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The world is stuck in a prolonged downturn--growing inequity and a spiral toward environmental meltdown--and we can't seem to find a way to turn the corner. Not surprisingly, there is much talk these days about job creators--in US politics as well as geopolitics.
Two camps seem to dominate this debate. The first camp advocates cutting taxes for the rich, under the assumption that their investment and spending will "trickle down" to everyone else. The second camp wants to focus attention on the little guy--the small and medium enterprise (SME) sector, under the assumption that assistance for "mom and pop" enterprises will enable them to grow and flourish from the "bottom up."
The reality, in my view, is that neither the "trickle down" nor the "bottom up" perspectives will get us out of the hole that we are in.
Some years ago (1978 to be exact) Filley and Aldag published a wonderful piece in the Academy of Management Journal entitled "Characteristics and measurement of an organizational typology." In this article they empirically classified organizations into one of three types: Administrative, Craft, and Promotional.
Administrative organizations are established enterprises that are run by professional managers using formal systems of reward and incentives. At best, they generate slow, linear growth since they typically compete in established industries where unsustainable practices and bureaucracy reign supreme among incumbents. And they produce few jobs, since their focus is on increasing labor productivity rather than employment. Indeed, the corporate sector (the largest of the administrative organizations) makes up fewer than one percent of the world's enterprises and has actually shed jobs over the past decade, at least in the developed world.
Craft organizations comprise the vast majority of the world's enterprises which are created by their owners for the purposes of convenience or survival. Most "mom and pops" fit into this category and their defining characteristics are informality and a desire for stability. It should come as little surprise that the small shops and microenterprises of the world produce little in the way of job or employment growth since they are seldom started or run by real entrepreneurs. Indeed, those at the low end of the income scale are typically entrepreneurs by necessity rather than choice: Given the option, most would prefer a good job for a decent wage. Expecting the world's craft enterprises to somehow rescue us from our current malaise is therefore a false hope a best and a shibboleth at worst.
That leaves us with Promotional organizations, which constitute only a small fraction of the world's SMEs. Promotional enterprises are started by entrepreneurs whose intention is to get big. They are driven by a passion for achievement and will stop at nothing to realize this dream. Most fail. But the few (less than 10%) that succeed are the real job creators and growth engines for the future.
The good news is that promotional enterprises can come from anywhere in the world and need not be focused exclusively on the development and commercialization of new technology. In fact, entrepreneurs focused on solving social and environmental problems through enterprise are some of the most passionate and driven people on the planet. Our challenge (and the leverage point for the future) is therefore to devise ways to multiply the number and success rate of this new breed of promotional enterprise.
As a co-founder of the new Indian Institute for Sustainable Enterprise, I aim to do just that--dramatically increase the number and success of entrepreneurs and intrapreneurs focused on socially inclusive and environmentally sustainable business development for the 21st century.
To realize this vision, IISE has assembled a complete innovation ecosystem to foster the creation of tomorrow's distributed and sustainable infrastructure, including an education platform, incubator, investment fund, technology bank, cluster (social) network, learning laboratory, and field support system.
The flagship offering is the Post-Graduate Certificate Program in Sustainable Enterprise which aims to create nothing less than a new model of business and entrepreneurial development appropriate to the challenges we face in the 21st century.
The real job creators will drive innovation from the base of the pyramid, creating the companies and industries of tomorrow and a more sustainable way of living for the world.
Twenty years ago, in 1992, the first Rio Earth Summit took place in Brazil. While it was convened amid great fanfare and high expectation, the only really lasting legacy was the creation of the World Business Council of Sustainable Development (WBCSD) and the christening of "eco-efficiency"--doing more with less--as a key private-sector based strategy for sustainable development. The governmental negotiations produced a massive volume--"Agenda 21" but little concrete action.
Next week, the Rio + 20 Summit will convene, again in Brazil. The past twenty years has produced some good news and some bad news. First the good news: Eco-efficiency has become standard practice in large corporations everywhere and is now spreading to the world's small and medium sized enterprises as well. This is a major accomplishment and has significantly reduced the impact per unit of output in economic activity.
