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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.
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.
While the current economic crisis has been devastating to many in the US and beyond, it could actually turn out to be a blessing in disguise. In a very real sense, the world--and global capitalism-- now stand at a crossroads. New York Times columnist Tom Friedman recently observed that we had perhaps reached the global "inflection point"-- that the growth model we created over the last 50 years is simply unsustainable economically and ecologically and 2008 is when it finally imploded.
Australian sustainability commentator Paul Gilding even had a name for this: "The Great Disruption"--when both Mother Nature and Father Greed hit the wall at the same time. I believe that the significance of the transformation we are experiencing cannot be overstated; companies and other institutions ill-prepared for this new world will simply not survive. The time has come for innovation on a scale that we have never seen before.
It's the natural instinct of governments to pump resources into the economy during such times, but the bailouts and the stimulus packages are in some ways futile efforts to try to restore the world to the way it was. The truth is, we can't. We're witnessing the death of the "Chimerica" consumerist model, where Americans borrow money so they can buy more goods so the Chinese can build more coal-fired plants to make more goods. That model imploded, and I don't think it can come back.
What we're now experiencing is a transformation to a more sustainable form of capitalism--and ultimately, a more sustainable world. This transformation began in the 1990's with the "eco-efficiency" revolution when, for the first time, it became clear that reducing waste, emissions, and pollution can actually save money and lower risk.
In the past decade, two exciting new commercial developments have burst onto the global scene. One revolves around the commercialization of new green technology; the other around better serving and including the poor at the base of the income pyramid. Both are exciting, but the problem is that they have evolved as separate communities. The green techies say, "Just give us the venture capital, and we'll invent the clean tech of tomorrow," as if it will then spring magically into reality.
Proponents of the base of the pyramid approach seek to address poverty and inequity in developing countries through a new form of enterprise. They say, "How do we innovate business models, extend distribution, and become embedded in the community to build viable businesses from the ground up?" But such "pro-poor" business advocates often lose sight of the environment, as if all this new economic activity will automatically create a sustainable form of development at the base of the pyramid. Tragically, that way of thinking could take us all over the cliff, if we end up with 6.7 billion people consuming like Americans.
The challenge of our time, therefore, is to figure out how to bring these two worlds together to enable a global "Green Leap." Indeed, emerging clean technologies, including distributed generation of renewable energy, biofuels, point-of-use water purification, biomaterials, wireless information technology, and sustainable agriculture hold the keys to solving many of the world's global environmental and social challenges.
Because these small-scale green technologies are often "disruptive" in character, the base of the pyramid is an ideal place to focus initial commercialization attention. China's towns and small cities, Brazil's favelas, and India's rural villages present such opportunities. Once established, such technologies can then "trickle up" to the established markets at the top of the pyramid--but not until they have become proven, reliable, affordable, and competitive against the incumbent infrastructure.
In my view, the Green Leap is a key point of leverage in transforming the global economy toward sustainability. If I am right, this holds important implications for policy-making. Rather than circling the wagons and seeking to build a Green Fortress America (or Europe, or Japan), the best thing we could do is get our most promising technologists and entrepreneurs out of the US (and the rest of the developed world markets) and into the rural villages, urban slums, and shantytowns of the world where 4 billion plus people currently reside. It is here that the Green Leap will take place. And, it is here that the corporations of the 21st century will be born.
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 >>