Opportunities for massive value creation, sustainable growth and human development lie at the "Base of the Pyramid" (BoP), a socio-economic designation for the 4 billion individuals that live primarily in developing countries and whose annual per capita incomes fall below $1,500 (PPP).

Creating and growing the BoP's market potential requires the development of new strategies and businesses, as well as a fundamental change in how individuals and organizations in wealthy countries view their roles and rewards in the developing world. This profound change is critical not just for the growth of our economies, but ultimately for the sustainability and viability of our planet and our societies - the very foundations our businesses rely on. The BoP as a business approach refers to the set of strategies, perspectives, and metholodigies wherein companies can not only meet this critical challenge, but do so in a way that provides them a sustainable competitive advantage in the market.

History of the BoP as business strategy

The phrase and concept of the "Base of the Pyramid" originated from the work of professors Stuart Hart and C.K. Prahalad and their seminal 2002 article "The Fortune at the Bottom of the Pyramid"* (PDF).

This is a time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. For companies with the resources and persistence to com-pete at the bottom of the world economic pyramid, the prospective rewards include growth, profits, and incalculable contributions to humankind. Countries that still don’t have the modern infrastructure or products to meet basic human needs are an ideal testing ground for developing environmentally sustainable technologies and products for the entire world.

Both Prahalad and Hart both have written separate books on the BoP, titled respectively, "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profit ", and "Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World's Most Difficult Problems". Both books are from Wharton Publishing.

As the name of Hart and Prahalad's article suggests, the BoP is often referred to as the Bottom of the Pyramid, but many BoP practitioners have moved away from that use, as a population of 4+ billion is more than the bottom of the world's income pyramid, it represents the majority of it. And as Eduardo Bazoberry, CEO of PRODEM Private Financing Fund SA in Bolivia declared at a BoP conference in December of 2005: "Think about that phrase. Who wants to be at the bottom of anything?"

Different groups have also moved away from the pyramid concept altogether and instead using phrases such as the "Bulk of the Population", "Business for/with the Majority", or "Sustainable Markets". We've also discovered that some people prefer other phrases still... a pyramid may more difficult to visualize in different parts of world, whereas something like Base of the Samosa could work much better!

"The Fortune at the Bottom of the Pyramid" by CK Prahalad and Stuart L. Hart, strategy+business, issue26, first quarter 2002

2 Big Reasons why firms enter the BoP

1. Market Creation - stagnating here, stalled There.
   Quoting an executive at one of the world's largest toy companies: "There's very little industry growth, companies in my industry are pretty much just shifting profits around". Meanwhile, the 4+ billion people in the BoP - representing a potential multi-trillion market - are largely underserved and often vastly over charged (see Prahalad and Hammond). One group needs growth, the other group needs services. Companies that can bring the two groups together have great potential for huge profits.
   
   Of course, the BoP is not a homogeneous population of 4 billion people, nor do most BoP regions have market and social infrastructures that are familiar to most MNCs. In fact, most MNCs’ current value propositions (via their existing suite of products and services) are so ill matched to the needs, knowledge, and accessibility of poor communities that in real terms it could be said that no market segment exists for these companies at all. However future markets certainly do (where was the market for one-way van rentals before U-Haul, the market for coffee culture before Starbucks?)... the strategic advantage therfore comes in figuring out how to create business models that both grow a new market and capture its potential at the same time. As business strategists W. Chan Kim and Renee Mauborgne might say, it's about the creation of "blue oceans", not just the exploitation of existing ones.
   
   
2. Incubating Disruptive Innovations - the rewards of serving emerging markets
   Clay Christensen solidified the concepts of disruptive innovations (new innovations that upstage old, established technologies and companies) in his book the Innovator's Dilemma. One feature that he found through his research is that disruptive innovations almost always incubate in emerging markets, as far away from the mainstream markets as possible! Christensen and Stuart Hart, in their article "The Great Leap" go on to discuss how the BoP is a perfect place to develop and incubate disruptive innovations. The BoP also offers huge potential for innovation in utility, what we at BRINQ call the novel and unexpected ways in which people use technology.

Criticisms of the BoP - Marketing stuff to poor people

For the last couple of years there has been a growing backlash to the BoP as a business or development strategy, with various NGOs, academics, and individuals decrying the BoP as a set of business strategies designed to just sell more stuff to poor people (scan through WRI's NextBillion.net to find a few of these debates). For many groups embracing the BoP that criticism unfortunately holds true: the groups' principal question being "What are the best methods to market products to this huge population of novice consumers?" Sometimes their strategies involve innovating new products and services, but ultimately they focus on how to sell more stuff to people who can questionably afford it. Some of the critics of BoP business strategies have claimed the only way forward is to reverse the model, have BoP businesses selling more stuff to rich people. We believe this whole debate comes from a very simplistic view of the BoP as just a market of consumers... or to paraphrase from a shoe company's perspective, "the BoP is 8 billion feet."

