Stuart Hart Erik Simanis Duncan Duke

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

4. The MNC: Traditional Customer Base “Tip” of the Income Pyramid Cost structures, business models, & research methods based on a “Western infrastructure” > $15,000/yr The “ToP” Customer “Base” of the Resource Pyramid 85% of Global Resources

5. 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 differentinfrastructure. 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. 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 First Generation BOP Strategy:“The Child With a Hammer” “Creating Mutual Value” “Selling to the Poor”

8. The BoP Presents: NOT a marketing problem The “Sachet Mindset” • Food & Nutrition and FMCPs NOT a technology problem The “Killer Ap Mindset” • 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. How do you “imagine”, pilot, and scale business models for a BoP infrastructure if your past and current business is ToP?

10. Customers Partners Clients Colleagues Co-Create the Business! Engaging the BoP differently… 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 www.johnson.cornell.edu/sge www.bop-protocol.org

13. 2006 and Beyond 2003-2004 Executive Education Protocol Refinement October 2005 October 2004 Research On Development Methodologies and BoP Strategies Full Scale Implementation with Candidate Companies Dupont/Solae: India Workshop I Designing The Protocol Workshop II Refining The Protocol Protocol Version 2.0 and Field Guide Protocol Version 1.0 BoP Protocol™: Project Overview • Participatory Rural Appraisal (PRA) • Rapid Assessment Process (RAP) • Quick Ethnography • Empathy-based Design Pilot Test: SC Johnson Kenya

14. Co-Constructed Business Model Co-Generated Business Concept Locally-Embedded Business BoP Protocol: Overview “Building the Ecosystem” Deepen commitment among the company, community and other partners in order to construct the business model “Opening Up” Launch a non-business specific immersion guided by two-way dialogue and humility to catalyze generation of new business concepts New Market Creation “Enterprise Creation” Evolve the business structure & build the market base through staged and flexible resource commitments

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

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 Business Concept Co-Generation Phase I Opening Up Collective Entrepreneurship Development Building Deep Dialogue Project Community Development 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. Project Community Development Opening Up Attracting a committed and representative group Building Deep Dialogue Building trust & critical openness by practicing humility

22. OpeningUp 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 “Community-Based Cleaning & Waste Management Company” • 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® alongwith existing youth services (e.g., garbage collection and carpet cleaning) SCJ Business Model Innovation “ToP” Business “BoP” Business Cases of Product Service SELL: Micro-Enterprise Distribution ENABLE: Community Partners Retail Trade MANAGE:

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

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 Flexible Business Co-Creation Building The Market Base New Capability Development Building Shared Commitment Business Model Co-Construction Enterprise Creation

26. Building SharedCommitment Project CommunityDevelopment Building the Ecosystem Building an organizational foundation and a strong group identity Developing shared vision of the business & commitment to joint action

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

28. 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 Collection • Indoor Cleaning • Pest Control & IPM • Screening Windows • Wall repair & painting • Outdoor (grass cut, garbage, drains) • Pricing: Flexible by group • BUSINESS • IDENTITY • Community owned • Partnering with an MNC

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

30. Phase III: Enterprise Creation Business Concept Co-Generation Opening Up Building Deep Dialogue Project Community Development Collective Entrepreneurship Development Phase III Enterprise Creation 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 Building TheMarket Base Deepening business to community linkages… Jointly evolving the value proposition

32. Flexible Business Co-Creation New CapabilityDevelopment Enterprise Creation 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

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

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

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

37. Beyond The Public-Private Partnership “Public-Private Partnerships” “Co-Venturing” Joint Entrepreneurs MNC 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. Beyond The Public-Private Partnership “Public-Private Partnerships” “Co-Venturing” Joint Entrepreneurs MNC 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 • - Cannot be planned, predicted or forecasted • Feels uncomfortable • +Amenable to planning, managing & monitoring • Feels familiar • - 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

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