Colloquium Series Hosts C.K. Prahalad
Posted 4.17.06“The world can be different. Together, we can make that difference,” C.K. Prahalad, the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan Business School told attendees at BAWB’s April 10th colloquium series.
C.K. Prahalad, one of the best known management scholars of our time, and author of the international bestseller The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, writes, “I do not want the poor of the world to be a constituency. I want poverty to be a problem that should be solved."
Starting the colloquium with a metaphor, Prahalad showed a photograph of people walking with elephants and asked audience members what they saw. Commenting on audience responses describing two elephants and people, Prahalad asked, “Do you merely see poor people with elephants? Or do you see elephants carrying electronic polling booths?” He then went on to describe the situation in the photograph where, for the first time in world history, an entire election was conducted solely by electronic means. The election occurred in India, not in Europe or the United States, both of which still use non-electronic polling devices. Prahalad then told the audience, “I want you to think about leapfrogging the West. We in the West have a large forgetting curve. They have a large learning curve.”Prahalad firmly believes that the “Bottom of the Pyramid” (BOP), the 4 billion people who live on less than $2 per day, is a contested market opportunity. “The poor are not an intractable problem,” he said. “Rather, the BOP is a major source of innovation.” The key to this market opportunity is linking low cost, good quality, sustainable development, and profitability at the same time. While some may find this concept unrealistic, Prahalad noted that if businesses continue to operate as they have in the past, they will miss these market opportunities. “To do this you have to imagine a totally different world,” he said.
In an effort to show how innovation and entrepreneurship are at the very heart of economically sustainable solutions to global poverty, Prahalad gave six widely different examples of companies that have capitalized on the BOP concept. Using the products and services category as his first example, Prahalad described Jaipur Foot, a company which builds prosthetics for the poor. By focusing on the BOP population segment, Jaipur Foot was able to build a prosthetic of higher quality than found in the United States, yet at a fraction of the cost. “Jaipur Foot shows us the power of radical innovation,” commented Prahalad.
Another important item in changing the way businesses view markets is to build a new business paradigm. Too often, claimed Prahalad, businesses develop a learning curve and are afraid to leave that learning curve. If a business is able to follow a new paradigm, however, it can develop entirely new markets.
“In the western world, we assume you have to own things to use them. Why can’t we have coin operated PC’s?” he asked. “You could have a huge mass market.” He then noted BOP markets are often on different technology migration paths and firms which recognize these non-traditional opportunities will thrive.
A third area businesses should consider are innovations in work processes. Prahalad described how a hospital serving the rural poor was able to perform telecardiology care for its patients. Cardiology information is digitized and sent via the Internet to health experts around the world. Responses are sent back to doctors in the rural areas, who then implement the proper medicines and procedures. “From decentralized origination we can bring the information back to the village,” claimed Prahalad. “By partitioning the task and using technology, we can provide world class care to the world.”
In addition to identifying and changing new work processes, businesses need to develop entirely new business models to serve the BOP. Prahalad says, “We need to create the capacity to consume.” He noted BOP consumers, while having the same basic needs as wealthier consumers, often do not have large sums of money at any given time. Instead of shopping once a week, BOP consumers often go daily to the market. Companies which realize this can develop business models and capitalize upon them. A company which manufactures and sells a single-portion of shampoo, for instance, will be able to target a much wider market than a company which only sells shampoo in large bottles. Prahalad noted, “It is a fundamentally different way of manufacturing. The model is totally different.”
In today’s digital age, it behooves companies to use technology to bridge the divide between rich and poor, as entire markets can be opened up via technology. “People stay in poverty because they don’t have access to information,” said Prahalad. Describing a group of soybean farmers in India, Prahalad noted that most Indian soybeans are exported. Not having access to price information, farmers often sold their crops well below market price. By giving the farmers a PC and Internet access, the farmers now check the Chicago Board of Trade soybean prices prior to selling their crops. The PC and Internet give the farmers access to fair prices. Despite being rural farmers, said Prahalad, “People, if you give them a chance, figure out how to use technology and information available from the technology.”
Additional changes Prahalad foresees are increased innovations in governance, such as micro-savings and micro-lending initiatives. He gave numerous examples of successful business cases involving these concepts, including the Grameen Bank in Bangladesh. Prahalad noted that in most successful cases, the money was lent to self-help groups, not directly to individuals. “Self-help groups know what are the best projects to be funded, which in turn builds capabilities for the entire village,” said Prahalad. An additional advantage, he noted, was that the village as a whole monitors the project; consequently, the default rate of micro-lending projects is extremely low because there is one hundred percent village supervision.
Remaining passionate and energetic throughout his talk, Prahalad finished the colloquium with a discussion of the need for companies to recognize the changing nature of innovation. He said, “The biggest thing we need to forget is that there is only one way to maintain our quality of life.” For example, in developed countries we believe that to clean our clothes, we must use copious amounts of detergent and water. As such, there is an untapped market for an environmentally-friendly way of doing laundry. Prahalad also mentioned the problems associated with our use of fossil fuels. “The biggest problem is changing the infrastructure we have already built,” he said.
Never one to let the audience stop thinking about how to solve the world’s problems, Prahalad ended the colloquium with one final question. He asked, “For one hundred years, innovations went from the west to developing countries. Now, I ask, can innovations come from the rest of the world to developed countries?”
C.K. Prahalad is the honorary co-chair of the October 2006 global forum "Business as an Agent of World Benefit: Management Knowledge Leading Positive Change."
By Leanne Shott