Stuart Hart

Erik Simanis

Duncan Duke

The Base of the Pyramid Protocol:Co-Venturing at the BoP

Greening of Industry NetworkWaterloo. Ontario

June 16, 2007

Agenda

The BoP Protocol:

1. Background - The Why and What

2. Implementing the Protocol – The How

3. Building a New Capability – The How

4. Q&A

< $3,000/yr

Tier 4~4.0 billion

> $15,000/yr Tier1

~800 million

II. Radical Innovation: Incubation site for

“disruptive Tier 1 technologies” (Hart & Christensen, 2002)

The Business Sense of BoP Strategy

Global Population Per Capita Income (PPP)

III. Competitive Pre-emption: Breeding ground for next-gen,

global-scale competitors (Christensen, Craig, & Hart, 2001)

I. New Market: Massive & growing under-

served market(Prahalad & Hart, 2002;

Prahalad 2004; Hart 2005)$3,000 - 15,000/yr

Tiers2 & 3

~1.5 billion

The MNC: Traditional Customer Base

“Tip” of the Income Pyramid

“Base” of the Resource Pyramid

The “ToP”

Customer85% of Global Resources

> $15,000/yr Cost structures, business models, & research methods based on a

“Western infrastructure”

The BoP: Serving a Different Customer

“Base” of the Income Pyramid

“Tip” of the Resource Pyramid

The “BoP”

Customer

Less than $3,000 per year

15% of resources

Will require cost structures,

business models, & research methodsbased on a different

infrastructure.

Many Companies are Beginning to Experiment with the BoP

Nutristar, Nutridelight (nutritional drink), Pur (water purifier)

Hindustan Lever (detergent for the poor in India and Brazil), Annapurna (iodized-Salt for the poor)

Making solar power affordable (India)

Banco Real, microcredit in Brazil

Vodacom community services in South Africa, joint venture between Vodafone and Telkom SA

Solar powered digital camera in India and community information systems

Program in South Africa to help entrepreneurs enter the supply chain and profit from new business ventures.

Water for all program to periurban areas in Brazil

First Generation BOP Strategy:“The Child With a Hammer”

• BOP 1.0– Different price point– Redesign packaging– Low cost production– Extended distribution– Partner with global

NGOs

• BOP 2.0– Deep dialogue– Putting the last first– Build capacity– Leapfrog solutions– Ecosystem of local

partners

“Selling to the Poor” “Creating Mutual Value”

The BoP Presents:

NOT a marketing problem

NOT a technology problem

…but a Business Model challenge

• Food & Nutrition and FMCPs

• Water Purification, Distributed Energy and ICTs

The “Sachet Mindset”

The “Killer Ap Mindset”

You can’t solve a problem using the same mindset that created it.

How do you “imagine”, pilot, and scale business models for a BoP infrastructure if

your past and current business is ToP?

Customers Partners

Clients Colleagues

Engaging the BoP differently…

Requires a New Strategy & Venturing Process…

Co-Create the Business!

Co-Venturing

The BoP Protocol is a co-venturing process

that enables MNCs to…

Forge lasting partnerships with income-poor communities through mutual dialogue and joint learning

• Co-create new businesses embedded in the local cultural and physical infrastructure that creatively marry the community’s resources, technologies & capabilities with those of the MNC

• Co-create new BoP markets that recognize and derive genuine value from the business’ products and services

BoP Protocol™: A Collaborative VentureSponsored By:Cornell University

University of MichiganWilliam Davidson Institute

The World Resources InstituteThe Johnson Foundation

Generous Support From:DuPont

Hewlett Packard SC Johnson

Tetra Pak

www.johnson.cornell.edu/sgewww.bop-protocol.org

BoP Protocol™: Project Overview

ProtocolVersion 1.0

ResearchOn

DevelopmentMethodologies

andBoP Strategies

2003-2004

Pilot Test:SC Johnson

Kenya

• Participatory Rural Appraisal (PRA)

• Rapid Assessment Process (RAP)

• Quick Ethnography

• Empathy-based Design

ProtocolVersion 2.0

and Field Guide

ProtocolRefinement

Full ScaleImplementation with Candidate

Companies

Dupont/Solae: India

ExecutiveEducation

2006 and Beyond

Workshop IDesigning

The Protocol

October 2004

Workshop IIRefining

The Protocol

October 2005

Co-Generated Business Concept

Locally-Embedded Business

Co-Constructed Business Model

BoP Protocol: Overview

“Opening Up”Launch a non-business specific immersion guided by two-way

dialogue and humility to catalyze generation of new business

concepts

“Building the Ecosystem”

