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green@work
: Magazine : Back
Issues : Spring 2005
: WRI Report
Eradicating
Poverty through Profit
World Resources Institute conference explores making
business work for the poor.
By Phil Storey
Is there really a “fortune
at the bottom of the pyramid,” just waiting for corporations
to claim it and empower the poor? Over two-and-a-half days in December,
more than 1,000 people from five continents gathered at the Renaissance
Parc 55 Hotel in San Francisco to explore this question. The occasion
was a conference organized by the World Resources Institute, called
“Eradicating Poverty through Profit: Making Business Work for
the Poor.”
The premise—that there is a significant overlap between the interests
of the private sector and those of the poor in developing nations—has
been developing for several years among a small group of academics
and business consultants, most notably Professor C.K. Prahalad of
the University of Michigan’s Ross School of Business (also a
member of WRI’s board of directors), Professor Stuart Hart of
the Johnson School of Management at Cornell University and Dr. Allen
Hammond of WRI. This premise has been expounded in a series of articles
and books, and explored in research taking place within WRI, the University
of Michigan, Cornell University, the University of North Carolina
(notably at the Base of the Pyramid Learning Laboratory at the Kenan-Flagler
Business School) and several other organizations. Now these ideas
are reaching an important stage of development. “Four years ago
they were a concept,” according to Hammond. “Now a handful
of companies are already doing things on an impressive scale, so the
question for many companies is, ‘Why not us too?’"
An Idea Whose Time Has Come?
It’s clear from the attendance at the conference that more than
a few companies are beginning to take these concepts seriously. Attendees
and participants were split evenly between those from corporations
and those from governments or non-governmental organizations. And
keynote presenters were drawn from the top levels of a wide range
of high-profile for-profits: Hewlett Packard Chairman and CEO Carly
Fiorina, Visa International President and CEO Christopher Rodrigues,
ChevronTexaco Vice Chairman of the Board Peter J. Robertson, and senior
or group vice presidents from DuPont, Microsoft and ABN AMRO.
Elizabeth Littlefield, CEO of the World Bank’s Consultative Group
to Assist the Poorest, found this to be the most remarkable aspect
of the conference. “What was significant was to see so many mainstream
corporations taking an interest in the opportunities at the low end
of the market,” says Littlefield. “The conference was a
bridge between development-oriented people who have been focusing
on this market from the financial perspective, and the large corporations
that have global presence but for whom the poor were hitherto beyond
their reach.”
One factor that made the conference timely is the increasing interest
on the part of NGOs to collaborate with for-profit corporations to
address social problems. “The UN Millennium Development Goals
come up for review this year, and there is virtually no progress to
report,” said Dr. Hammond. “So the development community
is desperate for new ideas, new approaches—and an increased role
for the private sector is one of the few new ideas around.”
Those who have been pursuing market solutions to social challenges
found this particularly refreshing. Scott Stefanski, founder of Bazaar
Strategies, a company focused on bringing information technology applications
to developing world markets, found the openness of NGOs to market
approaches encouraging. “It's exciting … to finally see
critical mass building for an acceptance of market principles as neither
good or bad,” Stefanski said, “but as a powerful social
organizing medium that is morally neutral, and that we are learning
more how to work within to achieve improvements in standards of living.”
Conference Sessions
The conference included a balanced mix of plenary sessions with keynote
speakers and panels, and concurrent smaller workshops and panels organized
along 10 subject-based tracks. Nearly half of the concurrent tracks
dealt with some aspect of financial services, with others focusing
on technological connectivity, partnering strategies, energy, policy
and consumer products.
Financial services was a prominent subject at the conference in part
because it is so central to creating opportunities for the poor to
participate in the economy. Microfinance is one financial services
strategy that has been growing for decades in the developing world,
successfully passing the proof-of-concept stage. “The field of
microfinance is coming into its own,” according to Littlefield.
“Methodologies are tested and proven, financial management is
improving, new client-oriented products and services (are) being developed
and financial standards (are) now being widely adopted.“
The growing commitment of large, multinational financial institutions
to microfinance—described in the presentations by executives
from Citigroup, Lloyds TSB and ABN AMRO Bank—was one of the
encouraging developments the conference highlighted. “Today,
the new commercial and state financial institutions that are beginning
to see market opportunities by serving low-end retail clients promise
to enable exponential growth,” Littlefield remarked. “With
these institutions’ existing branch or virtual infrastructure,
and new delivery technologies being developed, the dream of reaching
billions of poor clients with the financial services they need may
become a reality.” Hammond agreed that ”bringing in commercial
banks and other financial service companies that can scale services
to the poor makes sense. It’s a critical enabling tool for
the poor.”
The other areas covered by the conference’s sessions are also
developing and attracting large corporate interest, to varying degrees.
