The Next Generation of BoP Strategy
In 1998, C.K. Prahalad and Stuart Hart, then professors at the University of Michigan, circulated a white paper amongst their colleagues at the business school. In it, they argued that poor customers – the bottom of the pyramid – were being ignored, at the peril of large companies. Rather, they suggested, there is a fortune to be made at the bottom of the pyramid.
Believe it or not, it took four (FOUR!) years for this white paper to get anywhere, ultimately landing as an article in the strategy+business journal. From there, however, the idea took off. In just two years’ time, Prahalad turned many of the ideas into a book, now an international bestseller, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Hart, meanwhile, undertook to add a third bottom line to the argument, positing that organizational success must not only be measured in economic and social impact, but environmental impact as well. His book, Capitalism at the Crossroads, came out in 2005. The two texts are of the core BoP canon to this day.
Much has changed since 1998, or even 2002 for that matter. Business strategy to serve the poor is no longer a radical concept; companies large and small look at low-income customers and producers as part of their market expansion and development strategies. Many of the concepts first put forth by Prahalad and Hart have changed, of course. It is not enough to create low-margin, high volume businesses and push into large, untapped markets, as they suggested. Where the rubber meets the road, it’s much more difficult than many would have imagined. There haven’t been widespread windfall profits from BoP businesses either, but there are successes and cautionary tales that are helping us point the way.
Until recently, there hasn’t been a single volume updating modern lessons in BoP thinking, akin to The Fortune at the Bottom of the Pyramid or Capitalism at the Crossroads. That’s what the new book, Next Generation Strategies at the BoP, is all about. In it, editors Hart and Ted London have collected essays from leading academicians and practitioners asking, “What are today’s – and tomorrow’s – approaches to BoP markets?”
At Acumen Fund, we were honored that Jacqueline Novogratz was asked to co-author a chapter, along with our friend and ally Robert Kennedy from Michigan’s William Davidson Institute. In their chapter, Jacqueline and Bob suggest that BoP ventures need a combination of the following innovations:
1) Introducing radical cost reductions in some value activity
2) Building a BoP-centric management team – which consists of constantly rebalancing the social impulse (i.e. the will to serve the poor) with the more traditional business skills needed to build a successful business.
3) Implementing human-centric design thinking to products and services.
4) Establishing trust with the BoP in order to create and grow markets.
We encourage our blog readers to browse the chapter – which can be downloaded free from our Knowledge Center – and tell us what you think. What innovations have we omitted? What other examples support – or question – the conclusions Jacqueline and Bob reach?
What’s even better, the rest of the book is rich with examples, new strategies, approaches to building – and funding – businesses and revenue-generating NGOs. I have a copy at home, and would encourage folks to pick it up, as part of our ongoing education in the best ways to build businesses that serve the poor.
Rob Katz is a Portfolio Manager in Acumen Fund’s India office.