the chapter in the discussion about the importance of viewing cross-sector partnerships from a perspective of collaborative interdependence.
How can UNDP and other organizations create opportunities for partnership creation and/or to spur collaborative partnerships on the ground? Clearly this seems critical to the DNA of successful BOP ventures, but the field still lacks knowledge on creating these partnerships most of which seem to arise through fortuitous meetings.
I really believe that business and development sector organizations must adopt a new framing for their partnership activities: collaborative interdependence
In a recent USAID-funded report that I co-authored with Professor Ravi Anupindi, my colleague at the University of Michigan, we highlight the fact that donor- and enterprise-led initiatives, while often having overlapping objectives, approach the opportunity to serve the poor from different perspectives. As a result, they have different strengths and weaknesses. While these approaches are complementary and may be trying to achieve the same outcome, the sectors largely prefer to maintain their independence from one another.
The donor-led approach, based on the donor’s design and decision to invest, ensures that certain things at a minimum will happen on the ground. When donors remove themselves from programs, however, scalability and sustainability of interventions become less certain. Thus these efforts typically can have high floors, but relatively low ceilings.
The enterprise approach emphasizes minimizing risks and small-scale experimentation to test business models, and thus does not ensure that a specific investment will be made. However, with a long-term focus on its business development investments, it has the potential to have an enduring and widespread impact. These efforts have low floors and high ceilings.
We propose several strategies that donors can use to enhance collaborative interdependence between sectors to better leveragethe strengths of both types of approaches. They include: 1) ensuring the team has a deep understanding of the unique opportunities and challenges of enterprise development in BoP markets; 2) identifying and using a set of metrics focused on assessing mutual value creation; 3) supporting a flexible partnership model that encourages experimentation and values learning; 4) maintaining a long-term commitment for co-creation; 5) supporting market creation efforts that enable competitive advantage; and 6) emphasizing that key skills and capabilities are fully transferred to enterprise partners before ending the project.
The full report is available on USAID’s microLINKS website. Ravi and I have also developed a shorter paper on the process of developing partnership grounded in a perspective of collaborative interdependence. If you email me (email@example.com), I can send a copy.
How do we manage the ‘localized’ knowledge created from on-the-ground BOP interactions, which are critical to achieving break-even/scale for BOP ventures, and disseminate this knowledge in a way that is useful for others attempting to enter similar arenas? For example we found the chapter highlighting the development of the Chotukool to be very useful in looking at how user-specific insight was created; and we were wondering there must be thousands of field-level interactions by hundreds of companies like these in India and everywhere: how do we manage the insights created from those interactions?
In our work with a variety of partners on this topic, we have recognized two key challenges in implementing market-based approaches in BoP markets: 1) achieving consistency of impact; and 2) generating the ability to learn and share knowledge. In order to achieve sustainable impacts, an organization must have the capability to institutionalize knowledge and learning, and from this develop methodologies and tools to deliver predictable execution and continued improvement in outcomes. Most organizations, however, operate their market-based enterprises as a set of relatively independent initiatives without the infrastructure to collect experiences and share best practices across these efforts.
To address this issue at the William Davidson Institute (WDI), we utilize our research capabilities and extensive experience in the next generation of BoP business strategies to work with partner organizations to co-create Centers of Excellence. These BoP centers of excellence are more than a knowledge base. They identify the learnings (and the disappointments) from multiple projects and synthesize this information into key factors that influence the success or failure of market-based initiatives. Combining these insights with the latest external research and the organization’s internal capabilities and aspirations, the center of excellence develops tools and methodologies that enable more consistent execution and better delivery of overall results. Having a center of excellence that is jointly managed with WDI offers these organizations a new capability to better maximize the return on their investments in market-based initiatives.
India is clearly quite far along in being conducive to BOP ventures. What about other countries?
In the book, we described a number of BoP ventures from a variety of countries and regions. BoP enterprises are emerging throughout Africa, Asia, and Latin America. Indeed, I believe that a BoP enterprise’s approach to implementation and its ability to work well in collaborative partnership are more important predictors of their success than their locations.