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Introduction
Prabhu Kandachar and Minna Halme
Greener Management International Issue 51
Journal article date June 2007
issn 0966-9671 pages 3-17
GMI Theme Issue An Exploratory Journey towards the Research and Practice of the
‘Base of the Pyramid’
Introduction
*Prabhu Kandachar
Delft University of Technology, The Netherlands
Minna Halme
Helsinki School of Economics, Finland
there are a number of reasons why Greener Management International has
chosen to present a special issue on the topic of the ‘base of the pyramid’. Around the turn of the millennium it had become strikingly evident that development aid, charity or ‘global business-as-usual’ would not deliver solutions to poverty as had been expected. Despite the expectations, the gap between wealthy and poor kept widening. Today, there is little dispute that poverty is one of the most pressing global problems calling for innovative solutions. Even many organisations and thought leaders that originally did not have much to do with poverty have started to address the issue (Prahalad and Hart 2002; Pra-halad 2005). One of the results is the so-called base-of-the-pyramid (BOP; also referred to as ‘bottom-of-the-pyramid’) concept, a novel approach that, it is sug-gested, can deliver at least a partial solu-tion to poverty. In short, the BOPapproach refers to entrepreneurial activity that could help to eradicate poverty in an economi-cally feasible way.
Poverty is indirectly related to another global concern: the state of the
environ-ment. Climate change, overuse of natural resources, and various forms of deteriora-tion of the environment increasingly man-ifest themselves in our lives. Tragically, the poor are the ones that are hardest hit by the adverse effects of environmental dete-rioration such as water shortages or de-struction of habitats. There is yet another connection to environment that poverty and particularly the BOP approach have. Some argue that the BOP approach en-courages consumption, with possible con-sequences for ecological sustainability. The connection between the BOP approach and sustainable development makes the topic highly relevant for a journal such as
Greener Management International.
The BOP issue is a new knowledge area, and there is a need to broaden the knowl-edge base. Our aim with this special issue is to contribute to BOP knowledge not only in general terms but particularly as re-gards the needs of the users as a starting point for BOP product service and innova-tions.
Working in the field of designing prod-ucts and services, one of the authors (Prabhu Kandachar) has been exploring
prabhu kandachar and minna halme
Figure 1
bop projects at delft university of technology
this human-centred, need-based approach to BOP. At the School of Industrial Design Engineering, Delft University of Technol-ogy, The Netherlands, this approach is being applied to designing products and services for these new markets. Several projects in association with business enterprises, NGOs, etc. have been carried out by the students since 2003 (see Fig. 1). These attempts clearly emphasise the relevance of social sustainability and, being user- as well as design-driven, also have the potential for environmental and economic sustainability, albeit on a small scale. At the same time the new economic geography illustrates that countries such as Brazil, China, India, etc., where a large part of the BOP population live, are fast-growing economies and are key contribu-tors to large global environmental impact (WWF et al. 2006). While economic
wel-fare for people in the BOP world cannot be ignored, we also need to work towards global sustainability. This requires a large-scale effort on multiple fronts, requiring large investments in developing appropri-ate science and technology as well as active interventions by local and (inter)national policy-makers.
These considerations formed the basis for the call for papers for the current spe-cial issue, focusing on three interrelated domains concerning the base of the pyra-mid:
t BOP as a new market for products and services and the role of entrepreneurs t The role of technology and innovation (for example, disruptive innovation) to meet the needs of BOP customers t Sustainability: economic growth and
ecological pressures on the planet
The base of the pyramid (BOP)
The pioneering work (Prahalad and Hart 2002) in this area suggests that there is a fortune to be made for entrepreneurs in
BOP initiatives, while at the same time great opportunities for the world’s poor to escape from poverty. The book The Fortune
at the Bottom of the Pyramid (Prahalad
2005) proposes a framework for the active engagement of the private sector and sug-gests a basis for a profitable win–win engagement. He argues that all that is stopping business from designing prod-ucts and services to meet the needs of the world’s poor, and then efficiently manu-facturing and distributing them, is human ingenuity—innovation. The topic has un-leashed an extensive and generally enthu-siastic response from academics, busi-nesses, NGOs and governments (Prahalad and Hammond 2002; Prahalad and Hart 2002; WBCSD 2004; Hammond et al. 2007; Brugmann and Prahalad 2007).