Moving to interdependence - BoP version 2.0

Outside of the debate mentioned above are a number of entrepreneurs and thought leaders who are quietly moving BoP strategies and methodologies on to another level, what we here at BRINQ call BoP version 2.0. Led by Cornell University's Stuart Hart and others, these innovators (which includes us here at BRINQ) recognize that the BoP is a full, rich, and diverse population: full of its own innovators, entrepreneurs, businesses, cultures, and opportunities to match the richness that exists in the developed world. Forcing each into just one role of producer or consumer would be like asking a soccer player to stay in just one portion of the field... you could do it but your team probably wouldn't win, nor would anyone have any fun! Instead, proponents of this BoP 2.0 vision are developing methodologies focused on the principle of interdependence: creating partnerships with poor communities and viewing the poor as innovators, entrepreneurs, producers, consumers, market creators, researchers and more. Ultimately we're talking about flipping all the "pyramids" around to create new world and market realities!

To learn more about this growing work, check out Stuart Hart's Capitalism at the Crossroads (a new edition coming out in July) and our own work with the Base of the Pyramid Protocol (see below) and here on our BRINQ Blog.

[See also BRINQ's Best of the Web]

The Base of the Pyramid Learning Lab: a consortium of companies, NGOs, multilateral organizations, and academics working together to create growth opportunities in the Base of the Pyramid. These opportunities address some of the needs of the world's poorest people and communities, while opening vast opportunities for business growth. The original BoP Learning Laboratory was founded at the Univeristy of North Carolina's Center for Sustainable Enterprise and has since moved to Cornell University. Moreover, more labs have been created around the world, with labs in Argentina, Brazil, Mexico, India, South Africa, and Europe.

Base of the Pyramid Protocol: The Base of the Pyramid (BoP) Protocol is a process of collective entrepreneurship that enables Multinational Corporations (MNCs) to forge lasting business partnerships with income-poor communities in order to co-create businesses and markets that mutually benefit the MNC and the communities. The process was tested and validated in Kenya in 2005 by a six-person team from the Base of the Pyramid Protocol Initiative in partnership with SC Johnson and was further developed during a full-scale implementation for DuPont’s Solae Company in India in 2006. The development of the Protocol is run out of Cornell University's Center for Sustainable Global Enterprise, but BRINQ's Patrick Donohue is integrally involved in implementing, teaching, and developing the Protocol.

Base of the Pyramid Research Initiative - at the William Davidson Institute, University of Michigan. WDI's BoP Initiative is a global leader in knowledge creation, innovative thought dissemination, capacity building, and co-development of BOP Ventures. The BOP Initiative focuses on understanding and facilitating organizational change while simultaneously exploring the links between a BOP strategy and poverty alleviation.

NextBillion.net: Out of WRI's Eradicating Poverty through Profit conference (see above) comes NextBillion.net, an online community to continue the incredible hallway and coffee break conversations that took place during the conference and to report news and discuss business strategies for the world's majority, the so-called "poor".

New Ventures: part of the World Resources Institute, the program supports sustainable enterprise creation in emerging economies by accelerating the transfer of venture capital to outstanding investment opportunities that incorporate social and environmental benefits

Sustainable Livelihoods: of the World Business Council for Sustainable Development (WBCSD), focuses on researching the roles that corporations and markets can play in bettering the lives of impoverished people in ways that are beneficial to all concerned.

The BoP Working Group: a registration required Yahoo Group discussing new ventures and ideas for new ventures in the Base of the Pyramid. Moderated by Patrick Donohue (BRINQ), Katie Kross (UNC Center for Sustainable Enterprise), and Sheri Willoughby (World Resources Institute). You can request to join the discussion.

ARTICLES

The Fortune at the Bottom of the Pyramid (PDF)
C.K. Prahalad and Stuart Hart, strategy + business, First Quarter 2002.

What Works: Serving the Poor, Profitably (PDF)
C.K. Prahalad and Digital Dividend project director Allen Hammond, Harvard Business Review, June 2002.

The Great Leap
By Stuart L. Hart and Clayton M. Christensen, MIT Sloan management Review Issue Fall 2002

The Great Disruption (PDF)
By Clayton Christensen, Thomas Craig and Stuart Hart, Foreign Affairs, March/April 2001

Reinventing strategies for emerging markets: beyond the transnational model (PDF)
By Ted London and Stuart L. Hart, Journal of International Business Studies 2004 35

Poor Peoples' Knowledge: Promoting Intellectual Property in Developing Countries (PDF)
Edited by J.Michael Finger and Philip Schuler, the World Bank and Oxford University Press, 2004

In addition to Stuart Hart's Capitalism at the Crossroads and CK Prahalad's The Fortune at the Bottom of the Pyramid, there are a number of good books for people who want to get more of a feel for the Base of the Pyramid and its implications for business. A few of these books are listed below. Also, be on the look out for a new BoP Book Discussions column which will begin soon on the BRINQ Blog, which will offer book reviews and recommendations for practitioners in the BoP.

