There's Still a Fortune at the Bottom of the Pyramid

There's Still a Fortune at the Bottom of the PyramidtcbrPDF normal

Paul Polak explains why your survival may depend on whether you pick it up.

By Matthew Budman

There's Still a Fortune at the Bottom of the Pyramid

Matthew Budman is editor-in-chief of TCB Review.

polak3Most of the time, when authors and activists urge CEOs to change their way of thinking and do things differently in order to save the world, they face immediate skepticism: Is this really all that important, and what can we do? But ending global poverty is, without question, the most critical problem society faces.

Paul Polak has spent the last three decades working to ameliorate poverty, and he's convinced that what works is not charity or government efforts but market-based development. “[T]he most direct solution for poverty is to provide poor people with jobs paying decent wages,” he and co-author Mal Warwick write in The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers (Berrett-Koehler).

Beyond the moral imperative of ending poverty, companies seeking growth will need to look to new markets, and no market could be newer than the 2.7 billion people currently served by no one—people in need of clean water, renewable energy, affordable housing, accessible health care and education, and, most of all, jobs.

Thirty years after founding iDE, a still-thriving development-based nonprofit aimed at improving the lives and opportunities of rural farmers, Polak is actually gaining momentum. “If there's been one constant in success in this field the last thirty years, it's that it's inconstant,” he says, “You have to keep learning and changing every day.” In recent years, he founded Spring Health, which uses an enterprise model to bring clean water to small villages in eastern India, and set in motion several new social-impact multinationals, each intended “to transform the lives of 100 million $2-per-day customers and generate annual sales of $10 billion.”

Ambitious? Wildly. But if Polak's efforts to lay out “a roadmap to entrepreneurs and existing businesses interested in the bottom billions as potential customers” pay off in companies moving forward and raising the living standards of hundreds of millions of people, the benefits will be, well, global in scale.

Polak, 79, spoke via Skype from Golden, Colo.

When it comes to marketing to people who earn less than $2 a day, the first phrase that comes to everyone's mind is “the fortune at the bottom of the pyramid.” But you say that companies that tried to act on C.K. Prahalad's ideas got mixed results.

I think C.K. Prahalad's concept, and that phrase, are brilliant, which is why boardrooms got excited about it. But the weakness in his book is that it was comparatively undisciplined when it comes to practical examples, and it's the examples that give marching instructions for how to do it. It's not a recipe for success.

There is a huge opportunity for a massive expansion of for-profit education systems. Look at India. The Indian school system, up to high school, is a disaster.

Many of his examples were, first of all, not at the bottom of the pyramid at all. There's a big difference between people who earn $10 a day and people who earn $2 a day. One of the examples in the book was Jaipur Foot, which makes artificial limbs; it's a brilliant organization, but it's totally a charity; they give the limbs away. It's a breakthrough in affordability, but it's not a business. Then you have Casas Bahia, a company that sells furniture in Brazil and has a creative credit program. But they sell refrigerators and color TV sets—not exactly the mainstream products that $2-a-day customers will buy. On the other hand, the book talked about Aravind, a company that does cataract surgery and affordable lenses, and that is a perfect example.

What companies need to know is how to address the practical problems of last-mile distribution, affordability, scale, and serving dispersed customer groups. And on all that, The Fortune at the Bottom of the Pyramid is comparatively silent.

Has the lack of big success stories left many companies a little gun-shy?

I think so. It's hard to break out of the usual ways of thinking. The real transformations in business don't come from a continuation of conventional business thinking. When Henry Ford came up with a car for Everyman, the conventional wisdom in the automobile industry was to make really attractive cars for rich playboys. Nobody felt that you could create or design a car for the working man. They weren't aware of that market. If they had had a C.K. Prahalad, it wouldn't have helped. The industry needed a Henry Ford. And Henry Ford created the company that transformed transport by making it smaller and cheaper, along with a whole new distribution system.

My view is that a lot of the transformations in business have been based on revolutions in smaller and cheaper, miniaturization and affordability. It's hard to conceive of those transformations. The problems are not things that naturally spring to mind for companies in the current fields and markets that they're working in.

The scale is what makes it difficult. In the book, you demand that companies set out to “transform the lives” of millions of customers. You even list the specific number of millions. Do executives find that challenge exhilarating or daunting?

Well, people react very positively when I give a keynote talk somewhere, but reacting to a talk and doing it are different things. People in big business think it's an intriguing idea. But are they going to set aside $100 million to give it a shot? Probably not. That's the read that I get now. That may change. It needs to change.polak4

The reluctance isn't surprising: It's one thing for a CEO to send a team to an emerging country and order new packaging on products, and another to fund a new business unit for five or ten years with no guarantee that it'll pay off.

It really does require a transformation in thinking, and it's not easy for a corporation to do that. Ted Solso talks about how it was very hard for him to implement transformational change when he was CEO of Cummins Inc. Diesel-engine companies were prepared to fight the new government emission standards, and for a variety of reasons, Cummins said, “Not only will we not fight them—we will beat them.” That took a tremendous investment and a real risk, but it ended up with Cummins being the leading brand in many markets for large diesel engines. That's a transformation within a certain market. It's not easy, or everyone would have done it.

There are models that have been tried in conventional business. Lockheed Martin's Skunk Works is a perfect example, with some major breakthroughs, like the Stealth bomber. The notion was: “Hey, this is really important, and we can't do it with our existing assumptions and our existing teams, so let's establish another unit.” It's high-risk but high-reward. It requires a real disciplined ongoing learning process to be successful, and even then there's no guarantee.

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The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.