Sustainability management

1. Chapter Six
Designing
sustainable business
with the base of
pyramid

2. Contents
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▰ Understand the value(s) in designing sustainable business with
the Base of the Pyramid (BoP)
▰ Evaluate the wider social and environmental impacts of
enterprise-based approaches to poverty eradication
▰ Redesign the strategic approach to the economic, relational,
and innovative aspects of the business

3. Introduction
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▰ Traditional economic and financial approaches promoted profit
wealth maximization of shareholders’ as key goals of the firm.
▰ The Stakeholder Theory moved to the more complex interests of a
variety of social stakeholders.
▰ An enterprise-based approach to poverty could contribute to the
improvement of the lives of millions preserving the traditional
economic and financial goals of the firm.
▰ Targeting poor customers (the so-called Base of the Pyramid) with
dedicated products and services, firms have the opportunity to
achieve financial results while addressing poverty reduction.

4. Introduction
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5. “
”
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A sustainable business
is resource efficient,
respects the
environment and is a
good neighbour

6. Ending Poverty as a Sustainable Business Goal
▰ Balancing goals as diverse as profit orientation, maximization of
shareholders’ wealth, and poverty eradication can be challenging
for modern firms.
▰ Enterprise-based approach to poverty eradication advocates firms
should consider the poor of the world as a global market and
design specific products and services for improving their living
standards.
▰ Better living conditions will eventually take households out of
poverty and will allow them to access future value-added products
and services.
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7. Ending Poverty as a Sustainable Business Goal
▰ Traditionally global firms focused on serving middle or high-
income customers ,neglecting the size of the market set up
by the poor.
▰ Enterprise-based approach openly invites firms in addressing
the needs of people at the Base of the Pyramid (BoP).
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10. Arguments behind the enterprise-based model
▰ Economic Arguments: Markets at the BoP are strategic for
competing at a global level.
╺ global size of the BoP is a strategic opportunity for (MNEs);
╺ markets develop fast and located in emerging economies;
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11. Arguments behind the enterprise-based model
▰ Social Arguments: MNEs can engage constructively with the
UN SDG1 and contribute to poverty eradication.
╺ legislations struggle to articulate rules for firms to engage with poverty.
╺ Poverty is associated with other critical issues at the centre of the SDG
initiative and of the UN Global Compact.
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12. Rethinking sustainable business at the BoP
▰ Firms can develop sustainable strategies in order to put SDG1
at the centre of their corporate sustainability. In particular,
responsible managers need to rethink:
▰ Business Models:. Life at the BoP has to become the centre
of sustainable business models.
▰ Stakeholders Relations: Managers have to propose new
mental mapping that can help redesigning relations with
stakeholders.
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13. Rethinking Business Models at the BoP
▰ What The Money: Kenya — M-PESA story -
YouTubeM-
▰ Pesa rules, Cash App and Venmo drool - YouTube
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14. Rethinking Business Models at the BoP – Value Proposition
▰ Customers do not value resources or product per se but seek
services (value-creation activities- products, software, ideas,
services) that address their needs.
▰ Business models need to bridge between unaddressed
needs and idle resources to address poverty effectively with
the BoP.
▰ The four pillars of value creation indicate how firms can
activate resources to create business models .
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15. Rethinking Business Models at the BoP
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Resource
Market
Opportunities
on resources
markets
Value
Creation
Service
Market
Opportunities on
Service markets
Business Model for BoP Market
Value Proposition
Identify value in use
Value Capturing
Design revenue streams from financial restrictions
Value Network
Create local ecosystems
Value Communication
Active communities, build trust

