By Christian Seelos
Recent research on business models that target the ‘Bottom of the Pyramid’ (BOP), the vast untapped potential market made up of the world’s poorest people, has emphasized the need for multinationals to radically change their approach and to fundamentally rethink every step in their supply chains. Companies are advised to build new resources and capabilities, to implement multiple strategies concomitantly, and to partner with multiple constituencies that often have different strategic objectives. The complexities and potential costs involved in these recommendations, we believe, constitute severe hurdles to executive decision making and to realizing the financial returns that would justify such investments.
This study develops a strategic perspective based on observation and analysis of two successful, alternative BOP models. A proposed strategic framework is complementary to current recommendations and scales down many of the implementation hurdles. The cases demonstrate how companies can leverage their existing corporate capabilities to provide scale to proven and already existing organizations at the BOP, and we illustrate how this approach can provide a platform for building the commercial enterprise that creates necessary financial returns. The analysis is grounded in and reflects important insights from business strategy research, in particular the resource based view (RBV) and recent work on strategic alliances. The unique context of these business models characterized by deep and widespread poverty expands our understanding of how strategic factors can be configured to create value.
Conclusions and Recommendations
Unfortunately textbook solutions for the BOP do not exist. Companies, consultants, development agencies and academics need to better understand the success factors for companies operating in environments characterized by deep poverty. Although our research is still at an early stage, we encourage informed experimentation by companies and suggest a number of activities that may help managers to increase their chances for success when considering entry into an underdeveloped market. We conclude with some of these recommendations for the private sector:
Recent research on business models that target the ‘Bottom of the Pyramid’ (BOP), the vast untapped potential market made up of the world’s poorest people, has emphasized the need for multinationals to radically change their approach and to fundamentally rethink every step in their supply chains. Companies are advised to build new resources and capabilities, to implement multiple strategies concomitantly, and to partner with multiple constituencies that often have different strategic objectives. The complexities and potential costs involved in these recommendations, we believe, constitute severe hurdles to executive decision making and to realizing the financial returns that would justify such investments.
This study develops a strategic perspective based on observation and analysis of two successful, alternative BOP models. A proposed strategic framework is complementary to current recommendations and scales down many of the implementation hurdles. The cases demonstrate how companies can leverage their existing corporate capabilities to provide scale to proven and already existing organizations at the BOP, and we illustrate how this approach can provide a platform for building the commercial enterprise that creates necessary financial returns. The analysis is grounded in and reflects important insights from business strategy research, in particular the resource based view (RBV) and recent work on strategic alliances. The unique context of these business models characterized by deep and widespread poverty expands our understanding of how strategic factors can be configured to create value.
Conclusions and Recommendations
Unfortunately textbook solutions for the BOP do not exist. Companies, consultants, development agencies and academics need to better understand the success factors for companies operating in environments characterized by deep poverty. Although our research is still at an early stage, we encourage informed experimentation by companies and suggest a number of activities that may help managers to increase their chances for success when considering entry into an underdeveloped market. We conclude with some of these recommendations for the private sector:
- Look for organizations in emerging economies that are already serving the poor.
- Build relationships with a number of organizations as early as possible. Social entrepreneurs are becoming much more visible as they participate in international conferences such as the World Economic Forum and in organizations such as the Schwab Foundation and Ashoka that promote and support social entrepreneurs can provide a wealth of information.
- Understand the strategic objectives, culture, and organizational structures of these BOP models: Do their attributes make them a good fit with your own? It is important to respect their identity and to pay attention to local social, cultural and political realities, in order to overcome a potential lack of trust in corporate intentions.
- Once relationships are built, begin to identify important bottlenecks in their models that might prevent the organizations from achieving strategic goals; and build your new business model around providing the constraining element.
- Start by thinking about replicating existing competencies to support the building of markets in foreign countries: these may naturally fit higher-income customers - allowing you to generate revenues and to eliminate uncertainty, while helping to solve the bottleneck in your partners’ strategy.
- Ensure that the business model supports an increase in the real income of people. This encourages positive development spirals that improve the ability of the poor to make consumption choices, and thus expands the customer base for companies.
- Monitor the dynamics of the environment and/or the development of the partner’s overall model and strategic objectives. This helps to recognize and to address emerging threats to the sustainability of the alliance. Gathering feedback from diverse stakeholders may help monitor relevant developments in the political, social and technical environment. Share insights with your partners in joint strategy sessions.
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