(See insets: Health and Sanitation, Communications.) In addition
to the multinational corporations represented, the sessions included
participants and examples from pioneering organizations in a number
of developing countries. Hammond was pleased to see the positive
results of this mix. “We hoped, but couldn't really count on,
that big multinationals would hear what smaller, entrepreneurial
or national companies are already doing in developing countries
and get religion, so to speak,” Hammond said. “And that
did happen in quite a number of instances, with multinational corporations
saying publicly or to me privately that, ‘We're behind, this
is a serious business opportunity and we need to catch up.’"
Ongoing Engagement
And interest in the concepts is more than just talk. There is also
considerable effort going into making it easier for companies to
engage with the bottom (or base) of the pyramid effectively. In
one of the plenary sessions on the final day of the conference,
Professor Stuart Hart of Cornell University’s Johnson School
of Management and Scott Johnson of S.C. Johnson (the conference’s
convening sponsor) introduced attendees to the work of a large group
of companies, organizations and scholars to develop a protocol companies
can use to engage effectively with bottom-of-the-pyramid markets.
(See inset: Developing a Protocol.)
In the final two plenary sessions, diverse sets of panelists related
their thoughts on the achievements the conference highlighted. Some
of the panelists expressed skepticism about relying on the self-interest
of multinational corporations to solve social challenges. Eduardo
Bazoberry, CEO of Bolivia’s Prodem Private Financing Fund S.A.,
cautioned that “internal savings make nations free ... If we
can’t build wealth locally, we don’t solve anything.”
And Littlefield pointed out that microfinance is a powerful tool
to help the poor, but it doesn’t reach the true bottom of the
economic pyramid—the nearly one billion people who need daily
sustenance, not borrowing power.
The concluding panelists also identified key activities necessary
to realize the potential of the conference’s premise. Both
public and private sectors will need to approach partnerships in
creative ways, overcoming biases about the traditional roles and
strengths of corporations and NGOs. But the panelists were in general
agreement about the need for market solutions to poverty, as well
as the potential for corporations to profit at the bottom of the
pyramid.
The overall response to the conference was so positive that WRI
is considering organizing follow-up events. You can access background
and follow-up materials on the conference’s Web site, http://povertyprofit.wri.org.
Health and Sanitation: PUR Purifier of
Water
Many of the survivors of December’s tsunami in south Asia
have benefited from one of the products Proctor & Gamble
began developing in the 1990s to serve bottom-of-the-pyramid
markets, and introduced in Guatemala in 2002. The PUR Purifier
of Water is a powdered water purification product made up of
ingredients like those used in municipal water systems, but
packaged in small sachets costing only 10 cents each. Each sachet
purifies 10 liters of contaminated water, removing bacteria,
viruses, parasitic cysts, heavy metals and other contaminants
to produce safe and clear drinking water.
The PUR Purifier of Water was designed to address a development
challenge (and market need) of enormous scale. About 1.2 billion
people throughout the world lack access to safe and clean drinking
water, and largely as a result of this, thousands of children
die each day from diarrheal disease. Over several years of product
development, P&G worked closely with the U.S. Centers for
Disease Control and Prevention, including conducting clinical
trials of the PUR product in developing countries, to ensure
its effectiveness.
Despite the acute need for water purification, the product’s
effectiveness, consumer satisfaction during market testing and
its low price, the PUR product has not proven to be viable in
strictly market terms. As a result, P&G has developed new
marketing models in partnership with governments and non-governmental
organizations. The PUR product was introduced in Haiti by the
Safe Drinking Water Alliance, a public-private partnership including
P&G and three NGOs— Population Services International
(PSI), the Johns Hopkins University Bloomberg School of Public
Health's Center for Communication Programs and CARE—with
funding from the Global Development Alliance of the United States
Agency for International Development, and follow-on support
from the UK Department for International Development. The product
was also launched in Uganda by P&G, the International Council
of Nurses and PSI, which will carry out an education campaign
in conjunction with the product’s launch.
The other marketing model P&G is pursuing for the PUR product
is in the area of disaster relief. The product was used in Haiti
in the wake of the hurricane that devastated the country in
2004, and in response to emergencies in other developing countries.
But the earthquake and tsunami in south Asia created an unparalleled
scale of need. Immediately after the tsunami, P&G donated
more than 20 million sachets of the PUR product to NGOs responding
to the disaster, four times as many as were distributed worldwide
in the previous six months. Organizations and governments preparing
for future emergencies could be a new market for the product.
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Communications: SMART Wireless
by Linda Bolido
Not even a fifth of the Philippine population of more than 80
million scattered on the biggest of the country's 7,100 islands
has access to telephones. In fact, until less than a decade
ago, residents of Metro Manila had to wait as long as two years—even
longer in some cases—to obtain a telephone. Traditional
communication facilities required complex infrastructure that
would often make conventional telephone service too expensive
to be cost-effective outside large population centers. Smart
Communications decided to eschew these issues and focus their
business model on building a cellular phone network in the rural
provinces. "Very simply, Smart met the demand for communication,"
said Ramon Isberto, an official with Smart. "It just makes
more sense to build a wireless network."