Now for the bad news: we have not yet begun to actually slow or reverse the level of human impact on the planet. Indeed, over the past twenty years, we have tripled the size of the global economy, added nearly two billion people to the world's population, and further intensified our ecological footprint on the planet. Growth swamped eco-efficiency. Today, the science is clear: we have overshot the carrying capacity of the planet and serious repercussions are now inevitable.
In 1997, I wrote an article that appeared in the Harvard Business Review entitled Beyond Greening: Strategies for a Sustainable World. The piece won the McKinsey Award in 1997 as the best article in HBR. The article stressed that corporate eco-efficiency (greening) strategies aimed at incrementally reducing negative social and environmental impacts, while important, would not be nearly adequate to the challenge of global sustainability in the decades ahead. Even then, it was clear that "beyond greening" strategies--leapfrog clean technologies, and business models that included and lifted the four plus billion poor in the developing world--would be essential if we were to fundamentally change the course of the global economy, and set it on a course to sustainability.
In the 1990s, people spoke in terms of the need for fundamental change over the next decade or two. Indeed, the title of the WBCSD's inaugural book was "Changing Course." Unfortunately, all we got was continuous improvement through eco-efficiency.
As I prepare to leave for Rio next week, my hope is that this Summit can plant a new stake in the ground--the Beyond Greening Stake. I will do everything I can to drive this agenda.
We are running out of time.
The time has come to end the ideology wars.
For too long, discussion about environmental and social challenges has been divided into two camps: The Neo-Malthusians (here and here) and the Cornucopians (here and here).
The former forsee gloom and doom--an imminent global train wreck driven by climate change, resource depletion, ecosystem destruction, and a combination of growing population and inequality. The latter forsee an unprecedented boom driven by the creativity and innovation of an increasingly sophisticated and interconnected global economy with millions of new, well-educated people from the emerging markets of the world.
The Neo-Malthusians are the ultimate pessimists ("limits to growth"); the Cornucopians are unabashed optimists ("growth of limits"). The Neo-Malthusians project current trends into the future and see disaster. The Cornucopians assume that technology will always produce the necessary substitutes and solutions when we need them (because scarcity means higher prices and higher prices signal opportunity for innovators).
It turns out both are probably right: We face unprecedented environmental and social challenges. Markets get distorted by perverse subsidies and incumbent resistance so that the price signals that should drive innovation are delayed or deferred. Humans have difficulty perceiving gradual, slow-developing changes and tend to wait for crises before acting (the "boiled frog" syndrome). So there probably will be major disruptions and unpleasant surprises in the years ahead.
That said, humans are also infinitely adaptable, resilient, and able to mobilize rapidly when a real crisis is finally perceived. The level of creativity and inventiveness is astonishing, and we are adding millions of creative people to the stock of potential problem solvers every year. The internet enables connectivity and exchange on a scale that we could not have previously imagined. The engine of entrepreneurial capitalism is powerful and should not be underestimated. So, there is every reason to believe that amazing things will happen that totally change the landscape for the better in the coming decade or two.
Just like the Democrats and Republicans in the United States need to set aside their petty ideological differences for the good of the country (and the world), it is also time for reconciliation and synthesis between the Neo-Malthusians and the Cornucopians.
Such reconciliation means that we need to learn how to become "skeptical optimists"--optimists because of the potential for new, sustainable technologies to grow exponentially in the coming years (see, for example, Singularity University); skeptical because of the scale and scope of the challenges we face. Skeptical optimism gives us the perspective we need to solve the world's social and environmental problems through a new form of sustainable entrepreneurship and enterprise. And the time is now.
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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’m Stuart L. Hart, a leading authority on the implications of environment and poverty for business strategy. This blog will be a place for me to update you on some of my newest insights - based on the work I’m doing to help businesses take the Green Leap.
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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. I present new strategies for identifying sustainable products, technologies, and business models that will drive urgently needed growth and help solve social and environmental problems at the same time. I also argue that corporations are the only entities in the world today with the technology, resources, capacity, and global reach required.
Beyond Greening: Strategies for a Sustainable World won the 1997 McKinsey Award for Best Article in Harvard Business Review and helped launch the movement for corporate sustainability.
With C.K. Prahalad, I wrote the path-breaking 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.
Learn more about my work at stuartlhart.com >>