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The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (The Wharton Press Paperback Series) (Paperback)
by C. K. Prahalad
| Category:
Current affairs, Economics, Global politics, Nonfiction |
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A rare book that presents important research findings and explains in a concise and compelling style how to explore opportunities in the world's largest and fastest growing markets. |
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Author: C. K. Prahalad
Publisher: Wharton School Publishing; 1st edition
Pub. in: January, 2006
ISBN: 0131877291
Pages: 304
Measurements: 9.0 x 6.2 x 0.8 inches
Origin of product: USA
Order code: BA00508
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- Awards & Credential -
International bestseller. Voted Best Business Book of 2004 by Amazon.com’s editors, Best Business Book of 2004 by Fast Company magazine, and one of the top 25 books published in 2004 by The Economist magazine. |
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- MSL Picks -
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. Building 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."
Although Prahalad has a compelling vision, he has neither illusions nor delusions about the difficulty of fulfilling that vision when undertaking 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 enormous pyramid, one whose complexities are exceeded only by the unprecedented entrepreneurial opportunities it offers 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.
(From quoting Robert Morris, USA)
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Internationally recognized as a specialist on corporate strategy and value-added of top management in multinational corporations, C. K. Prahalad has consulted with many of the world’s foremost companies. In addition to being the Harvey C. Fruehauf Professor of Business Adminis- tration at the University of Michigan, he serves on the board of Directors of NCR Corp., Hindustan Lever Ltd., and the World Resources Institute. Internationally recognized as a specialist on corporate strategy and value- added of top management in multinational corporations, Prahalad has consulted with many of the world’s foremost companies. In addition to being the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan, he serves on the board of Directors of NCR Corp., Hindustan Lever Ltd., and the World Resources Institute. He has been named among the top ten management thinkers of the world in every major survey for over ten years. BusinessWeek states that “he may well be the most influential thinker on business strategy today.”
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From the Publisher:
The world's most exciting, fastest-growing new market? It's where you least expect it: at the bottom of the pyramid. Collectively, the world's billions of poor people have immense entrepreneurial capabilities and buying power. You can learn how to serve them and help millions of the world's poorest people escape poverty.
It is being done-profitably. Whether you're a business leader or an anti-poverty activist, business guru Prahalad shows why you can't afford to ignore "Bottom of the Pyramid" (BOP) markets.
In the book and accompanying CD videos, Prahalad presents:
Why what you know about BOP markets is wrong A world of surprises-from spending patterns to distribution and marketing
Unlocking the "poverty penalty"
The most enduring contributions your company can make Delivering dignity, empowerment, and choice-not just products
Corporations and BOP entrepreneurs Profiting together from an inclusive new capitalism.
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Preface
This book is a result of a long and lonely journey for me. It started during the Christmas vacation of 1995. During that period of celebration and good cheer, one issue kept nagging me: What are we doing about the poorest people around the world? Why is it that with all our technology, managerial know- how, and investment capacity, we are unable to make even a minor contri- bution to the problem of pervasive global poverty and disenfranchisement? Why can't we create inclusive capitalism? Needless to say, these are not new questions.
However, as one who is familiar with both the developed and the developing world, the contrasts kept gnawing at me. It became clear that finding a solution to the problems of those at the bottom of the economic pyramid around the world should be an integral part of my next intellectual journey. It was also clear that we have to start with a new approach, a "clean sheet of paper." We have to learn from the successes and failures of the past; the promises made and not fulfilled. Doing more of the same, by refining the solutions of the past - developmental aid, subsidies, governmental support, localized nongovernmental organization (NGO)–based solutions, exclusive reliance on deregulation and privatization of public assets – is important and has a role to play, but has not redressed the problem of poverty.
Although NGOs worked tirelessly to promote local solutions and local entre- preneurship, the idea of large-scale entrepreneurship as a possible solution to poverty had not taken root. It appeared that many a politician, bureaucrat, and manager in large domestic and global firms agreed on one thing: The poor are wards of the state. This implicit agreement was bother- some. The large-scale private sector was only marginally involved in dealing with the problems of 80 percent of humanity. The natural question, therefore, was this: What if we mobilized the resources, scale, and scope of large firms to co- create solutions to the problems at the bottom of the pyramid (BOP), those 4 billion people who live on less than $2 a day? Why can't we mobilize the investment capacity of large firms with the knowledge and commitment of NGOs and the communities that need help? Why can't we co-create unique solutions? That was the beginning of my journey to understand and motivate large firms to imagine and act on their role in creating a more just and humane society by collaborating effectively with other institutions.
