The Base of the Pyramid Protocol: Co-Venturing at the BoP

Greening of Industry Network

Waterloo. Ontario June 16, 2007

Stuart Hart Erik Simanis Duncan Duke

Agenda
The BoP Protocol:
1. Background - The Why and What 2. Implementing the Protocol The How

3. Building a New Capability The How

4. Q&A

The Business Sense of BoP Strategy

I. New Market:
> $15,000/yr
~800 million

Tier 1

Massive & growing underserved market

(Prahalad & Hart, 2002; Prahalad 2004; Hart 2005)

$3,000 - 15,000/yr

Tiers 2&3

~1.5 billion

II. Radical Innovation:

Incubation site for disruptive Tier 1 technologies
(Hart & Christensen, 2002)

< $3,000/yr

Tier 4
~4.0 billion
Global Population Per Capita Income (PPP)

III. Competitive Pre-emption:

Breeding ground for next-gen, global-scale competitors
(Christensen, Craig, & Hart, 2001)

The MNC: Traditional Customer Base

Tip of the Income Pyramid

> $15,000/yr

Base of the Resource Pyramid

The ToP Customer

Cost structures, business models, & research methods based on a Western infrastructure

85% of Global Resources

The BoP: Serving a Different Customer

Less than $3,000 per year

Base of the Income Pyramid

The BoP Customer

15% of resources

Tip of the Resource Pyramid

Will require cost structures, business models, & research methods based on a different infrastructure.

Many Companies are Beginning to Experiment with the BoP

Nutristar, Nutridelight (nutritional drink), Pur (water purifier) Hindustan Lever (detergent for the poor in India and Brazil), Annapurna (iodized-Salt for the poor) Making solar power affordable (India) Banco Real, microcredit in Brazil Vodacom community services in South Africa, joint venture between Vodafone and Telkom SA Solar powered digital camera in India and community information systems Program in South Africa to help entrepreneurs enter the supply chain and profit from new business ventures. Water for all program to periurban areas in Brazil

First Generation BOP Strategy: The Child With a Hammer

BOP 2.0 BOP 1.0 Deep dialogue Different price point Putting the last first Redesign packaging Build capacity Low cost production Leapfrog solutions Extended distribution Ecosystem of local Partner with global partners NGOs

Selling to the Poor

Creating Mutual Value

The BoP Presents: NOT a marketing problem

The Sachet Mindset
Food & Nutrition and FMCPs

NOT a technology problem

The Killer Ap Mindset
Water Purification, Distributed Energy and ICTs

but a Business Model challenge

You cant solve a problem using the same mindset that created it.
How do you imagine, pilot, and scale business models for a BoP infrastructure if your past and current business is ToP?

Co-Create the Business!

Engaging the BoP differently Customers Clients Partners Colleagues

Requires a New Strategy & Venturing Process

Co-Venturing

The BoP Protocol is a co-venturing process that enables MNCs to

Forge lasting partnerships with income-poor communities through mutual dialogue and joint learning Co-create new businesses embedded in the local cultural and physical infrastructure that creatively marry the communitys resources, technologies & capabilities with those of the MNC Co-create new BoP markets that recognize and derive genuine value from the business products and services

BoP Protocol: A Collaborative Venture

Sponsored By:
Cornell University University of Michigan William Davidson Institute The World Resources Institute The Johnson Foundation

Generous Support From:

DuPont Hewlett Packard SC Johnson Tetra Pak www.johnson.cornell.edu/sge www.bop-protocol.org

BoP Protocol: Project Overview

2003-2004 October 2004 October 2005 2006 and Beyond Executive Protocol Education Refinement

Research On Development Methodologies and BoP Strategies

Workshop I Designing The Protocol

Workshop II Refining The Protocol

Full Scale Implementation with Candidate Companies

Dupont/Solae: India

Protocol Version 1.0

Participatory Rural Appraisal (PRA) Rapid Assessment Process (RAP) Quick Ethnography Empathy-based Design

