The Base of the Pyramid Protocol: Co-Venturing at the BoP Stuart Hart Erik Simanis Duncan Duke Greening of Industry Network Waterloo. Ontario June 16, 2007

Agenda The BoP Protocol: Background - The Why and What Implementing the Protocol – The How Building a New Capability – The How Q&A

Tier 4 The Business Sense of BoP Strategy ~4.0 billion ~1.5 billion < $3,000/yr Tier 4 ~4.0 billion > $15,000/yr Tier 1 ~800 million I. New Market: Massive & growing under- served market (Prahalad & Hart, 2002; Prahalad 2004; Hart 2005) $3,000 - 15,000/yr Tiers 2 & 3 ~1.5 billion II. Radical Innovation: Incubation site for “disruptive Tier 1 technologies” (Hart & Christensen, 2002) III. Competitive Pre-emption: Breeding ground for next-gen, global-scale competitors (Christensen, Craig, & Hart, 2001) STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE Global Population Per Capita Income (PPP)

The MNC: Traditional Customer Base “Tip” of the Income Pyramid > $15,000/yr Cost structures, business models, & research methods based on a “Western infrastructure” The “ToP” Customer “Base” of the Resource Pyramid STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE 85% of Global Resources

based on a different infrastructure. The BoP: Serving a Different Customer Less than $3,000 per year The “BoP” Customer “Base” of the Income Pyramid Will require cost structures, business models, & research methods based on a different infrastructure. STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE 15% of resources “Tip” of the Resource Pyramid

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” Deep dialogue Putting the last first Build capacity Leapfrog solutions Ecosystem of local partners BOP 1.0 Different price point Redesign packaging Low cost production Extended distribution Partner with global NGOs “Selling to the Poor” “Creating Mutual Value”

NOT a marketing problem NOT a technology problem The BoP Presents: NOT a marketing problem The “Sachet Mindset” Food & Nutrition and FMCPs NOT a technology problem The “Killer Ap Mindset” STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE Water Purification, Distributed Energy and ICTs …but a Business Model challenge

You can’t solve a problem using the same mindset that created it. STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE How do you “imagine”, pilot, and scale business models for a BoP infrastructure if your past and current business is ToP?

Co-Create the Business! Engaging the BoP differently… Customers Partners Clients Colleagues STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE Requires a New Strategy & Venturing Process… 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 Venture Sponsored By: Cornell University University of Michigan William Davidson Institute The World Resources Institute The Johnson Foundation Generous Support From: DuPont Hewlett Packard SC Johnson Tetra Pak STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE www.johnson.cornell.edu/sge www.bop-protocol.org

BoP Protocol™: Project Overview Refinement Full Scale Implementation with Candidate Companies Dupont/Solae: India Executive Education 2006 and Beyond Research On Development Methodologies and BoP Strategies 2003-2004 Workshop I Designing The Protocol October 2004 Workshop II Refining The Protocol October 2005 STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE Protocol Version 1.0 Protocol Version 2.0 and Field Guide Participatory Rural Appraisal (PRA) Rapid Assessment Process (RAP) Quick Ethnography Empathy-based Design Pilot Test: SC Johnson Kenya

BoP Protocol: Overview Co-Generated Business Concept Co-Constructed Business Model “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 the company, community and other partners in order to construct the business model New Market Creation STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE “Enterprise Creation” Evolve the business structure & build the market base through staged and flexible resource commitments Locally-Embedded Business

BoP Protocol: MNC Initiatives The SC Johnson Company Launch Date, June 2005, Kenya The Solae Company (Dupont) Launch Date, April 2006, India

BoP Protocol: Pre-Field Activities Local Partner Identification Identifying deeply embedded & attuned community-based organizations Team Formation & Preparation Snowball Networking Community Site Selection Matching geographies with firm’s strategic intent Inculcating shared ethic & developing common base of skills

Pre-Field: SC Johnson, Kenya II. Team Selection I. Site Selection NYOTA, Nakuru District III. Partner Selection KIBERA, Nairobi

Pre-field activities challenges Corporate leadership Local corporate members on field team Buy-in from top & mid level management Corporate knowledge & capabilities available to team - 18

BoP Protocol: Core Processes Business Concept Co-Generation Phase I Opening Up Collective Entrepreneurship Development Building Deep Dialogue Project Community Development Phase III Enterprise Creation Phase II Building the Ecosystem Co-Creation Logic Flexible Business Co-Creation Building The Market Base New Capability Development Building Shared Commitment Business Model Co-Construction

Phase I: Opening Up Phase I Opening Up Business Concept Co-Generation Collective Entrepreneurship Development Building Deep Dialogue Project Community Development ERIK (Phase 1) Co-Creation Logic Flexible Business Co-Creation Building The Market Base New Capability Development Building Shared Commitment Business Model Co-Construction Enterprise Creation Building the Ecosystem

Opening Up Attracting a committed and representative group Project Community Development Building Deep Dialogue Building trust & critical openness by practicing humility

Generating actionable ideas that harness partner capabilities & meet Opening Up Generating actionable ideas that harness partner capabilities & meet local needs Business Concept Co-Generation Collective Entrepreneurship Development Creating an innovation platform & shared business language through joint exploration of needs & resources

Opening Up SCJ Business Model Innovation “ToP” Business “BoP” Business 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) “Community-Based Cleaning & Waste Management Company” SCJ Business Model Innovation “ToP” Business “BoP” Business SELL: Cases of Product Service ENABLE: Distribution Micro-Enterprise MANAGE: Retail Trade Community Partners 23

