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We must see India and
Bharat as one
CK Prahalad talks to Forbes India about how the concept
of the bottom of the pyramid has evolved over the years
by Neelima Mahajan-Bansal | Sep 19, 2009
 Name:
C.K. Prahalad
Age: 68
Designation: Paul and Ruth McCracken Distinguished
University Professor, Ross School of Business, The
University of Michigan
Work History: Member of faculty at the University of
Michigan from 1977. Before that he taught at IIM-Ahmedabad.
His first job was at the Union Carbide battery plant
Achievements: A Padma Bhushan awardee, Prahalad is
the author of several bestsellers like Competing for the
Future (with Gary Hamel), The Future of Competition (with
Venkat Ramaswamy) and The Fortune at the Bottom of the
Pyramid . According to Thinkers 50, he is the most
influential business thinker alive.
Hobbies: Travel, long walks and reading
When Coimbatore Krishnarao Prahalad and his colleague Stuart
Hart wrote an article on the bottom of the pyramid (BOP) in
1998, no management journal accepted it. Unconvincing, they
said. In 2002, Strategy+Business agreed to publish it and
that one idea changed the way multinationals thought.
Suddenly, everyone was looking at poor people across the
world as a lucrative market. Prahalad followed his idea up
with the bestselling title The Fortune at the Bottom of the
Pyramid. The fifth anniversary edition of the book — with a
new case study on Jaipur Rugs and CEO comments on the
application of the concept — is due for release in October.
In this interview with Forbes India, Prahalad talks about
how the concept of the BOP has evolved over the years:
How have you seen your own idea of the concept evolve
over the last five years?
There has been a big change in the acceptance of the
concept. There have been significant efforts in many
industries to tap micro consumers and micro producers at the
BOP. Perhaps the most visible change has been in the
wireless industry. Today 400 million people are connected in
India. These are mostly micro consumers. There is
competition to serve this market. The companies that are
serving this segment are making significant profits and are
valued highly as seen in their market capitalisation. Airtel
has 100 million consumers.
They plan to achieve 200 million subscribers in the next
four years. BOP has provided these companies with a huge
opportunity.
As envisaged in the book, BOP markets have become a source
of innovations. With wireless, we see the convergence of
industries and industry boundaries. Take remittances using
cell phones, or making small payments using cell phones.
This is the convergence of the traditional finance and
telecom industries. The cell phone has given an identity to
people. So if you look at the penetration of cell phones
alone in the BOP markets, there is so much change in such a
short time.
Safaricom is doing the same thing in Kenya — they have 80
percent market share. The same thing is happening in South
Africa for instance. This is a global change.
BOP markets will become a fundamentally new source of
innovation. Look at the spread of innovation in India — for
example, the Tata Nano. This has created an inflexion point
in the global auto industry, not just in India. Now the
focus is also on housing for the poor — “Nano housing” — and
for health insurance.
Look at Jaipur Rugs, ITC eChoupal, Amul, Aravind Eye
Hospital, Narayana Hrudayalaya — they all have invented a
new way of creating world scale. The origination for all of
these businesses is the village — whether it be eye camps
for Aravind or farmers for ITC eChoupal. One learning that
has emerged is that six years back, large companies thought
that they could do it alone. Now they know that they need an
ecosystem — whether it be Shakti Ammas [for Hindustan
Unilever], Jyoti Ammas [for British Petroleum’s biomass
stoves], village-level entrepreneurs, or NGOs. To build
large enterprises serving the BOP markets you need to create
transparent market-based ecosystems.
The thing I did not anticipate was the rate at which new
applications will evolve at the BOP. Like mobiles and
remittances. Applications that come from BOP and the rate at
which the poor adapt and master high-technology solutions is
a big surprise to me. Look at the success of the Thomson
Reuters cell phone-based application for information on
weather and local prices. People are willing to pay Rs. 170
a month because they can make more money by using this
information.
The second surprise is how BOP markets are creating
enormously complex and interesting approaches to developing
new markets. This is fostering fundamentally new business
models. Look at the market for information — price
information and weather information — that was traditionally
the privilege of the rich. Now everyone with a cell phone
can have it. There is a paradox in India — let’s assume that
I as a farmer increase my productivity. I have had no choice
but to sell my produce — be it vegetables or wheat — to the
local buyers. They could easily depress price. So I had no
motivation to improve my productivity. If I have the option
of selling anywhere within a radius of 200 km by checking
prices various buyers offer, I will want to raise my
productivity.