Deepen commitment among thecompany, community and other partners in order to construct

the business model

“Enterprise Creation” Evolve the business structure & build the market base through staged and

flexible resource commitments

New Market Creation

BoP Protocol: MNC Initiatives

The SC Johnson Company

The Solae Company (Dupont)

• Launch Date, June 2005, Kenya

• Launch Date, April 2006, India

BoP Protocol: Pre-Field Activities

Team Formation &Preparation

LocalPartner

Identification

Community Site

Selection

SnowballNetworking

Identifying deeply embedded & attuned

community-basedorganizations

Inculcating sharedethic & developing

common baseof skills

Matching geographies with firm’s strategic

intent

Pre-Field: SC Johnson, Kenya

KIBERA, Nairobi

NYOTA, Nakuru District

I. Site Selection

III. Partner Selection

II. Team Selection

Pre-field activities challenges

• Local corporate members on field team

• Buy-in from top & mid level management

• Corporate knowledge & capabilities available to team

Corporate leadership

BusinessConcept

Co-Generation

FlexibleBusiness

Co-Creation

BusinessModel

Co-Construction

NewCapability

Development

BuildingThe Market

Base

BuildingShared

Commitment

CollectiveEntrepreneurship

Development

Project Community

Development

BuildingDeep

Dialogue

Phase IOpening Up

Phase IIBuilding theEcosystem

Phase IIIEnterpriseCreation

BoP Protocol: Core Processes

Co-CreationLogic

BusinessConcept

Co-Generation

CollectiveEntrepreneurship

Development

ProjectCommunity

Development

BuildingDeep

Dialogue

Phase I: Opening Up

Building theEcosystem

Phase IOpening Up

EnterpriseCreation

FlexibleBusiness

Co-Creation

BusinessModel

Co-Construction

NewCapability

Development

BuildingThe Market

Base

BuildingShared

Commitment

Co-CreationLogic

Project CommunityDevelopment

Building trust & critical openness by practicing

humility

Attracting a committed and

representative group

Opening Up

BuildingDeep Dialogue

Business ConceptCo-Generation

Collective Entrepreneurship

Development

Creating an innovation platform & shared business

language through joint exploration of needs &

resources

Generating actionable ideas that harness partner

capabilities & meet local needs

Opening Up

Opening Up

• 9 “Taka ni Pato” youth groups committed to building a business in Nairobi’s slums with the support of an SCJ & CFK management team

• Offer a diverse set of cleaning and pest control services direct to homes and businesses in Nairobi’s slums

• Provide suites of services that bundle SCJ products like Pledge®, Glade®, Toilet Duck® and Baygon® along with existing youth services (e.g., garbage collection and carpet cleaning)

SCJ Business Model Innovation

SELL:

ENABLE:

MANAGE:

“Community-Based Cleaning & Waste Management Company”

“ToP” Business “BoP” Business Cases of Product Service

Distribution Micro-Enterprise

Retail Trade Community Partners

Opening up challenges

• Local embedded community partner• New organizational identity for community members

Partners

Capabilities

• It’s not development + business, it’s doing business differently

• Build & practice a co-creation logic

BusinessModel

Co-Construction

NewCapability

Development

BuildingShared

Commitment

Project Community

Development

Phase II: Building the Ecosystem

BusinessConcept

Co-Generation

Phase IIBuilding theEcosystem

OpeningUp

FlexibleBusiness

Co-Creation

BuildingThe Market

Base

CollectiveEntrepreneurship

Development

BuildingDeep

Dialogue

EnterpriseCreation

Co-CreationLogic

Building the Ecosystem

Project CommunityDevelopment

Building SharedCommitment Building an organizational

foundation and a strong group identity

Developing shared vision of the business &

commitment to joint action

New CapabilityDevelopment

Business Model Co-Construction

Building the Ecosystem

Using Action Learning to Develop Organizational &

Business Skills

Using Action Learning to evolve the value proposition

and brand from the ground up

Business Model Development:CCS Pilot Business Model

CYE OBJECTIVES

• Self-defined

• Flexibility for business evolution

CCS SERVICE LEVELS

• Services grouped into “suites” that include:

Garbage CollectionIndoor CleaningPest Control & IPMScreening WindowsWall repair & paintingOutdoor (grass cut,

garbage, drains)

• Pricing: Flexible by group

BUSINESS

IDENTITY

• Community owned

• Partnering with an MNC

Building the ecosystem challenges

• Engage broader community

• Business model is not a plan

Constructing the business model

Manage expectations

• Community members – income & status

• MNC – business model & scale of impact

FlexibleBusiness

Co-Creation

NewCapability

Development

BuildingThe Market

Base

CollectiveEntrepreneurship

Development

Phase III: Enterprise Creation

BusinessConcept

Co-Generation

Building theEcosystem

Opening Up

Phase IIIEnterpriseCreation

BusinessModel

Co-Construction

BuildingShared

Commitment

ProjectCommunity

Development

BuildingDeep

Dialogue

Co-CreationLogic

Building TheMarket Base

Collective Entrepreneurship

Development

Enterprise Creation

Deepening business to community linkages… Jointly evolving the value proposition

New CapabilityDevelopment

Enterprise Creation

Building a platform for growth & expansion... Evolving an organizational

structure around the business

Flexible Business Co-Creation

Enterprise Creation

•Basic spraying service•Lowest prices /high volume•Serving other slums

Group: Tuff Gong

Community: Mitumba

Enterprise Creation

MECYG, in Mathare •Contracts for entire buildings•Cleaning common areas & toilets•Larger teams

Enterprise creation challenges

• Flexible organizational structures

• Directed evolution of NGO partners’ roles

Maintain flexibility

Build organizational capabilities

• MNC – manage a business model incubation space

BoP Protocol:Discovery versus Creation

• Discovery-Based BoP– “Target” the unmet

needs in the BoP– Estimate the size of

the market– Adapt current products

and technologies– Extend current

business model via structural innovation

– “Scale up”

• Creation-Based BoP– Be humble; begin with

an open mind– Spark competitive

imagination– Co-develop something

new– Build new business

model on trust and social capital

– “Scale out”

See: Alvarez, S. and Barney, J. (2006) “Toward a Creation Theory of Entrepreneurial Opportunity Formation” Working Paper

Beyond The Public-Private Partnership

“Public-Private Partnerships”

BoP Community

BoP Community

“Co-Venturing”

MNCMNC

NGONGO Gov’tGov’t

BoP Community

BoP Community

MNCMNC

NGONGO Gov’tGov’t

The BusinessDriver

- Limited community capability development

- Incremental Innovation of Business Model

- Competitive Advantage: Highly Replicable

BoP Broker & Representative

RelationshipFacilitators

+ Relatively familiar partnership structure (MOU)+ Amenable to planning, managing & monitoring + Scale Up is imaginable & feels attainable

+ Deep capability development of community+ Frame Breaking Business Model Innovation + Competitive Advantage: Hard to Replicate

- High role uncertainty; unknown goals & ends

- Can’t plan or control an unknown future

- Unpredictable business model outcome

Business Model Inputs

Joint Entrepreneurs

Unique Capabilities& Resources

Unique Capabilities& Resources

Beyond The Public-Private Partnership

“Public-Private Partnerships”

BoP Community

BoP Community

“Co-Venturing”

MNCMNC

NGONGO Gov’tGov’t

BoP Community

BoP Community

MNCMNC

NGONGO Gov’tGov’t

The BusinessDriver

- Low degree competitive advantage & community capability development• Incremental business innovation

BoP Broker & Representative

RelationshipFacilitators

+ Amenable to planning, managing & monitoring • Feels familiar

+ High degree competitive advantage & deep community capability development • Embedded Business Model Innov.

- Cannot be planned, predicted or forecasted

• Feels uncomfortable

Business Model Inputs

Joint Entrepreneurs

Unique Capabilities& Resources

Unique Capabilities& Resources

• Engage with marginalized groups and communities in mutual business partnership

• Build long-term relationships of trust and understanding with BoP communities

• Creatively marry MNC capabilities and technologies with those of BoP communities

• Evolve the business model from the ground up

Native Capability

Building a New Corporate Capability

Stuart HartErik Simanis

Duncan Duke

The Base of the Pyramid ProtocolCo-Venturing at the BoP

Greening of Industry NetworkWaterloo. Ontario

June 16, 2007

Enterprise Creation

Group: Bunker •Comprehensive & labor intensive services•Higher prices / lower volume•Higher end of market

Community: Makina (in Kibera)