Distinguished scholar and visionary

The distinguished business scholar, C. K. Prahalad, died unexpectedly last week of a lung ailment at the age of 69. His contributions to the pursuit of business strategy and innovation are unparalleled.  He’s had an enormous influence on my work and that of my peers.

Dr. Prahalad was more than a celebrated management guru, he was a visionary.  He redefined the way that a growing number of global businesses deal with developing markets, and he helped to shape a new economic paradigm.

The Indian-born Prahalad received his doctorate from Harvard and taught at the University of Michigan’s Ross School of Business, but he never strayed far from contemplating the social and economic issues that affected his native India.

A recurring theme in his work concerned the centrality of the customer in today’s global, interconnected marketplace. He urged business leaders to “co-create” or develop products in tandem with their customers.

During the much of his career, his focus was on corporate strategy at multinational enterprises. Among his  notable works were “The Core Competence of the Corporation” (Harvard Business Review, May-June, 1990), and a 1994 book,  Competing for the Future, both of which which he co-wrote with Gary Hamel.

The Bottom of the Pyramid

However, C. K. Prahalad is best known for his 2004 book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.  In that work, he argued that businesses stand to reap benefits from serving the world’s poorest people or those at “Bottom of the Pyramid” (BoP) who live on $2 or less per day and who comprise a majority of the world’s population.

“Four billion poor can be the engine of the next round of global trade and prosperity,” he wrote.  “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”

His view of serving consumers in emerging markets, or “inclusive capitalism”, was eye-opening for many business leaders who had long ignored the needs of the poor and, in so doing, missed important opportunities.

Accessible and affordable products

Dr. Prahalad identified several obstacles in serving BoP consumers. For example, he observed that poor consumers typically have unpredictable income streams and they subsist on daily wages. They tend to buy only when they have money on hand, and only what they need that day.

Accordingly, he pointed out that single-serve packaging, for items like shampoo, condiments, tea and coffee, and aspirin, is well suited to this population, noting that a single-serve revolution is sweeping BoP markets.

In order to make products accessible and affordable for BoP consumers, Dr. Prahalad challenged business leaders to re-think traditional value chains by determining which components can be outsourced and which need to be “centralized” to minimize costs while maintaining quality.

Dr. Prahalad also recognized that emerging markets are “laboratories” for innovation.  He argued that reverse or “trickle up” innovation — goods and services made in and for developing markets — can transform industries in developed markets.

Examples  of “trickle-up” innovations include micro-lending, mobile-banking (”M-banking”), low-cost mobile phones, low cost hotels, and even car manufacturing where Tata Motors’ Nano – a car made for Indian consumers that sells for $2,000 USD – is slated to be sold in developed markets.

Lessons learned

Western businesses have only begun serving BoP markets, but a growing number of us are learning from consumers and entrepreneurs in developing markets about how to restructure our own business models.  The lessons we’re learning about lean manufacturing and virtual distribution chains from BoP markets are already transforming global markets.

The most profound change that we in the West have in serving BoP consumers is one of attitude. As we drop our assumptions and learn to better understand the needs of low income consumers, we’ll be able to tap the full measure of opportunities that Dr. Prahalad envisaged.

C.K. Prahalad spoke poignantly about how much the developed world can gain from serving and ultimately raising the living standards of people at the base of the Pyramid. He’s inspired my colleagues and me to see both developing markets and consumers through sharper, more accurate lenses, and we owe him an inestimable debt of gratitude.  He’ll be sorely missed.

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As always I’d appreciate your perspective.

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Want more information about Dr. Prahalad? Here is the Times Of India’s eulogy.

This is an ‘07 video clip featuring his discussion of  “the good and not-so-good” news about globalization’s impact on the Bottom of the Pyramid.

This video features an interview with Dr. Prahalad via Thinkers50 which named him “the most influential business thinker in the world” in 2009.  Here is his keynote address to the Acumen Fund Fellows Class of 2009.

I  recommend Dr. Prahalad’s ‘08 book, New Age of Innovation, co-written with M. S. Krishnan.

Finally, here are assorted posts on this blog referring to Dr. Prahalad and emerging markets opportunities and issues.

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To support his argument, he cites the case of PUR, a low-cost water purification system developed by Procter & Gamble. The product provides the obvious benefit of affordable clean water where the risks of drinking contaminated water are high. But curiously, PUR* achieved low market penetration rates in test markets.