What is a good starting point for the BOP concept — to
solve poverty or to make capitalism more responsible?
Bill Gates talked about creative capitalism in his 2008
Davos speech. He referred to my book as an inspiration.
There is some traction behind social capitalism — look at
Mohammed Yunus. There is some traction behind how do you
create shared value, or shared wealth. Businesses need to
recognise they are a social institution that operates with a
social license from the community. It may be implicit. If
you look at increasing legislation in the US on executive
compensation, it’s like saying you violated the license that
society gave you and we will correct that.
We must see India and Bharat as one. If you leave Bharat
behind, the social license will be revoked. It will lead to
an unmanageable situation. Business leaders need to do good,
but not by philanthropy or CSR, but by enlarging the scope
of business; making it more inclusive. Democratise commerce.
People who have access to information will not tolerate
inequality.
One of the debates from the beginning has been whether it
is fortune at the BOP vis-a-vis fortune for the BOP. Where
do your thoughts on this stand?
It is a silly debate. It’s not either-or. If a
micro-finance institution (MFI) lends at 20 percent interest
and makes money, it’s fortune for the MFI. But if the
alternative for the poor is to borrow at 150 percent, is it
a fortune for the borrower as well? She is reducing her
interest burden. No business can sustain itself if there is
no value created for the consumer. If both parties don’t get
value, there is no transaction. That’s a truism in business.
Can we say that poor people have no value for time? Take the
example of the chulha where we use pellets instead of
branches, grass, and firewood. Now the villagers don’t have
to walk in the sun for three-four hours to get firewood. In
the short term there can be asymmetry of value, but people
will find alternatives.
There are so many MFIs in India — everyone is trying to give
money away because they think there is value here. Business
can survive only when there is joint value for the consumer
and the firm. The cost to the poor is going down. In the
long-term, competition will drive asymmetric profits away.
If I am poor and I have no choice but to borrow from the
moneylender, I am dealing with an inefficient local
monopoly. We have to break those by bringing the benefits of
an organised sector that competes and is more transparent.
We need to look at the institutional basis for long-term
efficiency and I define long term as 10 years, rather than
short-term profit making by some deviant organisation. If
you have 1,000 people giving microfinance and five do
something stupid, you can’t take the example of these five
and think that everyone is bad.
In the last five years, what are the key lessons that
have emerged about the rules of engaging with BOP markets?
The traditional approach to poverty alleviation assumed
that we — the elites — have to tell the poor what to do.
While we must enforce global standards, global technology
and the global ability to organise, we also need to have
local responsiveness. Co-creation is an integral part of
serving — there are a lot of knowledge and capabilities in
the poor. People are smart. We were developing a chulha with
British Petroleum. When we talked to women in villages, we
received a lot of suggestions for improvement like the
inclusion of a fan to regulate the flame; or to get 45
minutes of cooking time to cook a full meal per load of
pellets and not 35 minutes.
The BOP concept talks of just corporate-led social
transformations. Do you see a role of the state in this?
I think there is some role in making healthcare,
education, and information infrastructure easily accessible
and available. This would be public-private partnership
rather than the public sector assuming that they can deliver
at a lower cost and efficiently. The private sector has the
motivation to be efficient. The public sector can provide
the infrastructure and support base. Your maid will
probably, despite her constraints, send her child to a
private school. Your maid will want her kid to get an
English education. The poor demand value and they want good
quality.
Critics of the concept say it is not how big it is made
out to be. What is your evaluation of the real size of the
BOP opportunity?
People ask the question of value versus volume. They
concede that if there are 500 million people that we can
serve but the value per person will go down so the overall
margins will go down. The value in terms of margins and
profits is lower than the top. Yes, you are right about
this.
But we need to change the business model. Look at Airtel.
They have converted all fixed costs to variable costs.
Instead of looking at ARPUs [average revenues per user],
they look at profit contribution per minute. They are
agnostic to the rich and poor, and the urban and rural.
Unless you change the business model you won’t crack this
opportunity. I don’t think Airtel is complaining about
moving into rural India. Innovation is at the heart of going
after the BOP. The size of the opportunity is at least 4
billion consumers globally. Airtel is negotiating with MTN —
if they bring the same discipline they have learnt in India
to Africa, look at the potential. If you break the code, you
can take this model to advanced countries as well — and make
more money there. The Tata Nano can sell in Europe.
Innovations can travel.
Find this article in Forbes
India Magazine of 25 September, 2009
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