It was obvious that managers can sustain their enthusiasm and commitment to activities only if they are grounded in good business practices. The four to five billion people at the BOP can help redefine what "good business practice" is. This was not about philanthropy and notions of corporate social responsibility. These initiatives can take the process of engagement between the poor and the large firm only so far. Great contributions can result from these initiatives, but these activities are unlikely to be fully integrated with the core activities of the firm. For sustaining energy, resources, and innovation, the BOP must become a key element of the central mission for large private-sector firms. The poor must become active, informed, and involved consumers. Poverty reduction can result from co-creating a market around the needs of the poor.
We have to discard many of the "for and against" views of the world. For example, "are you for globalization or against it" is not a good question. Globalization, like all other major social movements, brings some good and some bad. Similarly, global versus local is not a useful debate. The tensions are real. Very early in my career, I learned that even within the multinational corporation (MNC) that is not a settled debate.
Similarly, the debate between small (e.g., microfinance) and large (e.g., multinational firms) is not a useful debate either. Large business can bring efficiency. NGOs can bring creativity to solve the problems that face us all. Certainly, I wanted to avoid the paternalism towards the poor that I saw in NGOs, government agencies, and MNCs.
This book is concerned about what works. This is not a debate about who is right. I am even less concerned about what may go wrong. Plenty can and has. I am focused on the potential for learning from the few experiments that are going right. These can show us the way forward. I do not want the poor of the world to become a constituency. I want poverty to be a problem that should be solved. This book is about all of the players - NGOs, large domestic firms, MNCs, government agencies, and most importantly, the poor themselves - coming together to solve very complex problems that we face as we enter the 21st century. The problem of poverty must force us to innovate, not claim "rights to impose our solutions."
The starting point for this transition had to be twofold. First, we should consider the implications of the language we use. "Poverty alleviation" and "the poor" are terms that are loaded with meaning and historical baggage. The focus on entrepreneurial activities as an antidote to the current malaise must focus on an active, underserved consumer community and a potential for global growth in trade and prosperity as the four to five billion poor become part of a system of inclusive capitalism. We should commence talking about underserved consumers and markets. 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. Consumers and consumer communities will demand and get choice. This process of creating an involved and activist consumer is already emerging. The BOP provides an opportunity to turbocharge this process of change in the traditional relationship between the firm and the consumer. Second, we must recognize that the conversion of the BOP into an active market is essentially a developmental activity. It is not about serving an existing market more efficiently. New and creative approaches are needed to convert poverty into an opportunity for all concerned. That is the challenge.
Once the basic approach was clear, the opportunities became obvious. The new viewpoint showed a different landscape and a focus on early and quiet attempts by some firms to explore this terrain. Unilever and its Indian subsidiary, Hindustan Lever Limited, was one such early experimenter. Around 1997, I found a kindred spirit in colleague Professor Stu Hart at the University of Michigan Business School (UMBS), who was approaching similar problems from a sustainable development perspective. We produced a working paper called The Strategies for the Bottom of the Pyramid. Needless to say, not a single journal would accept the article for publication. It was too radical. Reviewers thought that it did not follow the work of developmental economists. Nobody noticed that we were offering an alternative to the traditional wisdom of how to alleviate global poverty. Thanks to the Web, various revisions of the working paper circulated freely. Surprisingly, a number of managers read it, accepted its premise, and started to initiate action based on it. Managers at Hewlett-Packard, DuPont, Monsanto, and other corporations started a venture fund and dedicated senior managers' time and energy to examine this opportunity. Meanwhile, the Digital Dividend conference organized by Dr. Allen Hammond and the World Resources Institute in Seattle in 1999 provided a forum to examine these ideas in depth. I have not looked back. Since 1997, I have used every possible platform - academic, managerial, and governmental - to push the idea of the BOP as a market and a source of innovations. During the last five years, slowly at first but now more rapidly, a large number of NGOs, academics, and managers have started to discuss the need for an alternate approach to poverty alleviation and the potential role of the private sector and entrepreneurship as one of the critical elements.
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Harold (MSL quote), USA
<2007-01-10 00:00>
With so many businesses focusing on the middle to upper income markets under the belief that they are the ones with the disposable income to purchase their products, C. K. Prahalad argues that there is tremendous profit potential at the bottom of the pyramid among the poor nations. In a compelling argument he presents his position with clarity, convincing narrative, and multiple examples. But this is not just about corporate profits from the poorest nations but also about how it can be used to significantly reduce or eradicate poverty. While as an individual those at the bottom of the pyramid don't have a lot of purchasing power, as a group they are the largest group in the world. More than that they often have a entrepreneurial spirit that can be tapped to further corporate profits while raising them out of poverty.
