Sunday, September 03, 2006

Revisiting the "Bottom of the Pyramid"

A few years back, CK Prahalad’s conceptualisation of “The Fortune at the Bottom of the Pyramid” woke up a large number of corporates and entrepreneurs to the huge business potential that lay dormant in the lower strata of the masses. CKP’s thesis was that 4bn people on earth subsist on less than $2/day, and therefore, collectively and globally constitute a $13trillion market!

With all noble intentions, CKP argued that this masses at the Bottom of the Pyramid (BOP) should be viewed not as victims or a burden, but as value-driven consumers. If large corporations design and customise their offerings for this huge segment of consumers, it can change their life-style, and enhance the quality of day-to-day living for them.

CKP’s proposal, however, suffers from three underlying biases that permeate much of the contemporary management literature. The purpose of this note is not to diminish the value of the concept of BOP, but to surface these biases and reinterpret the concept, so that real the “fortune” that is embedded in the BOP can be leveraged:

Bias 1: Masses are primarily consumers, and not producers. And therefore, their life becomes “better”, if they get to consume more, and not if they produce more. This assumption, while partially correct, misses out on the entrepreneurial potential that lies in BOP. For instance, it neglects facts such as the exports from Dharavi, Asia’s largest slum in Mumbai, exceeded the total international earnings of a company like Ranbaxy in 2004.

This is allthemore more relevant in context of India where the “unorganised sector” accounts for 93% of the country’s economically active workforce. More than just being consumers, this workforce (consisting of hawkers, construction workers, domestic helps, road-side mechanics, scrap workers, etc.) account for 60% of net domestic product, 68% of national income, 31% of agricultural exports, and 41% of manfactuing exports.

The real “fortune” of BOP lies not merely in serving these low-income markets, but in organising and unleashing the under-utilised entrepreneurial potential of its inhabitants. For instance, Sri Mahila Grih Udyog (more popularly known for Lijjat Papad) mobilised the grassroot entrepreneurship of women into organising them into a Rs. 312crore business. Similarly, Aavishkar India Micro Venture Capital Fund provides venture capital to rural entrepreneurs to leverage rural innovations and appropriate technologies.

Bias 2: The quantum of profits is more important than its source. Like most contemporary management concepts, BOP primarily focuses on how corporates can create and exploit markets to reap large profits (though to be fair, along with “growth” and “profit”, CKP also added “incalculable contributions to humankind” as a benefit of focusing on BOP).

The concept of BOP, however, does not essentially discriminate among the sources from which the profits are generated. It would treat the profits from selling a Rs.5 bottle of aerated drink, or a Re.1 shampoo sachet as identical to the profits generated from making medicines or education available to this segment.

Like much of contemporary management literature, BOP also does not distinguish between the motives of “profit-making” and “being profitable”. Profit-making motive tilts the prioities away from the society to the owners of capital. It follows the dictum of the economist Milton Friedman: “there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits…”

Being profitable, on the other hand, is an imperative for the sustainability of any entrepreneurial venture. As Prof Mohammad Yunus, the founder of Grameen Bank (the largest bank of Bangaldesh which services almost 3mn “poorest of the poor” across more than 40,000 villages) once mentioned: “Volume of profit is not important in Grameen in money-making sense, but important as an indicator of efficiency. We would like to make more profit so that we can reduce interest rate - and pass on the benefits to the borrowers.”

Bias 3: Wealth-creation is same as making profits. Lastly, the BOP concept takes a very narrow view of wealth-creation. It neglects the fact that a society’s “wealth” is not just the income-levels of its members, but also the the sustainability of its community relations and environment. By focusing on profit making, BOP reduces the concept of wealth to just money, and the rest – i.e., the community and the environment - become mere resources which need to be "exploited".

To make BOP a viable concept for social change, there is a need to reinterpret the meaning of wealth. Take for instance, the Yasaswini health insurance scheme, pioneered by Narayan Hrudayalaya in Bangalore, which provides complete health cover (from common cold to brain surgury to 1.7mn farmers at a cost of Rs.5/month). The scheme is self-funding, but the “wealth” it creates is not money, but a healthy community of economically active people.

5 comments:

ANANDASWARUP said...

This seems to be a related and interesting idea than BOP:
http://www.theage.com.au/news/world/googles-spin-on-charity/2006/09/14/1157827090890.html

Mayank Krishna said...

Nice thoughts!

You may like to read this:

http://mayankkrishna.blogspot.com/2006/09/future-of-business-socially-oriented.html

Simon said...

Hi,

I just published a blog concerning the managers for the BoP.

http://bop-manager.blogspot.com/

As I said I just started it, so more content will follow soon.


Regards,

Simon

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Alain Kongo said...

Great Post!
CK Prahalad's theory HAS to be revisited, especially in order to apply it to developed countries.

Social Entrepreneurship is indeed the way forward!
For a thorough presentation of Social Entrepreneurship and the impact it will have on the future of humanity,

I strongly recommend a recent book, Social Entrepreneurship, The Secret to Starting a Business Worth Living For.

A good review of the book can be found Here.