Public Eye: Stuart Hart on climate change and BoP business

Professor Stuart Hart discusses his thoughts on climate change and base of the pyramid business. Photograph: BCtA/PR

One of the founding fathers of base of the pyramid business talks innovation, disruptive technology and scaling up inclusive business

Professor Hart is considered one of the world’s top authorities on the implications of environment and poverty for business strategy. According to Bloomberg Businessweek, he is “one of the founding fathers of the ‘base of the pyramid’ economic theory.”

Hart is currently the Steven Grossman endowed chair in sustainable business at the University of Vermont Business School and the SC Johnson chair emeritus in sustainable global enterprise and professor emeritus of management at Cornell University’s Johnson Graduate School of Management.

During the last decade, first-generation “Base of the Pyramid” (BoP) ventures focused primarily on “finding a fortune at the BoP” by selling existing goods to and sourcing products from the world’s 4 billion poorest people. Many of these early initiatives did not scale, and some failed as a whole. What adaptations or policy changes do you view as vital for companies interested in entering the BoP landscape?

There are two major adaptations that corporations need to commit to in order to move beyond first-generation BoP strategies—one external and one internal. The external adaptation has to do with the development of a new set of skills and capabilities by key people in the company.

Traditional competencies in marketing research, product design, and new product development are simply not sufficient. Companies need to develop a cadre of people with the skills needed to co-create solutions with partners on the ground from the underserved communities involved. 

These skills in ‘embedded innovation’ involve empathy, deep dialogue, and participatory design. Value propositions must be co-created rather than introduced from the outside. These are learnable skills, but are typically not included in the business or engineering toolkit.

The internal adaptation has to do with the organisational capacity to nurture and grow such BoP ventures. Since co-creating BoP value propositions and ventures typically takes longer than traditional new product development of line extensions, it is necessary to have an organisational ‘white space’ to nurture these ventures with its own timeline and metrics for success, with an emphasis on learning in the early going. Premature expectation for financial returns has killed many BoP ventures within corporations, so the internal organisational challenge is key.

With climate change finally at the forefront of the global development and political agenda, is it feasible that companies can straddle the dual challenge to move beyond greening to develop breakthrough innovations?

By focusing the application of distributed clean technologies on meeting the needs of underserved communities, companies can incubate innovative products and business models with massive growth potential that move us simultaneously toward a more environmentally sustainable world. Ultimately, these sustainable innovations can ‘trickle up’ to the top of the pyramid, presenting enormous profit opportunities.

If it is feasible and it should be, how do you get companies to think critically about how to create environmentally sustainable business models that also serve the BoP?

Creating a space for strategic BoP initiatives will be crucial to the long term survival and sustainability of today’s incumbent firms. As yesterday’s resource-and-waste-intensive technologies become obsolete or impossible to sustain over the next decade or two, the companies that incubate tomorrow’s clean, sustainable, and inclusive businesses will emerge as the dominant players in the 21st century.

Can you tell us a bit more about what you view as the strategic opportunity that companies face by focusing on what you term the “Green Leap” and the BoP?

Many emerging clean technologies (eg fuel cells, distributed generation, point-of-use water treatment, biomaterials, nanomaterials, 3D printing) are disruptive 
to current incumbent infrastructure and business models. It is therefore an uphill climb to develop the market for these next generation technologies first in the developed world – policy inertia and incumbent bias make it highly unlikely.

Instead, the early markets for tomorrow’s technologies will be in the large underserved populations at the BoP in the developing world – especially China, India, Latin America, and Africa; it is here that the 4-5 billion underserved people live and the biggest problems to solve exist.

In some of your early writing you discuss the need for companies to provide more disruptive technology, especially in the areas of energy and power. Do you still feel that the base of the pyramid is ripe for such technologies to gain a foothold?

Absolutely. In fact, we are finally beginning to see this competitive dynamic come to pass. Throughout the world—in Africa, Asia, and Latin America—hundreds of new ventures with disruptive, distributed clean technologies and inclusive business models are beginning to get traction.

Just look at the rapid rise of the new solar lighting venture d-light
as one example. This company has finally taken off and is beginning to scale in the way that many of us had dreamed a decade ago. It takes time to crack the code on an entirely new commercial space. But I believe the time has finally arrived

Despite the tremendous strides and learning about how to build successful inclusive businesses, from your viewpoint where we are in the learning process and what would be your prescription for supporting companies into these new BoP markets?

It is now becoming increasingly clear that success demands that BoP enterprises create wide and compelling value propositions.

For BoP innovators, this means creating an entire business ecosystem that delivers value to local people and communities in multiple ways, not just through the sale of a single product. 

What is the lesson for aspiring BoP entrepreneurs? Create a wide value proposition with multiple, complementary sources of benefit and revenue generation embedded throughout the entire business ecosystem. 

Escape the tyranny of the single product ‘rifle shot’ in favour of an umbrella business concept that simultaneously reduces environmental burden, generates livelihoods, and produces profits for the investors.

At the end of the day, sustainable strategies for the BoP require a new set of skills to complement the existing MBA toolkit taught at business schools.

We need more programmes like the Emergent Institute in India and the new Sustainable Entrepreneurship MBA Program at the University of Vermont’s Business School.

Stuart Hall is the Steven Grossman endowed chair in Sustainable Business, University of Vermont

Content on this page is provided by Business Call to Action, and originally appeared on the The Guardian Business and the Sustainable Development Goals Hub