Innovations
Technology fosters innovation and keeps new product development on target, on time and on budget. True innovation is customer-driven, focusing on products or services that meet unique user needs. Innovation is a multi-step process that improves with collaboration among inter-nal teams and exterinter-nal partners focused on serving a particular customer or mar-ket or business. Design (of products and services) is the result of a collaborative interaction and iteration between user, technology and business.
Designing products and services to specifically meet BOP needs requires social, business and technological innova-tions (see Fig. 2)—and this is happening. Social innovations are sprouting all over the world, with grass-roots innova-tion networks such as Honeybee,1and the
various global networks connecting organ-isations of slum dwellers and micro-credit
organisations. Today micro-finance is con-sidered a profitable business by many banks, with reported payback rates rang-ing from 95% to 100% (Leone 2005; Sharif 2006).
The topic of business innovations raises such questions as: How do busi-nesses in developing countries strategi-cally exploit an intimate knowledge of their customers’ mind-sets? How do they innovate around (rather than through) technology (because they lack access to technology)? And how do they search the world for good ideas? How about innovat-ing within the value proposition? When mobile phones appeared on the market they offered a completely different value proposition than did fixed-line phones. In developing countries where fixed telecom infrastructure is weak and waiting lists for phone lines unbelievably long, mobile ser-vices are destined to thrive.
The concept of disruptive innovation, identified by Clayton Christensen (1997) is attracting wide attention. This can be a technological innovation, a product or a service that eventually overturns the exist-ing dominant technology or product in the market: for example, mobile phones instead of land lines. Alternatively, it could be an open-source innovation. Open-source projects succeed when a broad group of contributors recognise the same
need and agree on how to meet it, Linux being the most well known.
Christensen’s hypothesis is that organ-isations customarily develop mind-sets and processes that revolve around doing what they already know and that man-agers barely respond to or respond too late to emerging-market change. Working with Hart, he suggests corporations relate the ideas of disruptive innovation to the
BOP (Hart and Christensen 2002).
Innovation blowback
Radical changes are also taking place in the world economic order. Disruptive innovation in BOP countries can ‘blow back’ (Brown and Hagel 2005). Brown and Hagel contend that emerging markets such as China and India have become breeding grounds for new management processes and practices that help compa-nies to maintain or even improve the qual-ity of their products and services while simultaneously cutting prices. The dis-ruptive impact is now confined to devel-oping countries, but ‘blowback’ from this surge of innovation could quickly impact on the rest of the world. They argue that, to meet the challenge, established busi-nesses must learn new skills—not least an ability to orchestrate complex networks of specialised enterprises.
prabhu kandachar and minna halme
Figure 2the need for innovation on several fronts (the bop innovation model)
Sustainability
At the same time, policy-makers continue to grapple with the demands of sustain-able development. While economic growth and poverty alleviation cannot be denied to the needy billions in this world, what would such growth in production and con-sumption in developing countries mean to our planet? The global challenges ahead include access to clean energy services, meeting demands for healthcare, safe drinking water, housing and mobility.
The whole world needs sustainable solutions, and the BOP needs them too. In fact BOP markets need extra attention in this endeavour because, for instance, the energy-intensive lifestyle at the top of the pyramid may not be achievable at the bot-tom. With an increase in the worldwide use of natural resources, partly due to an increasing world population, but also because of the economic growth of emerg-ing countries such as China and India, more than two planet Earths would be needed to provide the natural resources
necessary to allow the globalisation of the Western lifestyle. Obviously, this calls for a large-scale improvement in environ-mental efficiency (= system innovation; see Fig. 3).
It is increasingly being recognised that, in the industrialised North, anything between Factor 4 (75%) and Factor 10 (90%) reductions in energy and resource consumption and CO2emissions may be
A journey of multiple steps
This special issue is not a stand-alone effort, but part of an exploratory journey that consists of multiple steps. One of the first steps was a BOP discussion workshop at the Greening of the Industry Network (GIN) conference in Cardiff, Wales, in 2006. The workshop centred on multiple questions regarding ecological and social sustainability of a BOP approach. It at-tracted the attention of a large audience. Discussions in the session supported the
BOP Innovation Model (Fig. 2) and identi-fied policy and institutional design as a supporting infrastructure (Paton and Halme 2007) (see Fig. 4).