The strategy paid off. Although Smart acquired the bottom of
the telecommunications market, the sheer volume of subscribers
more than made up for the loss of more affluent customers. As
of June, Smart reported a total subscriber base of 12.47 million,
up 53 percent over the 8.14 million customers last year. Getting
its clients connected in and outside Metro Manila cost money,
of course, but the large number of subscribers more than made
up for the cost.
Smart started its prepaid service with phone cards with the
lowest denomination of 300 pesos (about $5.50), sold in the
neighborhood sari-sari (variety) stores where the poor buy much
of what they need. The company has gradually diversified its
product, launching Pure Text cards to satisfy Filipinos' passion
for sending text messages. But with the Smart e-load facility
available from the sari-sari store, not only did the phone company
make it easier for people to buy additional airtime, but mobile
phone users can also buy at rates that their budgets would allow—from
a minimum of two pesos (about $0.03).
Smart also pioneered the pasa, or pass-on load, which allows
the caller to give the recipient a certain amount of airtime
in order to ensure that the recipient is able to respond. Apparently,
the pasa load has become such a convenience that there are reports
that people are now even using it in lieu of gratuity, or even
to pay taxi fare.
(Story provided by WRI Features. Executive Editor: Adlai J.
Amor. Managing Editor: Peter Denton.) |
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DEVELOPING A PROTOCOL
Work began last summer to develop “A Protocol for Strategic
Initiatives as the Base of the Pyramid.” The project
is a collaboration between the Center for Sustainable Global
Enterprise at Cornell University’s Johnson School of
Management; the Base of the Pyramid Learning Laboratory at
the University of North Carolina’s Kenan-Flagler Business
School; the University of Michigan Business School; the World
Resources Institute; and the Johnson Foundation, with support
from S.C. Johnson, DuPont, Hewlett Packard and Tetrapak. The
project co-directors are Dr. Stuart L. Hart, Samuel C. Johnson
Professor of Sustainable Global Enterprise at the Johnson
School of Management at Cornell University; Dr. Gordon A.
Enk, principal of Partners for Strategic Change and the president
of the Research and Decision Center; and Erik Simanis, PhD
candidate at the Kenan-Flagler Business School at the University
of North Carolina at Chapel Hill.
The purpose of this ambitious project is two-fold:
- To create a validated “protocol” for engaging
the base of the pyramid in a manner that provides them with
lasting value by deeply understanding their needs, perspectives
and capabilities.
- To provide insight into the processes by which firms
can identify and develop sustainable new products and business
models in partnership with base-of-the-pyramid customers.
Phase One: Workshop
Planned as a two-year project, the first phase began with
a three-day workshop held last October at the Johnson Foundation’s
Wingspread Conference Facility in Racine, WI. The aim of the
workshop was to create a draft protocol businesses could use
for engaging base-of-the-pyramid markets and consumers. The
workshop was designed to incorporate a broad array of stakeholder
views, and the 35 participants represented an impressive variety
of sectors and spheres of influence, from both developed and
developing countries—representatives from multinational
corporations and regional businesses, anthropologists, social
workers, economic geographers, designers, development sociologists,
business professors, and members of development and sustainability
NGOs.
Phase Two: Preparing the Draft Protocol
At press time, the project team was working on the second
phase: preparing the draft protocol from the workshop for
release to the public domain as a joint product of the workshop
participants. The structure of the protocol is divided into
three areas of activity:
- Opening Up—Launch non-business specific immersion
guided by two-way dialogue and humility, to generate competitive
“imagination.”
- Building the Ecosystem—Generate a network
of relationships among multinational corporations and local
actors that supports co-creation and win-win strategies.
- Enterprise Creation—Pilot test, evaluate
and scale out business experiments that generate triple-bottom-line
value for all constituencies.
All activities in each of these areas function through the
creation of mutual value chains in pursuit of a common vision,
to ensure that the process creates value for all participants—multinational
corporations and local actors. The entire protocol rests on
a foundation of operating guidelines (such as “start
small,” and “recognize the positive”) to help
overcome common biases, and a code of conduct to ensure that
the results are equitable and sustainable.
Phases Three & Four: Field Test Workshop and Ongoing
Collaboration
The project team is already planning the third phase, which
will include a field test of the draft protocol using a major
initiative of one of the project's sponsoring corporations
at the base of the pyramid. This phase will also include a
second international workshop, scheduled for next fall, to
review the results of the field test, identify key lessons
learned and revise the draft protocol. The project team will
also prepare a report containing the lessons learned from
the field test and make it publicly available. Ongoing collaboration
between the project team and sponsoring corporations to adapt
and apply the protocol will be the project’s fourth phase.
In addition to making the results of the main phases available,
the project team hopes to develop a series of action-training-oriented
executive education sessions addressing the base of the pyramid.
Faculty from universities not currently involved in the project
could also participate in the education sessions, to spread
the capacities widely.
You can follow the progress of the project, and access the
draft protocol beginning this spring, on the project’s
Web site at www.bop-protocol.org.
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