May 2011 Archives

When Franz Schubert wrote the first two movements of Symphony No. 8 in B Minor in 1822 (what would come to be known as the "Unfinished Symphony"), little did he know that he was modeling the behavior and skills needed to successfully create the markets of the future at the base of the world income pyramid in the 21st century.

In fact, a full decade after C.K. Prahalad and I first wrote the Fortune at the Bottom of the Pyramid (BoP), few large corporations have yet to realize the vast business potential of the world's four billion poor and underserved:  Most have either sought simply to sell stripped-down versions of their current products to the emerging middle classes in the developing world, or have abandoned the profit motive entirely and moved their BoP initiatives to the corporate social responsibility department or corporate foundation. 

Indeed, it is telling that, as we enter the second decade of the 21st century, the only real BoP business success stories come from the developing world itself--microfinance and mobile telephony for the poor.  Billion dollar companies like Grameen Bank and Grameen Phone in Bangladesh, Compartamos in Mexico, and CelTel in Africa still stand out as the few iconic examples of business success cited by BoP analysts and advocates from around the world.  In fact, no global conference on the topic is complete without significant reference to at least one of these "home run" examples.

This raises the question:  Is there something about microfinance and mobile telephony that has enabled such stunning success?  The answer is yes!  When you examine each of these industries closely, it quickly becomes apparent that each is really a means to an end, rather than an end in itself.  Indeed, microfinance and mobile telephony are not end products, but rather are enabling platforms that facilitate people to accomplish any number of tasks and deliver a wide range of functionalities.  They are, in short, the equivalent of "unfinished symphonies."

Microfinanciers and rural wireless service providers enable poor slum dwellers and villagers to figure out for themselves how best to weave these new services into their lives.  For these customers, this may mean mobile transfer of funds, communicating in code with a loved one, acquiring a third cow, accurate information on crop prices, or expanding a current micro-enterprise.  My colleague Erik Simanis calls these types of products and services value open since they enable people to complete the value proposition for themselves.

Unfortunately, most multinational corporations have chosen BoP strategies that effectively deliver finished symphonies with defined value propositions in the mistaken (though well-intentioned) belief that they know better than the poor themselves what their real needs are.  What works in the established markets at the top of the income pyramid, however, does not work so well in the emerging BoP space.

Time-tested marketing research methods (e.g. consumer surveys, focus groups, ethnographic studies) are excellent ways to uncover new opportunities in already established markets, where low cost or differentiation strategies rule and customers are already accustomed to paying money for service.  However, when it comes to serving the BoP, the challenge is not one of uncovering latent demand, but rather one of creating entirely new markets and industries, where only informality, self-provisioning or barter previously ruled. 

To effectively realize the vast business potential at the base of the pyramid, corporations must thus show a bit of humility.  Companies must come to view the poor more as partners and colleagues rather than merely clients or consumers.  Such an approach calls for deep dialogue (two-way communication) rather than just deep listening.  To realize this mindset shift requires the development of a new "native capability" which focuses on co-creating business concepts and business models with the poor, rather than simply marketing inexpensive versions of top-of-the-pyramid products to low income consumers.

The logic of co-creation does not, however, mean simply entering underserved communities with a completely open mind and no sense of business purpose or direction.  On the contrary, companies must clearly communicate what resources they bring to the table in the form of skills, capabilities, and technological potential; they must do so, however, without prematurely imposing a final product or technological solution.  The aim then is to marry corporate global best practices and technologies from the company with the local knowledge, skills, and aspirations of the local community--to complete the "unfinished symphony" together.

Done well, such an approach to BoP business development holds the potential to create entirely new product and service categories that are embedded in the actual context (rather than simply cheaper versions of existing products from the top of the pyramid).  Embedding also means creating "community pull" for BoP innovations, since they have been co-created with community members, rather than engaging in the expensive and time-consuming process of "social marketing" to educate and promote behavior change among the poor.

Over the past seven years, my colleagues and I have been focused on developing such an approach for companies to effectively co-create new markets in the BoP.  The approach is called the BoP Protocol.  We have now experimented with this approach in a half-dozen different business contexts in Asia, Africa, and Latin America, and have learned a great deal about how to engage local partners and communities in the dance of co-creation.