The GIN organising committee also wished to be involved with the subsequent part of the ‘journey’ and offer a platform for working toward the publication of a book, which will be published by Green-leaf in May 2008 as a follow-up this GMI
special issue. Consequently, the journey has a mid-term halt at Waterloo, Canada, at the 2007 GINConference (15–17 June). The conference will focus on, among other things, ‘The Role of Corporations in Ecological Stewardship and Fostering
Social Sufficiency at the Base of the Pyra-mid’.
Figure 5 schematically illustrates writ-ings related to the BOP knowledge domain.
Analysis
The call for papers for this special issue covered three key domains relating to the
BOP approach: BOP as a new market; the role of technology and innovation; and sustainability. These were broken down into sub-areas including entrepreneur-ship, bottom-up innovation, the voice of the poor in the design of BOP concepts, need assessment methodologies, the role of current infrastructure, successes and failures of BOP attempts, what role fund-ing bodies should take to BOP, and the relationship between economic growth at the BOP and ecological pressures.
This call attracted 28 submissions, 12 of which were invited to the second round for full manuscript review. This section provides an overview of the distribution of submitted topics, taking into account both abstracts and the selected articles. It is somewhat unusual to discuss those abstract
prabhu kandachar and minna halme
Figure 4the need for policy and institutional design as a supporting infrastructure for effective bop innovations
submissions that were not published, but we find that they provide a valuable insight into BOP research interests. Figure 6 delineates the interrelationships between the main topics and sub-topics. Table 1 and Table 2 show an overview of the top-ics of submitted abstracts and final arti-cles.
The preliminary conclusions based on the abstracts are as follows. There is con-siderable research based on the BOP
approach. Much of it, however, is in an early stage and conducted by researchers, consultants, practitioners as well as those who wear multiple hats, i.e. individuals who operate partially in academia and par-tially as practitioners. Due to its early stage and the cross-disciplinary character of the
BOP approach, inquiry in this field appears relatively fragmented. As mentioned above, the call for papers for this special issue covered a very large area. Of all the topics in that area, business processes clearly appear the most active area of inquiry in approaching the BOP. Some of these also address the need for social innovations.
Sustainability as a topic in relation to the BOP does not appear to be a major area of inquiry. Some submissions implicitly touched on issues that are in the sphere of social sustainability, but they do not appear to be an explicit target of study.
While the call specifically mentioned eco-logical sustainability, few submissions addressed this issue.
Somewhat surprisingly, even though
BOP markets are largely populated by poor people, their needs and aspirations are not among the issues receiving the attention of the research community.
While engineers and designers are used to working as integrators of various market, technological, social and sustain-ability aspects leading to the development of products and services, very few sub-missions highlight the role and possible contributions of these professions in ad-dressing the needs of the poor at the BOP. This analysis, in which the abstracts received were assessed against the call for papers, has the nature of a deductive approach. Therefore, an alternative analy-sis was also carried out, in which an induc-tive approach was applied. In this latter analysis, only papers that have been included in this special issue are consid-ered, and only those issues addressed by the authors. These being full and peer-reviewed papers, they provide a more complete background for examination. The analysis results are presented in Table 2.
prabhu kandachar and minna halme
T
able 1
analysis of submitted abstracts responding to the call for papers
(continued opposite)
T
able 1
prabhu kandachar and minna halme
Figure 6
overview of main topics and sub-topics
T
able 2
prabhu kandachar and minna halme
The contributions
The majority of the papers included in this special issue are based on empirical case studies from several countries in Asia, Africa and South America. The issues that the articles deal with include social em-beddedness of firms or innovations in the low-income markets, multi-stakeholder collaborations in facilitating the develop-ment of BOP product-service concepts, or tensions between different stakeholders involved in the introduction of potentially disruptive innovations to BOP markets. One of the papers is a conceptual critique of the BOP approach.
The paper by Sánchez, Ricart and Rodríguez examines the BOP business concepts of four multinationals from dif-ferent sectors. It focuses on the ability of business ventures to develop embedded ties and partnerships in low-income mar-kets. Their paper represents state-of-the-art research in the BOP field, particularly because it moves beyond the descriptive research format which, due to the imma-turity of the field, characterises much of the BOP research. The findings of Sánchez
et al. indicate, for instance, that firms have
a bigger incentive to build embedded ties and partnerships when they operate in an under-developed market-oriented system and have a high psychic distance to low-income markets. Their evidence also implies that firms that have developed the ability to become socially embedded may create more total value, not only economic but also social.