Pilot Test: SC Johnson Kenya

Protocol Version 2.0 and Field Guide

BoP Protocol: Overview

Co-Generated Business Concept Co-Constructed Business Model

Opening Up
Launch a non-business specific immersion guided by two-way dialogue and humility to catalyze generation of new business concepts

Building the Ecosystem

Deepen commitment among the company, community and other partners in order to construct the business model

New Market Creation

Enterprise Creation
Evolve the business structure & build the market base through staged and flexible resource commitments

Locally-Embedded Business

BoP Protocol: MNC Initiatives

The SC Johnson Company
Launch Date, June 2005, Kenya

The Solae Company (Dupont)

Launch Date, April 2006, India

BoP Protocol: Pre-Field Activities

Identifying deeply embedded & attuned community-based organizations

Local Partner Identification

Inculcating shared ethic & developing common base of skills

Snowball Networking
Team Formation & Preparation Community Site Selection

Matching geographies with firms strategic intent

Pre-Field: SC Johnson, Kenya

II. Team Selection I. Site Selection

NYOTA, Nakuru District

III. Partner Selection

KIBERA, Nairobi

Pre-field activities challenges

Corporate leadership
Local corporate members on field team

Buy-in from top & mid level management

Corporate knowledge & capabilities available to team

BoP Protocol: Core Processes

Phase I Opening Up

Business Concept Co-Generation Building Deep Dialogue

Phase III Enterprise Creation

Project Collective Community Entrepreneurship Development Development Co-Creation Logic Building Building The Market Base Shared Commitment New Capability Development

Phase II Building the Ecosystem

Flexible Business Co-Creation

Business Model Co-Construction

Phase I: Opening Up

Business Concept Co-Generation Building Deep Dialogue Collective Entrepreneurship Development

Phase I Opening Up

Co-Creation Logic

Project Community Development

Enterprise Creation

Building The Market Base

Flexible Business Co-Creation New Capability Development

Building Shared Commitment

Building the Ecosystem

Business Model Co-Construction

Opening Up
Attracting a committed and representative group
Project Community Development

Building Deep Dialogue

Building trust & critical openness by practicing humility

Opening Up
Generating actionable ideas that harness partner capabilities & meet local needs
Business Concept Co-Generation

Collective Entrepreneurship Development

Creating an innovation platform & shared business language through joint exploration of needs & resources

Opening Up
Community-Based Cleaning & Waste Management Company
9 Taka ni Pato youth groups committed to building a business in Nairobis slums with the support of an SCJ & CFK management team Offer a diverse set of cleaning and pest control services direct to homes and businesses in Nairobis slums Provide suites of services that bundle SCJ products like Pledge, Glade, Toilet Duck and Baygon along with existing youth services (e.g., garbage collection and carpet cleaning)

SCJ Business Model Innovation

SELL: ENABLE: MANAGE:

ToP Business Cases of Product Distribution

Retail Trade

BoP Business Service Micro-Enterprise Community Partners

Opening up challenges

Partners
Local embedded community partner New organizational identity for community members

Capabilities
Its not development + business, its doing business differently Build & practice a co-creation logic

Phase II: Building the Ecosystem

Opening Up
Business Concept Co-Generation
Building Deep Dialogue Collective Entrepreneurship Development Project Community Development
Co-Creation Logic

Phase II Building the Ecosystem

Enterprise Creation

Building The Market Base

Flexible Business Co-Creation

Building Shared Commitment

Business Model Co-Construction

New Capability Development

Building the Ecosystem

Building Shared Commitment

Building an organizational foundation and a strong group identity

Developing shared vision of the business & commitment to joint action

Project Community Development

Building the Ecosystem

New Capability Development

Using Action Learning to evolve the value proposition and brand from the ground up
Business Model Co-Construction

Using Action Learning to Develop Organizational & Business Skills

Business Model Development:

CCS Pilot Business Model
CYE OBJECTIVES BUSINESS CCS SERVICE LEVELS Self-defined IDENTITY Services grouped into suites that include: Flexibility forowned business Community evolution Garbage Collection Partnering with an MNC Indoor Cleaning Pest Control & IPM Screening Windows Wall repair & painting Outdoor (grass cut, garbage, drains) Pricing: Flexible by group

Building the ecosystem challenges

Constructing the business model

Engage broader community Business model is not a plan

Manage expectations
Community members income & status MNC business model & scale of impact

Phase III: Enterprise Creation

Business Concept Co-Generation
Building Deep Dialogue

Opening Up

Phase III Enterprise Creation

Collective Entrepreneurship Development Building The Market Base

Project Community Development

Building Shared Commitment Building the Ecosystem

Co-Creation Logic

Flexible Business Co-Creation

New Capability Development

Business Model Co-Construction

Enterprise Creation
Collective Entrepreneurship Development

Building The Market Base

Deepening business to community linkages Jointly evolving the value proposition

Enterprise Creation
Flexible Business Co-Creation

New Capability Development

Building a platform for growth & expansion... Evolving an organizational structure around the business

Enterprise Creation
Group: Tuff Gong
Basic spraying service Lowest prices /high volume Serving other slums

Community: Mitumba

Enterprise Creation
MECYG, in Mathare Contracts for entire buildings Cleaning common areas & toilets Larger teams

Enterprise creation challenges

Maintain flexibility
Flexible organizational structures Directed evolution of NGO partners roles

Build organizational capabilities

MNC manage a business model incubation space

BoP Protocol: Discovery versus Creation

Discovery-Based BoP
Target the unmet needs in the BoP Estimate the size of the market Adapt current products and technologies Extend current business model via structural innovation Scale up

Creation-Based BoP
Be humble; begin with an open mind Spark competitive imagination Co-develop something new Build new business model on trust and social capital Scale out

See: Alvarez, S. and Barney, J. (2006) Toward a Creation Theory of Entrepreneurial Opportunity Formation Working Paper

Beyond The Public-Private Partnership

Public-Private Partnerships
The Business Driver

Co-Venturing
Joint Entrepreneurs

MNC

MNC

BoP Community

NGO

Govt

BoP Broker & Representative

Unique Capabilities Unique Capabilities & Resources & Resources

NGO BoP Community

Business Model Inputs

Govt

Relationship Facilitators

+ Relatively familiar partnership structure (MOU) + Amenable to planning, managing & monitoring + Scale Up is imaginable & feels attainable

+ + +

High role uncertainty; unknown goals & ends Cant plan or control an unknown future Unpredictable business model outcome Deep capability development of community Frame Breaking Business Model Innovation Competitive Advantage: Hard to Replicate

Limited community capability development Incremental Innovation of Business Model Competitive Advantage: Highly Replicable

Beyond The Public-Private Partnership

Public-Private Partnerships
The Business Driver

Co-Venturing
Joint Entrepreneurs

MNC

MNC

BoP Community

NGO

Govt

BoP Broker & Representative

Unique Capabilities Unique Capabilities & Resources & Resources

NGO BoP Community

Business Model Inputs

Govt

Relationship Facilitators

+ Amenable to planning, managing &

monitoring Feels familiar

Cannot be planned, predicted or forecasted Feels uncomfortable

High degree competitive advantage & deep community capability development Embedded Business Model Innov.

Low degree competitive advantage & community capability development Incremental business innovation

Building a New Corporate Capability Native Capability

Engage with marginalized groups and communities in mutual business partnership Build long-term relationships of trust and understanding with BoP communities Creatively marry MNC capabilities and technologies with those of BoP communities

Evolve the business model from the ground up

The Base of the Pyramid Protocol Co-Venturing at the BoP

Greening of Industry Network

Waterloo. Ontario June 16, 2007

Stuart Hart Erik Simanis Duncan Duke

Enterprise Creation
Group: Bunker

Comprehensive & labor intensive services Higher prices / lower volume Higher end of market

Community: Makina (in Kibera)