The author divides the book into three parts. The first part examines how the private sector can engage in win-win arrangements with the poor (or under-served customers). Part two looks at twelve case studies and what made them work. And the third part is a collection of video stories on CD. These are the collected works of several MBA research teams who actually interviewed those at the bottom of the pyramid to see their perspective and viewpoints. Enlightening and very interesting, this section points out that these are real people with real needs and dreams. The Fortune at the Bottom of the Pyramid is recommended reading for anyone looking to penetrate this market, concerned about the social plight of the poor, or generally interested in effective measures of reducing poverty. |
Donald Mitchell (MSL quote), USA
<2007-01-10 00:00>
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? |
Gerard Croese (MSL quote), USA
<2007-01-10 00:00>
C. K. Prahalad is Professor of Business Administration and Professor of Corporate Strategy and International Business at the University of Michigan Business School. This book was published in 2005 and is split up in 2 parts, which each consist of 6 chapters. The third part to the book is a CD detailing video success stories filmed on location. For starters it is important to understand that the term "Bottom of the Pyramid" (BOP) is based on the economic pyramid of the world. "At the top of the pyramid are the wealthy, with numerous opportunities for generating high levels of income. More than 4 billion people live at the BOP on less than $2 per day. They are the subject matter of this book."
The objective of the first part - The Fortune at the Bottom of the Pyramid - is to build a framework for poverty alleviation. A whole new world of opportunity will open up as we start recognizing the poor as resilient and creative entrepreneurs and value-conscious consumers instead as victims or burden. In the first chapter Prahalad explains that the market at the BOP is full of opportunities as long as we start with some basic assumptions: First, active engagement of private enterprises is a critical element in creating inclusive capitalism. Second, the BOP, as a market, provides a new growth opportunity for the private sector and a forum for innovations. Third, BOP markets must become an integral part of the work of the private sector. He continues with discussions on the existing nature of the BOP market and the possible market development market imperative. "The case for growth opportunity in the BOP markets is easy to make. However... the private sector must learn to innovate. Traditional products, services, and management processes will not work."
The second chapter discusses a philosophy of innovation focused on the BOP markets. "The basic economics of the BOP market are based on small unit packages, low margin per unit, high volume, and high return on capital employed." Based on research, the author has identified 12 principles that taken together constitute the building blocks of a philosophy of innovation for BOP markets. Obviously these principles form a challenge to western managers. However, they can learn a lot from their active participation in BOP markets since it requires questioning the existing capital intensity and managerial cost structures.
In the third chapter Prahalad sets out the four distinct sources of opportunity for a large firm that invests time and energy to understand and cater to the BOP market: 1. Local growth opportunities. 2. Local innova- tions can be leveraged across other BOP markets. 3. Local innovations can find applications in developed markets. 4. Lessons can influence the management practices of global firms. "Because the BOP forces an extraordinary emphasis on price performance, firms must focus on all elements of cost." Working at the BOP also requires learning to live with a wide variety of relationships with a large number of institutions.
The need for building an ecosystem for wealth creation and social development is a prerequisite for developing markets at the BOP. This subject is discussed in the fourth chapter. The author believes that we need "to change the focus of the debate from a preference for one form of private sector at a time to a focus on a market-oriented ecosystem that is a combination of multiple forms of private enterprises coexisting in a symbiotic relationship." He starts with a discussion on the components of the market-based ecosystem followed by a discussion of the three-step process in creating a transaction governance capacity based on the marketing ecosystem.
In the fifth chapter Prahalad attempts to address the ever-present but seldom discussed topic of corruption. He believes that it is a fact that corruption and poverty go together, but that this can be mitigated rapidly through transaction governance capacity which is about making the entire process as transparent as possible and consistently enforced. Transaction governance capacity (TGC) is discussed in detail including methods for building this. The Andhra Pradesh e-Governance Story is used as an example. "There are significant impediments to the entire process, the most important being the education of the citizen."
The sixth and final chapter of Part I discusses the development as social transformation. "As BOP consumers get an opportunity to participate in and benefit from the choices of products and services made available through market mechanisms, the accompanying social and economic transformation can be very rapid." Examples from BOP markets indicate that newly found advantages are the same building blocks that are leading to more consumer activism in developed markets: dialogue, access, risk benefits, and transparency. It also indicates that BOP consumers are upgrading from their existing condition. Prahalad concludes the chapter with the "real test", whether the pyramid can become a diamond with the bulk of the population as middle class. He also believes that "given bold and responsible leadership from the private sector and civil society organizations" poverty and deprivation can be eliminated by 2020.