Many others have also embarked on similar learning journeys to unravel the keys to successfully creating the inclusive businesses of tomorrow that embrace all of humanity and end the scourge of poverty.  My colleague Ted London and I have gathered some of the most important emerging contributions in this regard in a new book, Next Generation Business Strategies for the Base of the Pyramid.

Our conclusion:  There is no "fortune at the bottom of the pyramid" waiting to be discovered.  Instead, the challenge for companies is to learn how to create a fortune with the base of the pyramid.  Franz Schubert's Unfinished Symphony in the 19th century may thus hold the key to a more inclusive form of capitalism for the 21st century.

I am very pleased to have launched this blog--"The Voice of the Planet."  To get off on the right foot, however, it probably makes sense to give a bit of explanation as to what I see as the significance of this title.

Since the Japanese Quality Revolution of the 1970s and 80s, companies have been obsessed with hearing and incorporating the "Voice of the Customer" into their management systems and processes.  Many still struggle to incorporate this elusive voice effectively--to be truly customer driven.  Indeed, many firms are still on the journey to learn how to "build quality in" rather than fix problems and mistakes after they occur.  It is now an article of faith that excelling in customer focus holds the key to sustained value creation.

Well, I'm here to tell you now not to get too comfortable.  Just when you thought it was safe to go back in the water (as they would say), a new and even bigger managerial challenge--and opportunity--has arisen: incorporating the "Voice of the Planet" (VoP) into corporate missions, strategies, and management processes. 

What do I mean by this?  For many companies--especially large, global corporations--simply hearing the voice of the current customer will not provide useful insight into the major challenges and opportunities that lie ahead.

While the human population on the planet is now approaching 7 billion, few corporations consider more than the richest 1 billion as potential "customers."  Yet, most of the big problems in the world (health, energy, water, sanitation, food, shelter, mobility, etc.) are being faced by the billions of aspiring poor in rural villages and urban slums around the world, not by the wealthy few at the top of the pyramid.  To address the needs of the poor, we will need to increase economic activity at the base of the pyramid by an order of magnitude over the next few decades.  This constitutes the biggest business opportunity in the history of capitalism.

But as we seek to eradicate poverty and lift the base of the world income pyramid, the question is can the planet accommodate this level of growth?  If the developing world were suddenly to catch up to US standards, world consumption rates would jump eleven-fold.

And if, as projected, the human population increases from the current 6.7 billion to 9 billion over the next 30 years before stabilizing, and growth in consumption continues at its present rate, we could literally destroy the natural systems--soils, watersheds, fisheries, forests, and climate--that underpin all economic activity, and indeed, human existence.  The planet simply cannot sustain 9 billion people consuming like today's Americans. 

So the question of our time, therefore, is how do we include all of humanity in the capitalist dream without simultaneously destroying the underlying natural capital upon which we all depend?  The only way we will find answers to this question, I argue, is to learn to hear the VoP.

How do profit-seeking companies listen to the Voice of the Planet?  As my colleague, Sanjay Sharma and I suggest, start by drawing a clear distinction between "core" stakeholders--those visible and readily identifiable parties (like current customers and suppliers) with a stake in the firm's existing operations--and "fringe," or peripheral stakeholders.  Core stakeholders encourage us only to continuously improve what we already do.  Yet, answering the question of our time calls for disruptive, leapfrog innovation, which requires divergent thinking.  This means reversing the traditional stakeholder management model by learning to actively engage previously excluded voices from  the fringe-- the rural poor, urban slum dwellers, and advocates for nature's rights, just to name a few.

Such fringe stakeholders are often alienated from or invisible to the firm and its current business.  However, they may well hold knowledge and perspectives that are critical both to identifying significant emerging problems and developing innovative opportunities and business models for the future.

Reaching out and gaining the perspectives of fringe stakeholders enables managers and executives to suspend disbelief and broaden their corporate bandwidths.  Indeed, new knowledge is generated only when we escape from the old ideas and mindsets that underpin our current reality.  Hearing the Voice of the Planet can thus stimulate the "competitive imagination" which is needed to create the new, breakthrough products, technologies, and markets for the 21st century.

Just remember: we do not lack for resources, investment capital, or technology.  What we lack is imagination.  My hope is that this blog can be one of the vehicles for companies and organizations from around the world to gain a "license to imagine" by tuning in to the "Voice of the Planet."