Posted by: tanujit | April 19, 2007

Making a “Fortune” from the “Unfortunate”

Management guru CK Prahlad has an interesting article about the way the new age companies are moving towards making money from the 4 billion less fortunate people on this planet who work very hard to make their ends meet.

His take is that in “Fortune at the Bottom of the Pyramid” is that companies must innovate with products that are less expensive to produce, distribute and market. Move from the “Economies of Scale” model to the “Distributed model”. Instead of reducing manpower, increase it, though the manpower that is talked about is in the unskilled variety so that cost would be kept less. Companies can’t now afford to neglect the Tier 4 market anymore due to the intense competition and reducing margins in the Tier 1 and Tier 2 markets.

He gives some interesting examples of how Hindustan Lever and Nirma have innovated to bring in products for this market. How the packaging and marketing strategies have paid off. Interesting to note here how Unilver (parent company of HLL) used the knowledge gained from HLL for trying this out in the market in Brazil, where the same initiative has also paid off. Another example cited is that of Amul of the functioning of the distributed model and the success it has become.

The argument is that to create purchasing power in the Tier 4 population, they must be made available to easy credit, though the stress is more that the credit be given so that the livelihood of the people improves. The example of micro credit and Grameen Bank in Bangladesh has been presented. Though my thoughts are that the availability of easy credit is going to solve any problems. Among other things that has been highlighted is that the use of technology must be made available and within reach of all these people.

Though the thinking in the article is really a nice read and considering that things are already being done in this regards.

But Prof. Madhukar has his own reservations. Here he highlights why CK Prahlad has got it all wrong. He argues that as a Management strategist there are the human aspect that has been conveniently forgotten about. He highlights that the lives of the Tier 4 does not improve if the consume more, rather it will improve if they produce more. The example of Lijjat (a co-operative run by women) and a manufacture of biscuits, focusing at the BOP, but there is vast difference in the footprint of “bettering lives”. Other questions put forward is that corporations are more bothered about how they make profit not how they make the profit and that wealth creation is not the same as making profits.

Looking at both the perspectives put a sort of ironical situation to the whole problem.

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