	The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando De Soto Hernando De Soto's thought provoking work opens with the explanation that the world's poor actually own a huge amount of assets, trillions of dollars worth of assets according to his research, with an estimate of $9.3 trillion in real estate assets alone. Unfortunately by in large the poor cannot capitalize on these assets (you can't mortgage your house to get a business loan), and the majority of the world's poor, barred by laws or costs, fall outside of the legal sectors that allow them to their assets as capital (in other words, according to De Soto capitalism fails because of a lack of systems to turn assets into capital). De Soto describes five mysteries: the Mystery of Missing Information, the Mystery of Capital, the Mystery of Political Awareness, the Missing Lessons of U.S. History, and the Mystery of Legal Failure. Highly recommended.
	How to Change the World: Social Entrepreneurs and the Power of New Ideas by David Bornstein David Bornstein's inspirational second work, a compendium of social entrepreneurs and how they are changing their worlds. Bornstein follows the work of a number of Ashoka fellows (see www.ashoka.org) as well as Ashoka founder Bill Drayton, while offering some observations and principles of social entrepreneurship along the way. Definitely a must read.
	The Innovators Dilemma by Clayton Christensen Clayton Christensen's groundbreaking work on disruptive innovation and its incubation in emerging markets. Stuart Hart and Clay wrote an article that ties these concepts into the BoP, "The Great Leap: Driving Innovation From the Base of the Pyramid". In this book Christensen goes into detail about why established market leaders often fail in the face of a disruptive innovation, the need to right size your resources and incentives to match the size of the opportunity, and incubation in markets with different requirements than mainstream markets. Highly recommended.
	Ripples from the Zambezi: Passion, Entrepreneurship, and the Rebirth of Local Economies by Ernesto Sirolli Ernesto Sirolli's chronicle of his people centered approach to development, based on the concept that economic development is a byproduct of personal growth and self-actualization. A simple yet practical guide to "Enterprise Facilitation", helping people realize their own dreams and launch their own businesses. Ernesto Sirolli is a charming and delightful speaker; you can find out more about him and Enterprise Facilitation at the Sirolli Institute.
	Small is Beautiful - Economics as if People Mattered by E.F. Shumacher E.F. Shumacher's work from 1973, really a collection of essays and talks, that started many people down the path to thinking about sustainability and rethinking development. A thought provoking book that may not have all the answers, but really helps you take a different perspective on business, economics, and development.
	Innovation and Entrepreneurship by Peter Drucker “The new always looks so small, so puny, so unpromising next to the size and performance of maturity.” Peter Drucker's business classic from 1986 has as much relevance today almost twenty years later as it did back then, and in particular for the Base of the Pyramid. Drucker covers the seven sources of innovation, with examples and case studies: the Unexpected, Incongruities, Process Need, Market and Industry Structures, Demographics, Changes in Perception, and New Knowledge. The methodologies and tools presented by Drucker are highly applicable to the BOP and even help argue the business case for new ventures in the Base of the Pyramid.
	Shadow Cities: A billion squatters, a new urban world by Robert Neuwirth We enjoyed this book quite a bit, particularly Neuwirth's rebuttal to DeSoto (see above) on the importance or usefulness of property titles in the Base of the Pyramid. However, we did find his depiction of Kibera grimmer than the Kibera we experienced. On the whole though, Shadow Cities is still a great read and glimpse into four of the world's largest shanty towns and we highly recommend it. From Publishers Weekly: "In this superbly probing book, investigative reporter Neuwirth relates the struggles and successes of some of the world's most resourceful poor people, among the one billion urban squatters in countries like Brazil, India, Kenya and Turkey. Having lived alongside them in these four countries and thus gained firsthand knowledge of their daily lives, Neuwirth is able to dismantle many common preconceptions about the so-called slums in which they live."
	Last Orders at Harrods - An African Tale by Michael Holman A little bit of fiction to throw into the mix. A great satire about the world's relationship with Africa and the Western attempts at developing the "dark continent". Africans reading this book think it's written about each of their own countries, though it's set in the fictional country of Kuwisha, in the fictional shanty town Kireba... The book was written with the help of our good friends at Carolina for Kibera and is a delightful read. It certainly made us think twice about some of our own do-good schemes as we began our work in Kibera.
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