Partners Capabilities Opening up challenges Local embedded community partner New organizational identity for community members Capabilities - It’s not development + business, it’s doing business differently Build & practice a co-creation logic 24

Phase II: Building the Ecosystem Business Concept Co-Generation Opening Up Collective Entrepreneurship Development Building Deep Dialogue Project Community Development Phase II Building the Ecosystem Co-Creation Logic ERIK Flexible Business Co-Creation Building The Market Base New Capability Development Building Shared Commitment Business Model Co-Construction Enterprise Creation

Building the Ecosystem Building Shared Commitment Building an organizational foundation and a strong group identity Project Community Development Building Shared Commitment: can think of this in terms of ‘trust staircases’ (Brown and Hagel, HBR, 2006) – need to incrementally build this through actions that increasingly require greater levels of commitment and dedication; learning from India – crafting the shared vision and mission statement (the “non-negotiables”) is something best done once there has been opportunity to work together and there is a deeper understanding of the business model (unlike Kenya where this was done right at the beginning); prior to that need to focus more on ‘successful partnerships”, demonstrating commitment through actions, and action-learning that creates opportunities for “creative friction” or “production friction” Project Community & Building Shared Commitment See P62 of Joas – Creativity of Action – Review of Durkheim: “..it already becomes clear that solidarity cannot consist solely in subjecting oneself to common obligations, but also requires one to be tied to common values” – important point in understanding how the project community forms an organizational basis Developing shared vision of the business & commitment to joint action

Building the Ecosystem New Capability Development Using Action Learning to evolve the value proposition and brand from the ground up Business Model Co-Construction ERIK Using Action Learning to Develop Organizational & Business Skills

Business Model Development: CCS Pilot Business Model CYE OBJECTIVES Self-defined Flexibility for business evolution BUSINESS IDENTITY Community owned Partnering with an MNC CCS SERVICE LEVELS Services grouped into “suites” that include: Garbage Collection Indoor Cleaning Pest Control & IPM Screening Windows Wall repair & painting Outdoor (grass cut, garbage, drains) Pricing: Flexible by group 28

Building the ecosystem challenges Constructing the business model Engage broader community Business model is not a plan Manage expectations - Community members – income & status MNC – business model & scale of impact 29

Phase III: Enterprise Creation Business Concept Co-Generation Opening Up Building Deep Dialogue Project Community Development Collective Entrepreneurship Development Phase III Enterprise Creation ERIK Co-Creation Logic Building Shared Commitment Business Model Co-Construction Building the Ecosystem Flexible Business Co-Creation Building The Market Base New Capability Development

Collective Entrepreneurship Development Enterprise Creation Collective Entrepreneurship Development Building The Market Base Deepening business to community linkages… Jointly evolving the value proposition

Flexible Business Co-Creation New Capability Development Enterprise Creation Flexible Business Co-Creation New Capability Development Building a platform for growth & expansion... Evolving an organizational structure around the business

Enterprise Creation Group: Tuff Gong Basic spraying service Lowest prices /high volume Serving other slums Community: Mitumba 33

Enterprise Creation MECYG, in Mathare Contracts for entire buildings Cleaning common areas & toilets Larger teams 34

Enterprise creation challenges Maintain flexibility Flexible organizational structures Directed evolution of NGO partners’ roles Build organizational capabilities - MNC – manage a business model incubation space 35

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

BoP Broker & Representative Beyond The Public-Private Partnership “Public-Private Partnerships” “Co-Venturing” MNC Joint Entrepreneurs The Business Driver MNC BoP Community Unique Capabilities & Resources Unique Capabilities & Resources NGO Gov’t BoP Broker & Representative NGO Gov’t BoP Community Business Model Inputs Relationship Facilitators + Relatively familiar partnership structure (MOU) + Amenable to planning, managing & monitoring + Scale Up is imaginable & feels attainable - High role uncertainty; unknown goals & ends - Can’t plan or control an unknown future - Unpredictable business model outcome - Limited community capability development - Incremental Innovation of Business Model - Competitive Advantage: Highly Replicable + Deep capability development of community + Frame Breaking Business Model Innovation + Competitive Advantage: Hard to Replicate

BoP Broker & Representative Beyond The Public-Private Partnership “Public-Private Partnerships” “Co-Venturing” MNC Joint Entrepreneurs The Business Driver MNC BoP Community Unique Capabilities & Resources Unique Capabilities & Resources NGO Gov’t BoP Broker & Representative NGO Gov’t BoP Community Business Model Inputs Relationship Facilitators + Amenable to planning, managing & monitoring Feels familiar - Cannot be planned, predicted or forecasted Feels uncomfortable - Low degree competitive advantage & community capability development Incremental business innovation + High degree competitive advantage & deep community capability development Embedded Business Model Innov.

Building a New Corporate Capability Native Capability 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 STU SLIDES TO BE UPDATED/EDITED/SELECTED BY STU SOMEWHAT LAST MINUTE

The Base of the Pyramid Protocol Co-Venturing at the BoP Stuart Hart Erik Simanis Duncan Duke Greening of Industry Network Waterloo. Ontario June 16, 2007

Community: Makina (in Kibera) Enterprise Creation Group: Bunker Comprehensive & labor intensive services Higher prices / lower volume Higher end of market Community: Makina (in Kibera) 41