The Great Leap: Driving Innovation From the Base of the Pyramid

Global companies today are struggling with a Catch-22. On one side is the legacy of the 1990s, when investors became accustomed to double-digit annual growth. While investors are no doubt revising their expectations now that the bubble has burst, they are not ready to give up on demands for rapid, steady growth in the companies they fund. This need to find new markets or products is in itself a huge challenge.

Add to that the second part of the dilemma: Antiglobalization demonstrations have made it apparent that if corporate expansion is seen to come at the expense of the poor and the environment, it will encounter vigorous resistance. This is not just an issue for a few thousand protesters. As multinationals unrelentingly seek new growth to satisfy shareholders, they increasingly hear concerns from many quarters about environmental degradation, labor exploitation, cultural hegemony and local autonomy. What is to be done? Must corporations’ thirst for growth and profits serve only to exacerbate the antiglobalization movement?

On the contrary, a solution to this dilemma does exist. Companies can generate growth and satisfy social and environmental stakeholders through a “great leap” to the base of the economic pyramid, where 4 billion people aspire to join the market economy for the first time.1 This is not a question simply of doing the right thing in order to lift people out of poverty — although that will surely be a result of the leap we have in mind. From a senior executive’s point of view, it’s a matter of finding the most exciting growth markets of the future, an especially important task for major corporations considering that 69% of the S&P 500 had below-average growth in 1999 and that turnover in the S&P 500 has increased over the years to 10% annually. The majority of large companies seem to be mired in saturated markets that have few significant growth opportunities.2 The base of the pyramid is, so to speak, completely unsaturated.

It is also where the technologies that are needed to address the social and environmental challenges associated with economic growth can best be developed. So far, technological advances in the developing world have been under the radar of executives in the industrialized economies.

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References

1. For a general discussion of this topic, see C.K. Prahalad and S.L. Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business 26 (January 2002): 54–67.

2. On the volatile fortunes of large companies, see G. Hamel, “Leading the Revolution” (Boston: Harvard Business School Press, 2000) and R. Foster and S. Kaplan, “Creative Destruction: Why Companies That Are Built to Last Underperform the Market — and How To Successfully Transform Them” (New York: Currency, 2001).

3. See C. Christensen, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Boston: Harvard Business School Press, 1997).

4. C. Christensen, T. Craig and S.L. Hart, “The Great Disruption,” Foreign Affairs (March–April 2001): 80–95.

5. We have heard Professors Michael Porter and Kim Clark of the Harvard Business School independently say that manufacturers in developing countries must strive to make high-quality products at low cost — not low-quality products at low cost — in order to successfully compete in developed global markets. We agree with their assertions insofar as they are applied to competing against consumption (attacking established markets). Customers who already enjoy consuming products of a given functionality and consistency rarely jump at the chance to pay less for products that aren’t as good or as reliable. But the products of disruptive innovators need not meet such stringent hurdles because nonconsumption is the alternative, and customers often prefer something to nothing, even if that something is not very good from a high-end market viewpoint. That is not to say that disruptive innovations targeted at nonconsumption are low in quality, just that they have a different (often more modest) package of functionality at the outset.

6. For details, see D. Richardson, R. Ramirez and M. Haq, “Grameen Telecom’s Village Phone Programme in Rural Bangladesh: A Multi-Media Case Study” (Guelph, Ontario: TeleCommons Development Group, 2000).

7. J. Howard, C. Simms and E. Simanis, “Sustainable Deployment for Rural Connectivity: the n-Logue Model” (Washington, D.C.: World Resources Institute, 2001).

8. For a more detailed treatment of this issue, see S.L. Hart, “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review 75 (January–February 1997): 66–76.

9. M. Wackernagel and W. Rees, “Our Ecological Footprint: Reducing Human Impact on the Earth” (Gabriola Island, British Columbia: New Society Publishers, 1996).

10. “Just Press Print,” The Economist, March 3, 2001, 73–74.

11. The Base of the Pyramid Learning Laboratory at the University of North Carolina’s Kenan-Flagler Business School has conducted extensive case study research on multinational corporations and indigenous ventures focused on the base of the pyramid.