Danse and Wellema’s study of small-scale farmers in coffee and flower sectors in developing economies demonstrates that the potential of international trade to alleviate poverty is hampered due to strict performance requirements and formalised monitoring. Ironically, these require-ments are partially an unintended conse-quence of societal pressures at end-user markets, raised, for instance, by environ-mental and human rights groups’ de-mands. Strict performance requirements and standards are impossible for
small-holder producers to meet. Thus, they function as a mechanism that excludes smallholder producers from international agri-food chains, and favours large-scale capital-intensive suppliers. Danse and Wellema propose socially embedded BOP
strategies as a partial solution to this chal-lenge, but conclude that, eventually, BOP
strategies need to be coupled with pur-poseful policies in order to make agri-food chains work for pro-poor development.
The role of NGOs and universities as facilitators between the poor and the enterprise sector is described with the help of four case examples in the paper by Jessica Marter-Kenyon. Her examples come from the area of public health. They demonstrate situations where the flexibil-ity and power of NGOs is prominent. These are instances when large interna-tional organisations are too rigid, large enterprises do not act because they cannot gain or do not see economic benefits, and local actors (e.g. small enterprises or indi-viduals) are not powerful enough to oper-ate in the area discussed.
Gardetti’s paper takes a slightly differ-ent approach to stakeholders in the BOP
context. It describes a setting where mul-tiple actors work together on BOP issues. The BOP Learning Lab in Argentina is part of a network of similar laboratories around the globe. The Lab in Argentina is a multi-stakeholder forum, which began operation in 2005, and has been working on the identification of barriers to the BOP
approach in an Argentinean context. The paper shows how participants from dif-ferent sectors slowly become able to hear and understand each other’s perspectives: for example, company managers begin to understand the conditions of the poor, and
NGOs change from ‘aid’ thinking to more entrepreneurial concepts.
In contrast, Liisa Harjula’s paper shows how a technological innovation with dis-ruptive features can cause tensions between stakeholders, and how these tensions pose a threat to the technology’s penetra-tion into the market. This innovapenetra-tion from the field of medical technology holds great promise for the poor, but this promise is
put at risk: on the one hand because of the short time-frame of venture capitalists and, on the other hand, due to the inter-ests of industry incumbents safeguarding their position. Harjula shows how a BOP
strategy could offer a solution that can combine the interests of the social entre-preneur and the venture capitalist, and offer to the poor a medical service to which they currently do not largely have access.
The paper by Cooper and Boye de-scribes the penetration of telecommuni-cations into rural BOP areas in India and Ghana, and how it is lagging behind the national level. They describe the challenge in bringing telecom services to rural areas, while making access affordable and rele-vant to the needs of the rural poor, as well as proposing approaches for how these challenges can be met. Pointing out how
OECD countries in the 1970s and ’80s enjoyed a huge sustained uptake in fixed lines and built a platform toward their ‘digital communications revolution’, the authors hope for a comparable effect through mobile technology in Africa, especially in reaching the poor.
Finally, the paper by Aneel Karnani pro-vides an antithesis to much of the current
BOP discussion. In this paper, which was preceded by a widely discussed electronic version, Karnani claims that the BOP
approach is an illusion. According to him, the purchasing power of the poor markets is exaggerated and so is the promise that large enterprises could help to eradicate poverty using BOP strategies. The internet is currently providing a forum of active debate on this topic.2
Further issues
Beyond the contribution of the individual papers, some supplementary conclusions can be drawn. More research about gen-eral technological innovations for the BOP
is needed. Other issues such as afford-ability, acceptafford-ability, availability and
aware-ness all call for attention. In this issue, Liisa Harjula writes about affordability in the context of its healthcare tech proposi-tion. Jessica Marter-Kenyon briefly han-dles affordability and acceptability issues in connection with the cases.
Education as an essential part of human development and as an important factor in alleviating poverty is yet to attract contri-butions. Researchers working on the dig-ital divide (ICTfor development) need to be involved next, as this sector offers con-siderable scope for technological innova-tion.