Why would consumers reject a product as salient as PUR? The author contends that Western companies simply haven’t created demand among low income consumers. “Companies must create markets—new lifestyles—among poor consumers,” he insists. His prescription is that Western businesses need to do a better job “conditioning” low-income  people to be better consumers.  Really?

He argues that Western businesses ought to show people in emerging markets how enjoyable life would be if they were using products like PUR.  Companies, he says, ought to “make the idea of paying money for the products seem natural,” and “induce consumers to fit those goods into their long-held routines.”  Get a load of our stuff!

The fact is that consumers in developing markets usually know value when they see it. For example, businesses don’t have to create demand for mobile phones bought by the millions at the Bottom of the Pyramid—the fastest growing mobile market in the world. Consumers in developing markets can see how phones improve their lives.

Low-income consumers often buy mobile phones from street vendors, and they continually invent ways to squeeze more value from the devices than designers could have imagined. Customers use the devices to handle tasks like transferring money and finding markets for their goods that were never conceived by the phone’s developers or market researchers.

Jan Chipchase, a field researcher at Nokia who studies user behavior in developing markets observes that however cleverly products and go-to-market strategies are designed, “the street” figures out novel ways to distribute and use them.

So what does it take to sell products in developing markets? Listen to and carefully observe potential users. It makes sense to educate and inform emerging market consumers, but businesses have a lot to learn from them about creating value in their markets.

A more enlightened approach to serving the needs of potential consumers in emerging markets is to bring them into both the product design, communication and distribution processes.

I don’t mean to sound flip but next time a Western company comes up with a hot new product for the Bottom of the Pyramid, they should keep it out of the hands of marketing gurus. Instead,  they ought to consult vendors on on the street and figure out a way to share the revenue with them.  If street vendors can’t sell it, no one can.

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* P&G now sells PUR in developing markets at cost and is partnering with non-profit organizations to distribute the product through humanitarian relief networks.

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What do you think? As always, I’d love to hear your views…

Want more on this topic?

Check out INSEAD’s piece, Social Innovation — Creating Products for Those at the Bottom of the Pyramid. For a broader perspective, read C. K. Prahalad’s classic, The Fortune at the Bottom of the Pyramid.

My related posts include Mobile Growth in Emerging Markets and various posts on emerging markets.

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Ex Africa semper aliquid novi — Out of Africa always something new. ~Pliny the Elder

This week marks my company’s 3rd anniversary of working in Africa within our emerging markets service practice. Helping companies in the region to understand and serve the needs of their customers has been enriching on a personal level.  I’ve had the privilege of witnessing the growth of the sub-Sahara’s nascent service industry and I marvel at its favorable impact on a growing number of people in the region.

The ascendant mobile industry illustrates the point.  On a continent where few people have landlines due to the high cost of installing cabling, cell phones are bridging the communications gap. In many sub-Saharan markets, like Ghana where we work, mobile growth rates have been approaching 50% annually. While less than 20% have mobile phones now, hundreds of millions of Africans are expected to get handsets in the next few years. Keep in mind that this is a continent of almost a billion people. That’s a lot of potential new subscribers.

I’ve written about how people in emerging markets are using their new cell phones to perform essential functions like transferring money (m-banking). But mobile technology is connecting people in wondrous, new ways every day.  Local entrepreneurs are devising inventive means of helping people meet their needs. TradeNet, a company in Ghana, has developed an eBay-like site enabling buyers and sellers of agricultural products to post their needs and offerings using text messaging.  MPedigree, another Ghanaian venture, lets consumers check the serial numbers of malaria or other drugs to determine if they are legitimate, a pressing regional concern.

Mobile technology is a “disruptive force” that is quietly but inexorably changing the lives of Africans across all socio-economic strata. The industry employs thousands of workers, improving living standards and slowing the region’s talent drain. A recent London Business School study found that a 10% increase in mobile-phone penetration adds 0.6 percentage points to the economic growth rate.  According to Columbia University’s Jeffrey Sachs, “The cell phone is the single most transformative technology for development”.  It’s the region’s best hope for bridging the growing digital divide.

Make no mistake: the challenges of building on the early successes are steep. Despite inroads by equipment makers, handsets are still too pricey for people at the bottom of the pyramid who live on less than a couple dollars a day. Governments and companies must work more closely to make low cost handsets available to more people.  Telecom firms must invest in tools and practices to meet the growing needs of customers as their markets grow crowded with new competitors.   The mobile business is pushing Africa’s service industry forward rapidly.