16. Rethinking Business Models at the BoP
▰ Managers can develop adaptation or redefinition strategies to
rethink their business models.
▰ With the former, firms adapt their current model to the unique
conditions of the BoP market.
▰ With redefinition strategies, firms reinvent their approach to
the design and delivery of products and services
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17. Rethinking Business Models at the BoP – Value Proposition
 Value propositions address the user’s economic contexts, reflecting
their value in use .
 A common assumption holds that household products and toiletries
might simply be too expensive for BoP customers.
 Furthermore, their budgets are often dependent on unstable income
streams from informal work.
 Scaling-down is an adaptation strategy where the firm shapes its
product/services to fit the infrastructure or income levels in the
region.
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18. Rethinking Business Models at the BoP – Value Proposition
Scaling-Down in action
▰ Safaricom, a mobile operator, launched its mPesa service in Kenya to
offer a mobile money platform that provides basic banking services. The
mobile network infrastructure in Kenya was mainly GSM and the
diffusion of smartphones scarce. Safaricom focused on the available
standards and introduced a banking service that would allow virtual
transactions on the GSM network (i.e. text messaging). This innovation
has since been introduced in Europe as well.
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19. Rethinking Business Models at the BoP – Value Proposition
 Adaptation strategies can be ineffective in areas with difficult access
to clean running water or energy.
 Decoupling is an effective redefinition strategy that decouples the
use of products and services from infrastructures.
 New! Sunsilk Dry Shampoo – YouTube
 How Godrej Became An Innovation Star
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20. Rethinking Business Models at the BoP – Decoupling
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21. ▰ Case Study. New value propositions in Rural Healthcare
Rural areas are challenging for offering healthcare services. Villages are poorly
connected and there is a lack of professional medical staff and hospitals.
LifeSpring, a network of low-cost maternity and children’s hospitals, combined
strategies such as decoupling and scaling down to overcome the critical lack of
medical staff in rural India. The firm disaggregate all its complex operations into
discrete tasks that low -skilled individuals can perform. This allowed doctors to
specialize only in tasks demanding their expertise, with other health workers
performing simpler procedures. General Electric (GE) redesigned its CT scans to
address the same issue in rural China. Traditional CT scans are costly to run and
require specialized staff. Rural hospitals do not have the scale capacity and the
trained technicians to afford purchasing them. GE not only simplified and
miniaturized the scan technology, but it also focused on creating a device that
was easy to use for non-specialists. This innovation not only proved to be a
commercial success in rural China, but it also redefined GE’s approach to
innovation in developed markets.
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22. Rethinking Business Models at the BoP – Value Capturing
 Financial restrictions are common challenges at the
BoP. By adjusting value-capturing mechanisms to
the economic reality of users, firms can design
business models that address financial restrictions.
 Miniaturization is an adaptation strategy that
synchronizes the purchasing process with daily use
and financial limitations.
 Mini packs mega problem

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24. Rethinking Business Models at the BoP – Value Capturing
 Radical redefinition strategies that build on value capturing mechanisms
include non-ownership concepts, where firms offer access, sharing, or
renting options for a resource, instead of selling the ownership rights of the
product. ( https://csrbox.org/Drinking-water-CSR-Piramal-Sarvajal/)
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25. Rethinking Business Models at the BoP – Value Network
 Value network, third pillar of business modelling, strives to develop
networks for value creation, building on ecosystems consisting of supply
chain and marketing channel-partners, complementing services, and
non-business stakeholders.
 An effective adaptation strategy is subsidization, where one side of the
market may subsidize other sides. Well-known examples is the
shoemaker Toms linked BoP markets and rich markets with a partnered
reward system. In this scheme, a customer purchasing a pair of shoes in
a ‘top of the pyramid’ market becomes automatically the donor of a
matching pair. (TOMS - Thank you!)

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26. Rethinking Business Models at the BoP – Value Network
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28. Rethinking Business Models at the BoP – Value Network
 Micro-enterprising is a partnership-
centred redefinition strategy that builds
on existing eco-systems and networks
to engage local economic actors.
 Avon trained and financed women to
develop independent micro-
enterprises that sell its products across
both shantytowns and rural areas in
South Africa.
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29. Rethinking Business Models at the BoP – Value Network
 Case Study. Micro-enterprising in action
GrameenPhone emerged as a key player in the mobile
network market in Bangladesh, by addressing poverty and
marginalization. The country has the lowest average
revenue per user in the world, but the highest growth in
penetration and in voice-traffic usage. The firm’s Village
Phone programme helped women in rural areas to start
micro-enterprises selling mobile services. These women
gained financial independence, escaped poverty, and
reshaped their roles in local rural communities.
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30. Rethinking Business Models at the BoP – Value Communication
 The fourth pillar, value communication resides strongly on social
capital of communities and informal and interpersonal relationships.
 An adaptation strategy that activates communities and networks is
the supply-chains redesign.
 Firms collaborate with social and institutional partners to re-organize
the supply chain dynamics so that products would become more
affordable and easily available to BoP customers.
 Prosperity Initiative promoted the Mekong Bamboo consortium to
facilitate the access to low cost bamboo timber for huts in Vietnam.
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31. Rethinking Business Models at the BoP – Value Communication
 Mekong Bamboo consortium to facilitate the access to
low cost bamboo timber for huts in Vietnam.
 Mekong Bamboo (MB), a consortium led by Prosperity
Initiative, a UK-based social enterprise which acts as a
facilitation partner between raw-bamboo farmers,
small bamboo processing workshops, larger industrial
bamboo processing factories and businesses, and
buyers. The concept of MB also includes the support
of the government at local and national levels to
create positive business and rural development
environments.
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32. Rethinking Business Models at the BoP – Value Communication
 Community-based purchasing is a redefinition strategy that
decouples the traditional buyer-seller relationship. The firm
promotes purchasing groups and stewards the community in using
the product.
 Customers who participated in the ‘Patrimonio Hoy’ project not
only continued to purchase CEMEX products when they emerged
from poverty, but also became ambassadors of the firm.
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33.  CEMEX, a Mexican cement maker, launched a community-based scheme
called ‘Patrimonio Hoy’ helping BoP customers to upgrade their homes.
BoP households must save for months purchase a single bag and cannot
afford to immobilize such a resource during the construction of their
house. Bags can be misplaced, stolen, or dispersed because of lack of
secure storage. ‘Patrimonio Hoy’ offered free storage, professional
advice, and coordination of community based purchases. Community
members pooled their resources together to purchase materials for the
first house and then moved to the construction of the next one. This
made families safer, urban areas cleaner, and communities stronger.
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Case Study. Community-based purchasing in action

