Focus on sustainability not for compliance, but innovation

Written by Rajiv Tikoo | Saikat Neogi | Updated: Nov 29 2009, 02:32am hrs
Coimbatore Krishnarao Prahalad has been again named the most influential business thinker in the world. He has topped The Thinkers 50 list for a second consecutive time. Instead of getting carried away, it makes him focus more on his work. He has just come out with the revised edition of his game-changing book, The Fortune at the Bottom of the Pyramid. The edition carries an update on the private sectors changing role in poverty alleviation, lessons learnt by MNCs while tapping into the bottom of the pyramid markets, development of new market opportunities, and evolution of rules that drive the engagement of businesses with emerging markets. In a recent issue of the Harvard Business Review, he has talked about sustainability as a key driver of innovation. During his recent visit to India, the Paul and Ruth McCracken distinguished university professor of strategy at the University of Michigan took time off to talk to FEs Rajiv Tikoo & Saikat Neogi and assess the impact of his work and the road ahead. Excerpts:

It is five years since you came out with your best-selling book, The Fortune at the Bottom of the Pyramid. Though it is too short a period to assess the impact of any such work, how satisfied are you when you look back

A lot more than one could reasonably expect. All the leading development agencies have more or less accepted that the role of the private sector is quite integral to poverty alleviation. Its not peripheral any longer. Its not an option, but an imperative. It is a big change in the debate.

Let me give you an example to indicate the paradigm shift in thinking. When the Millennium Development Goals were laid down originally, the initiative was seen as a governmental, inter-governmental and multilateral effort. The first time the private sector was involved was in the UNDP report that came out in 2004. And I was a member of the UN Commission (on Private Sector and Development) that brought out the report. Most of the examples in that report about the private sectors involvement in poverty alleviation were from my book. So, since 2004, we have come a long way. If I look back over the last five years, there is a great sense of satisfaction that the issue is not anymore a question that is open to debate. The debate has now shifted to how to do it.

Has the private sector lived up to the role you envisaged for it

The transformation that I predicted would happen is happening all across. If I look at large companies, a lot has happened. Take, for example, the wireless worldwide. Whether it is Safaricom, MTN, Celtel, Globe or telecoms in India, it doesnt matter. It has been proven that the bottom of the pyramid is a huge market. Right pricing and right business models get you a huge market. Secondly, poor people adopt technology rapidly. They have no problem with advanced technology and there is money to be made. Take, for example, the net book. It was invented for poor people around the world, but now around two million net books have been sold in the United States alone. If you focus on serving this population, you will have to do it the way you do business. You need radical innovation in models, products and services. Whether it is Safaricom in Kenya, or doing financial transactions in India, new applications are being developed and deployed. The bottom of the pyramid models are becoming enormous sources of innovation. Whether it is Nestle or Thomson Reuters, more and more multinational companies are experimenting. A lot of that is taking place in India.

In a world of falling markets today, how desirable is the growing role of markets in poverty alleviation

You cannot take deviance in behaviour of any one organisation and blame the entire sector. Let me give you a simple example: When local moneylenders charge 200%-plus effective interest rate, you remain quite. But if a bank charges 18% from poor people, then we say they should not charge more than 8%. But the alternative to 18% is 200%. Now, the question is: Is the company exploiting or the company helping And whose interest do we have in mind when we complain. So, poor people do not have a choice but to go to money lenders. In our premature criticism, we may be forcing poverty to persist rather than poverty to be alleviated. This does not mean all people are fair or treat their employees fairly.

So, are you in favour of a much bigger role for markets

I believe markets cannot solve all the problems. Markets must be regulated. Self-help groups and microfinance companies must be regulated as well. However, having said that, poverty alleviation is taking a large number of people from the unorganised sector to the organised market, which is regulated. Its the kind of transformation that we are talking about.

In the revised edition of The Fortune at the Bottom of the Pyramid, you have put a premium on democratisation of commerce. How would you sum up its essence

The last century was all about marketisation of politics and getting individuals share their voice about how they are governed. The next big challenge for the humanity is to get everybody, not just the elite, to participate in globalisation and avail of its benefits. So, do you want to get world class products, not luxury products, at affordable prices and with multiple choices That is the consumers right. As a producer, you must get fair wages for your effort and fair returns for your creativity. So, there are four fundamentals: the micro-producer, micro-consumer, micro-innovator and potentially, the micro-investors. Microfinance does not always mean giving credit, but they should be able to take the money and invest in such a way that you get the benefits of a large fund. So, you pool in all the money and invest to get higher returns as micro-investors. The starting point is to create institutions. We have to create them over a period of time and allow all people, not just a few, to participate in them. Thats the essence of democratisation.

Your article in a recent issue of the Harvard Business Review talks about sustainability as a key driver of innovation. How viable is it during the downturn or post-downturn

My HBR article is all about treating sustainability as a mission and how to reduce costs and increase revenues by focusing on sustainability. The focus on sustainability has to be not just for compliance, but as a source of innovation. The downturn offers a great opportunity to do it this way. For example, the prices of commodities are very volatile. This is the time when one should reduce dependence on energy. Volatility is going to force us to reduce it.

So, I think this is the time when one should focus on sustainability and inclusion simultaneously and not either/or. Today its very counterintuitive because everyone comes with a lot of assumptions. Everybody thinks of solar panels when they talk of sustainability. Carbon footprint is not the only thing. What about the use of water What about building recycling into the design itself All of them are perfectly legitimate examples of ecological and sustainable development.

So, climate change is not the driver really

Climate change could be a driver, but sustainable development is not just about climate change alone.

Reaching the bottom of the pyramid is a big challenge in itself. Is it not going to be doubly challenging if sustainability too comes into play

It is actually simpler because you can design a product, service or supply chain with sustainability and inclusiveness together. You do not do it as an afterthought. So, your whole design paradigm changes.

Spending on innovation in India is low. So, how realistic is it to expect innovation to take off in the country

Spending and innovation are not related. Probably, spending and patents are related. You will have to look at engineering and creativity rather than spending. Spending is not the key, but a combination of imagination, focus and commitment is.