1. 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

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

3. 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/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)

4. 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

5. 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

6. 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

7. 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”

8. 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

9. 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?

10. 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

11. 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

12. 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

13. 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
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

14. 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

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

16. 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

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

18. 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

19. 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

20. 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

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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

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

32. 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

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

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

35. 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

36. 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

37. 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

38. 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.

39. 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

40. 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

41. 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