NGOs, being very well-established net-works, offer a means to approach the poor. This is an area that is not yet being addressed on a large scale. Jessica Marter-Kenyon has proposed looking for a middle way between the traditional model of development assistance and the market-driven approach. NGOs are probably well suited for this role, but more examples and comparative studies about the strate-gies of NGOs at the BOP are needed in order to form more comprehensive perceptions about what NGOs can and cannot accom-plish. NGOs differ from one another in a number of respects, such as their orienta-tions, capabilities, interests, size and the like. It evident that not all NGOs are suit-able for the same tasks in BOP coopera-tion.
The BOP is about the poor and their needs. However, few are active in need identification and assessment at the BOP. It is likely that identification and assess-ment methodologies are still in develop-ment. Further, BOP research needs to study the role of governments in oversee-ing, regulating and stimulating business
BOP efforts, and to investigate how gov-ernments could set the stage for better and more successful BOP initiatives.
Conclusions and
recommendations
The above has discussed work that has been done with regard to the BOP. In this concluding section we discuss issues that we believe should be addressed in future
BOP research.
Even though a number of writings on the BOP approach mention ecological sus-tainability—both as a potential spring-board for breakthrough innovations and as a major threat (Hart 2005; Hart and Milstein 2003)—the concern does not seem to be transferred to a majority of BOP
research and practice. This is somewhat alarming, because unintended ecological consequences can be avoided only if these concerns are addressed in BOP product and service design and business models early on. This is an area that calls for seri-ous attention in the immediate future.
Issues that lie in the sphere of social sustainability are by nature more often included in the analysis, but grass-roots actors ought to involved in the inquiry. The needs of the poor demand attention. They need to be more actively involved in product and service development, and more sophisticated means of needs assessment are required to make their voice heard. Otherwise there is a high risk that despite good intentions many of the mistakes of the early years of development aid will be repeated.
A considerable number of documented
BOP cases has accumulated during the last couple of years. Doing one’s own field study is no longer the only way to do BOP
research. We would like to see more analy-sis that draws together data from multiple documented cases. For instance, it would be possible to evaluate the social and eco-logical sustainability effects of BOP prod-uct and service concepts, and compare them in order to better understand what differentiates a ‘sustainable BOP concept’ from an unsustainable one, and why. This would hopefully provide some knowledge about links between BOP concepts and sustainability. In the same vein, despite
the fact that the BOP approach is a new and in some ways a unique phenomenon, reaching beyond the direct BOP literature would be beneficial in understanding the phenomenon better. The study by Sánchez
et al. in this issue is a good example of
gen-erating relevant findings by connecting
BOP data with previous research.
Similarly, we recommend comparisons of advantages and disadvantages of BOP
cases to various stakeholders. At present, quite a few written accounts of the BOP
approach are either ‘for’ or ‘against’, which tends to encourage selective use of evidence, instead of considering multiple, occasionally contradictory evidence. Gen-erating a more rich, true and comprehen-sive picture of what the BOP approach can deliver calls for the inclusion of evidence originating from multiple stakeholders.
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q
Prabhu Kandachar is an Associate
Professor and is currently acting Chairman of the Department of Design Engineering, Delft University of Technology, The Netherlands. After his engineering education at Mysore University, and PhDfrom Indian Institute of Science, Bangalore, India, he worked for a few years at Delft, before joining Fokker Aircraft Company, where he worked for 15 years. In 1995, he returned to Delft. His interests are focused on materialising design ideas and on sustainable development. He has about 80 publications on his work. He is also extensively involved in designing products and services for the emerging markets, with many action-oriented projects in the last few years.
u
Faculty of Industrial Design Engineering, Delft University of Technology, Landbergstraat 15, 2628CE Delft, The Netherlands
!
P.V.Kandachar@IO.TUDelft.NL<
www.io.tudelft.nlMinna Halme is an associate professor
at Helsinki School of Economics. Her current research focuses on business models for sustainable services, sustainability implications of the base-of-the-pyramid (BOP) approach and corporate responsibility. She has worked in a number of European and national research projects on material efficiency services to industry, sustainable household services, sustainable tourism and sustainable business strategies. She has published in Ecological Economics,
Business Strategy and the Environment, Journal of Management Studies, Business Ethics Quarterly, Scandinavian Journal of Management and in a number
of other journals. She teaches Corporate Social Responsibility and Environmental Management at masters’, doctoral and executive MBAcourses.