There is growing uncertainty about how the global economic crisis will affect the region. While developing economies are tanking, analysts believe that regional GDP growth will slow but not recede. And, the region is expected  to bounce back sooner than developed nations.  While I’m not confident in analysts’ rosy predictions these days, I’d wager that we’ll see growth, albeit below the robust 5% rate the region has enjoyed in recent years.

When it comes to Africa, my rule is to always expect the unexpected.  Stability is something that people in the region don’t take for granted. In January, Ghana witnessed a peaceful transfer of power from one political party to another.  But memories of coups and tyranny are too recent and too close at hand to take stability for granted.

I genuinely enjoy working and spending time in the West Africa. It stimulates my mind, quells my restlessness and, at times, tries my patience. Often projects take longer to develop  than seems reasonable to a Westerner, and it’s imperative to figure that into any timetable.  But if you’re wired for adventure, it’s one of the most compelling business destinations on the globe.  I’ve had the pleasure of collaborating with some of the sharpest, most resourceful entrepreneurial minds I’ve ever encountered.  And, there’s nothing like the thrill of making things happen in a region where doing so has such a profound impact on people’s daily lives.  There’s nothing like that.

More on the impact of the mobile industry in Africa from BusinessWeek.

Related posts:

1. Dispatch from West Africa Astute Afr

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03b, a Jersey Island (UK)-based company, announced that it is building 16 satellites that will enable lower-cost Internet accessibility over 3G and WiMax networks. These satellites will provide “trunking” or backhaul  coverage zone between +/- 40 degrees of latitude which blankets much of the world’s underserved regions including Latin America, the Middle East, Africa and South Asia.

Fiber cable and the labor for digging fiber trenches in underdeveloped countries is costly by any measure. Mobile operators face prohibitive costs in building transmission capacity between their networks and towers. Using satellites had been long been considered problematic due to their latency or the time it takes for a signal to travel between earth and satellites.

Today’s geosatellites orbit the earth at an altitude of 22,500 and their latency can exceed 600 milliseconds. By contrast, O3b plans to use MEO satellites which orbit the earth at 5,000 miles and can reduce latency to only 120 milliseconds—not that much more than a fiber network. 

O3b which expects to activate service by late 2010 intends to provide speeds of up to 10G bps (bits per second) to regions. The companies collectively invested about $65 million with the total cost estimated at $650 million.

This is good news for “3b” consumers, and probably a smart investment for Google which recognizes that the majority of the world isn’t currently using its services do to lack of access.  With their $10M investment, Google is getting in on the ground floor, so to speak.  Consider this another milestone in moving forward their Android initiative. 

Want more info?  Download this PRI (Public Radio) Podcast, Google to invest in internet start-up (4:30). 

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Here’s an interesting piece in Time (July 31, 2008), The Creative Capitalism Roundtable, featuring a conversation with Bill Gates, CK Prahalad and others sharing their views on creative capitalism and the Bottom of the Pyramid.  Their conversation led to a discussion of the telecom industry at the BoP:

 Stengel [Managing Editor - Time]: C.K., I know that Bill was influenced by, by your work, and one of the questions I have, and I guess it’s a question both about creative capitalism and how you see it, is that, when it comes to cell phones for Kenyan farmers for example, isn’t this just good old fashion capitalism in the sense that it’s a recognition of a market that people hadn’t figured out how to profit from, and now, and now they are.

Prahalad: I think it is, but there’s a twist to it, and I think it’s an important twist. If you look at traditionally how we have looked at all this product and services especially high-tech products like cell phones, we would never have gone to the poor. But, I think that growth opportunity is there, as the cell phones have demonstrated. Also, it is changing the asymmetry of information, be it the farmer, who can now get prices, weather conditions, or someone who can make small transactions with SMS messaging, suddenly the asymmetry of information which is the essence of poverty — that is why people are poor, they don’t have access to information — that is changing very, very dramatically. What is happening in the cell phone industry, three billion people are connected for the first time in human history, I think it will be four billion soon. That I think gives me tremendous confidence that we can really take Bill’s idea and see it through to its logical conclusion, which, for me, is how to democratize commerce.

Food for thought…

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