The second part - Innovative Practices at the Bottom of the Pyramid - presents detailed case stories of successful innovations at the BOP, ranging from health care to agriculture and from Peru to India. In addition, global firms, large domestic firms, nongovernmental organizations and start-ups are all represented. The intention of these case stories is to demonstrate that opportunities at the BOP are virtually unlimited. They were also written with 3 goals in mind: First, show how to innovate at the BOP. Second, there is no mystery to unlocking the potential of BOP markets. Third, understanding of the potential of this opportunity.
The third and final part is a CD with 35 minutes of video success stories filmed on location in the Bottom of the Pyramid in India, Peru, Mexico, Brazil, and Venezuela. Each video is approximately 4 minutes in length. In addition, the CD includes 3 interactive practices texts in PDF format based on three success stories.
Yes, I do like this book. It covers an important humanitarian issue, the eradication of poverty through profits. Although the book introduces a useful framework for capturing growth and opportunities in bottom of the pyramid markets, I still believe that a lot of multinational companies are still not too keen or do not have the courage to invest in these markets. However, the book provides some useful guidance and advice for those people and companies that do have that courage to seek opportunities and growth in these markets. I like the positive approach of the author emphasizing that we should see these markets as full of "value-conscious consumers instead as victims or burden." It is also important to note that findings from investments in these markets can have positive impacts on organizations and markets all around the world.
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Ed Uyeshima (MSL quote), USA
<2007-01-10 00:00>
The power of University of Michigan Professor C. K. Prahalad's fine treatise lies in the wealth of valid case studies he provides to prove his point that poverty can be overcome through corporate profitability, a seemingly ironic cause-and-effect that he argues with conviction. Since 1997, with the exception of a brief and unsuccessful stint within the dot com bubble, he has been evolving his ideas about how firms should focus on the bottom of the pyramid, which he euphemistically calls the BOP versus the wealthy at the TOP. He wholeheartedly believes there can be a win-win relationship between business and the poor, and he's done his homework to support his claim. According to his statistics, there are 4-5 billion people living on under $2 a day, which in aggregate, represents an economic opportunity he values globally at $13 trillion a year. The win for the poor seems obvious, being empowered by choice and being freed from having to pay a "poverty penalty", a practice that appears widespread in certain developing countries like India. There, the poor pay a premium on everything from rice to credit-often five to 25 times what the rich pay for the same services. He argues that driving down these premiums can make serving the BOP more profitable than serving the top, but the challenges inherent in implementing BOP economics are daunting.
Prahalad divides his book into three main sections. The first spells out his BOP theories; the second provides twelve case studies; and the third presents specifics from these case studies via video clips contained on an accompanying compact disc. This last section is particularly valuable in recording how the poor themselves feel about the impact of BOP economics. Otherwise, Prahalad can sound somewhat pedantic in expressing his abstract thinking, even though he makes a lot of valid points along the way. For instance, he strongly feels the traditional top-down thinking on aid by management in both public and private sectors is vehemently wrong- headed because there is an inevitable attitude of charitable giving. The poor are seen as victims who need help, not as people who can be part of the solution, so their help often creates an unwarranted dependency. Prahalad also does not have much confidence in corporate social responsibility (CSR) programs of many corporations, which he views as more a public relations ploy. Philanthropy, he asserts, cannot be at the root of helping to eradiate poverty, and the BOP markets must become integral to the success of the firm in order to command senior management attention and sustained resource allocation.
Simple applications of TOP marketing and distributing strategies will not work, so Prahalad outlines new tactics to reach the BOP through his case studies. There will be a more diverse set of stakeholders involved - governments, nongovernmental organizations (NGOs), and BOP consumers themselves. Engaging the BOP consumers directly will be essential by means of the products produced there. The accompanying CD is a huge plus here, as it effectively shows the individual cases that fortify Prahalad's argument. There is a three to four-minute video clip of each study, each one a mini-documentary filmed in various locations in India, Peru, Mexico, Brazil and Venezuela. Once I digested all the facts presented, I still feel Prahalad does not quite recognize the full extent of involvement it will take corporate leaders to buck current traditions to establish the right positioning and right fulcrum toward change. Moreover, there is a need to allocate resources to more fully-developed solutions toward the attendant environmental problems that BOP economics will inevitably create. Realistically, it will take the optimal mix of BOP and TOP to eradicate poverty through profit and that the real benefit is in understanding fruition is actually superior to profit. However, Prahalad raises strong points here well worth continued investment, and I look forward to more of this thinking in the next chapter of Prahalad's studies.
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