As Prahalad explains in his Preface, he wrote this book to suggest and explain a new approach by which to solve the social and economic problems of 80% of humanity. His approach would mobilize the resources, scale, and scope of multinational corporations (MNCs) -- their investment capacity -- in a co-creative partnership with localized nongovernmental organizations (NGOs) in order to formulate and then implement"unique" solutions to the problems of 4 billion people who live on less than $2 a day at the bottom of the "pyramid" to which the book's title refers. "The process must start with respect for Bottom of Pyramid consumers as individuals. The process of co-creation assumes that consumers are equally important joint problem-solvers....New and creative approaches are needed to convert poverty into an opportunity for all concerned. That is a challenge."
Prahalad carefully organizes his material within three Parts. First, he provides a framework for the active engagement of the private sector and suggests a basis for a profitable win-win engagement. He identifies all manner of adjustments, accommodations, and (yes) sacrifices each of the "players" - MNCs, NGOs, and the poor themselves -- must be willing to make to ensure the success of the process. Next, he carefully and eloquently examines 12 case studies which involve a wide variety of businesses, each an exemplar of innovative practices, "where the BOP is becoming an active market and bringing benefits far beyond just products to consumers." All of the companies share the same concern: "They want to change the face of poverty by bringing to bear a combination of high-technology solutions, private enterprise, market-based solutions, and involvement of multiple organizations." As for Part III, it is provided as a CD which consists of 35 minutes of video success stories filmed on location in the BOP in India, Peru, Mexico, Brazil, and Venezuela.
Of special note is the fact that the various stories are told almost entirely from the perspective of BOP consumers, the so-called poor. As Prahalad points out, they get products and services at an affordable price, "but more important, they get recognition, respect, and fair treament. Builting self-esteem and entrepreneurial drive at the BOP is probably the most enduring contribution that the private sector can make." As this book's subtitle correctly suggests, the ultimate objective is to eradicate poverty through profits...initiating and then sustaining what will be in fact, a win-win-win engagement of MNCs, NGOs, and the poor themselves.
Of special interest to me is what Prahalad has to say about innovation for BOP markets which must become "value-centered" from the consumer's perspective. He identifies and then rigorously examines 12 principles for innovation in those markets such as "creating a new price performance envelope" and "education of customers on product usage." The BOP focuses attention on both the objective and subjective performances of the given product or service. Moreover, it must "also focus on the need for 30 to 100 times improvements in price performance. Even if the need is only for 10 to 20 times improvement, the challenge is formidable."
To his great credit, Prahalad has a compelling vision but he also has neither illusions nor delusions about the difficulty of fulfilling that vision by taking the "new approach" he recommends in this book. His vision is bold, indeed of global proportions,. However, his feet are planted firmly on the ground at the bottom of an enornmous pyramid, one whose complexities are exceeded only by entrepreneurial opportunities to help solve the social and economic problems of 80% of humanity. Given the importance and the urgency of the various issues which Prahalad explores so brilliantly in this book, there seem to be no acceptable alternatives to the approach he proposes.
Those who share my high regard for this book are urged to check out Vijay Mahajan and Kamini Banga's The 86 Percent Solution : How to Succeed in the Biggest Market Opportunity of the Next 50 Years and Kenichi Ohmae's The Next Global Stage: The Challenges and Opportunities in Our Borderless World.
Poor people in developing countries are at the bottom of Maslow's hierarchy. They are often focusing on scratching out the most fundamental needs for food, clean water, shelter and a chance to earn a living to provide for those same needs. Economic statistics suggest that they have no money to spend, and many companies act as though the poor don't exist.
C.K. Prahalad and his graduate student collaborators strive to make a different case. Large companies can earn good profits by providing solutions to those problems the poor have that are most costly to them economically. Solving the problems then generates spendable income that will find its way to the large company. A good example comes in creating reasonable cost credit and access to futures markets to farmers so they earn more profits. The inefficient system that most go through now simply clips them like the feudal lords did on their domains.
The strength of the book comes in its detailed case histories which I found to be much more revealing than the primary text. In fact, the text seemed sometimes almost to be at odds with the main points of the case histories. If you find you are pressed for time, read the case histories and skip the text. There is also a brief CD to help illustrate the cases. Some of the cases are only on the CD so be sure to watch it.
I especially found the cases of Aravind Eye Care, CEMEX, Jaipur Foot, ITC e-Choupals and Voxiva to be interesting. These are essentially business model innovation stories, something that interests me very deeply. I learned from these cases how using local people can eliminate unnecessary overhead and that adapting the business model to the situation requires the local perspective of the poor . . . not that of the executives of a large company.
One reason that the main text reads a little strangely is that if everyone focused just at the bottom of the poorest consumers you would have too many companies working on the same problems (clean water, hygiene, overcoming simple forms of disease, etc.). It looked to me like the best business areas were ones that catered to those further up the ladder economically . . . but who were still poor. I was especially fascinated by how the Aravind solution is so powerful that people will be coming to India from the developed world to have their cataracts treated . . . and will save money even after paying for the travel costs! In this way, poor countries could become laboratories for better business models that could be transferred at least in part to wealthier people and countries.
I was also surprised not to see any material in here about Philip Morris, Coca Cola and Gillette who have been selling their products to the poorest people around the world for decades. When I first wanted to learn about the problem defined by this book, I went to visit those countries and learned many helpful answers that are only partially captured by this book.
Finally, I felt like the book makes a mistake in primarily looking at cases involving quite large companies. The bulk of innovation comes from much smaller firms. What role can these organizations plan in partnering with poor consumers around the world to create better business models and products? Genius isn't determined by whether you are born rich or poor. How can we tap into the potential of genius in more ways?
on 5 August 2005
Author C.K. Prahalad's excellent book suggests replacing traditional notions of government-channeled aid with a new model for relieving poverty and stimulating development. The new model relies on profit-making businesses, especially multinational corporations (MNCs). The MNCs have an economic incentive to tap the great market that exists, all but hidden, at the bottom of the economic pyramid. The author demonstrates clearly that it is possible to develop business models that allow the poorest of the poor to participate actively in their own economic development by becoming entrepreneurs. Although the individuals at the bottom of the pyramid (referred to as BOP) have little money, collectively they represent a vast pool of purchasing power. They welcome opportunities to escape their oppressive burdens, including predatory intermediaries, corrupt governments and the societal "poverty penalty" that requires them to pay more than the rich for similar services. Clearly written, well documented and furnished with an abundance of anecdotes, this book is a must-read both for those interested in alleviating poverty and for those looking to tap a vast new market for consumer goods.