34.  The OLPC initiative shows that using a combination of different
strategies can be a resourceful way to approach BoP markets. The
project aimed to “empower the children of developing countries to
learn by providing one connected laptop to every school-age child”.
Families in rural areas frequently lack access to energy to make use of
the laptop. The firm used decoupling to create a laptop to suit no
energy conditions and included a crank-up battery, which the user
could charge by hand to obtain dedicated energy. Scale-down kept the
cost of the unit low. Subsidization helped to coordinate donors and
governments to pay each a portion of the laptop’s price, with the family
paying only a marginal sum.
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Case Study One Laptop per child (OLPC)

35. Rethinking Business Models at the BoP
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36. Rethinking stakeholders relations 36

37. Rethinking stakeholders relations
 The Stakeholder Theory distinguishes between primary (e.g.
employees, customers, suppliers) and secondary interlocutors (e.g.
NGOs, local communities and governments).
 Working with the BoP means stakeholder relations have to change
from a mere acknowledgement of the attainment of the firm’s goals
to a redefinition of stakeholders into co-creators of value.
 Calton et al. (2013) proposed three frameworks that would help
responsible managers engage proactively with local communities,
build direct and personal relationships and keep an on-going
dialogue.
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38. Rethinking stakeholders relations
 The first framework
proposes a mapping
model based on
“Decentred
Stakeholder Networks”,
which reframes
stakeholders’
relationships as system
centred rather than
firm-centred.
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39. Rethinking stakeholders relations
 The second framework is based on the notion of Global Action
Networks which link firms with voluntary organizations and government
actors in a specific project
 Networks work on the basis of exchanges and recognition of interests,
are great opportunities for learning and knowledge sharing, and
decision-making in networks is often informal and follows non-linear
processes.
 The third framework invites firms to develop human-centred solutions
that address local contexts in specific ways and managers have to
rethink their conceptualization of stakeholders.
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40. CASE STUDY
 Conditions such as malnutrition, marginalization, and lack of sanitation are often associated
with poverty in emerging economies. Identify one of these conditions in an emerging
country. Apply one (or more) of the adaptation and redefinition strategies discussed in the
chapter (see table 1) to transform an existing product or service so that it can both fulfil a
need and alleviate poverty.
 What will be the major challenges to serve the BoP market?
 BoP solutions are rarely associated to situations of poverty in developed economies.
Identify the same condition associated with poverty and social marginalization from activity
1 in your city.
Would you be able to use the same solution you proposed?
 Imagine launching a start-up in your city commercializing this product. Which
stakeholders would you engage? How? Use the frameworks discussed in the chapter
to visualize your stakeholder relations.
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41. CASE STUDY
 Watch the TEDx talk ‘A 20 second blood test without bleeding’
available at https://www.youtube.com/watch?v=RyeQt0GodsE
 How did the start-up approach the issue by focusing on the
users and on the context of poverty (see table 1)?
 How did they accommodate the role of the ASHA worker?
 How critical was the understanding of the cultural aspects of
rural India in shaping the design of the device?
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42. CASE STUDY
 Watch the TED talk ‘Inventing is the Easy part’ (available at
http://www.ted.com/talks/daniel_schnitzer_inventing_is_the_
easy_part)
 Which strategies best suit the lack of infrastructure in
Haiti?
 What did the firm underestimate in its first approach?
 If you were a consultant, which business model would
you design for selling this device? (see table 1).
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43. THE END
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