NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Erik Simanis is not your average Ph.D. student.? For one thing, he’s done work on his degree at two separate institutions (the University of North Carolina’s Kenan-Flagler Business School and Cornell University’s Johnson School of Business.)? Furthermore, he’s spent more time in the field than in the library–not necessarily good for paper writing, but certainly a benefit as far as the paper’s content is concerned.? Finally, Simanis probably knows as much about the Base of the Pyramid space–and how it relates to sustainability–as anyone, including BoP gurus like C.K. Prahalad, Stu Hart and Al Hammond.

Last week, I had the chance to sit down with Erik while I was in Ithaca for the Entrepreneurship@Cornell event.? Sitting in Monica Touesnard’s office in the Center for Sustainable Global Enterprise, Erik and I polished off a couple cups of coffee over the course of two hours.? The outcome of that discussion–a long-form interview–follows.Rob Katz: How did you get involved in the “base of the pyramid” community?

Erik Simanis: It goes back to the late 1990s, when I was doing my MBA at UNC.? That’s when I met Stu Hart.? I had gone back to school to focus on sustainability–he was (and is) a major player in that space.? Interestingly, the late 1990s was when sustainability was still pretty young.? At the time, the draft “Fortune at the Bottom of the Pyramid” paper (co-authored by Hart and C.K. Prahalad in 1998) was going around, and I had an interest. ?

While I was doing my MBA, I had an internship with Monsanto and, after graduation, I was supposed to work there as a country manager in India for their smallholder farmers business.? Essentially, it was in their BoP/sustainability team.? Of course, Monsanto’s stock price took a huge hit between the time I was offered the job and when I was to start, so I had to think differently – quickly.? Specifically, Monsanto was acquired by Pharmacia in the face of the GMO uproar–as part of the merger, they effectively dissolved the “BoP team.”? I moved into a consulting position with Paul Gilding’s ECOS and continued to work with Stu to launch the BoP Lab.

Meanwhile, I was reaching out to different parts of the school (anthropology, social work) and wanted to see Stu and C.K.’s ideas mature.? What I mean by this is that, in 1999 and 2000, the whole BoP space was just about getting people’s attention–4 billion people!? Trillions of dollars! ?

I was worried that, by going into the field, I was going to cause more damage than good because of my ignorance.? Instead of jumping in blind, I worked for a while with Stu; we started the BoP Learning Lab and I began the Ph.D. program.? At that point, I got into what is called the Anthropology in Development perspective and began to learn how that discipline impacts strategy.? I was able to study with the anthropologist Arturo Escobar at UNC, who applies post-structuralism to post-colonial theory and uses it to critique development.? He puts light to things that get glossed over (whose voice gets heard), and these were tremendously important questions.

RK: What were you ignorant of?

ES: Where to start.? First of all, I didn?t know enough about the huge history on development (research, writing, practice) about what is development.? We need to do a Poverty 101 for managers–there’s a literature out there that doesn?t get explored by business. ?

Second, I didn?t really understand the importance of participation, which can be a tool that helps people as well as a tool to impose external views.? At the time, I thought ’participation’ was only a good thing–but in reality, there’s a lot that goes into intent and the implications of that.? This is an issue with microfinance–when you intervene in people’s lives, there are both positive and negative aspects.? In the case of microfinance, the intervention has led, in some cases, to increased violence against women.

RK: How do you define “base of the pyramid”?

ES: In defining the BoP, I try to avoid anything that has a number behind it.? I think of BoP as a question of power, hierarchy, lack of voice–all within relationships.? The problem is categorization – $3/day, $2/day, $1/day – none of them are particularly useful.? The truth is that there are people who are making $1/day who exert a tremendous amount of influence on people who make $3/day. ?

So I focus on BoP as a power relationship–which helps me, as an outsider, think about the best ways to create opportunities for people within their existing power relationships.? If you talk about BoP as relationships with power, there are no solutions, per se.? There will always be relationships to power.? For instance, by empowering women with access to credit, you may actually disempower that woman within her household. ?

Getting the manager’s perspective down to a simple “we have to raise their income” is harmful, because in reality it is much more than that.? There’s an aspect of justice here–you can?t argue with people when they say that you are changing their lives–because you are–and your imposing that change on people does not assume that you are necessarily more just than they are.? You have to be self-critical here–and my fear of going into the field when I was getting my MBA was mostly because I was not trained to think critically about the varied consequences of my intervening into someone’s life. ?

RK: What has been the single biggest change in the BoP movement since you first became a part of it?

ES: Initially, the focus of the BoP work was generating excitement and awareness, or at least getting the concept that poverty and business are not mutually exclusive onto people’s radars.? That was monumental–to get people to think that poverty is not just the realm of the government.? So the first paper, Fortune at the Bottom of the Pyramid, was effective in doing that–in breaking through and getting people to see poverty as part of business.

Since that time, companies have started doing things.? Unfortunately, the ability for management research to address the next set of questions has not been there, which is in part due to the university research process.? So now there are managers in the field, trying to make BoP approaches work. ?

In the first paper, the BoP was framed in a purchasing power perspective.? As such, managers went into countries and thought one of three things: getting the product to people, lowering costs or raising incomes.? Initially, companies went in and struggled–these experiments, by and large, haven?t exactly been successful from the companies? standpoint (nor from the development perspective).

The second generation of BoP has seen more awareness by companies, but they are asking me questions such as, “ok, we get it–now how do we do it?” Those of us in the field were trying to offer successful models from social enterprise and non-profits as advice–that’s not working either.? Offering a little bit microfinance, a little bit of something else–which is this structural approach–doesn?t work.? Here you slip back into development history–”let’s build a dam, let’s bring in a hospital”–and the BoP version of that hasn?t gone very well.? The BoP movement is–unfortunately–re-hashing the lessons development learned.

Because there hasn’t been any noted corporate or business success, the tide of enthusiasm for BoP is starting to ebb and even recede–people starting to doubt and question whether it can be done.? Traditional academic research–which focuses on understanding existing management practices–can’t answer how this will work–it will require the building of new management practice.? It’s akin to the participatory rural appraisal approach to development.? When it was introduced by Robert Chambers in the 1980s, the development community had to re-learn their trade. ?

For management, we are going to have to re-learn our trade for BoP practice.? There’s hope in thinking that this is possible.? It’s like Total Quality Management–which fundamentally reinvented how people thought of managing production.? It was a complete inversion of how things were done.? This then trickled down to just in time manufacturing; ultimately it was a new management practice that realigned internal and external relationships.

That’s what the Base of the Pyramid Protocol is all about–creating a new management practice for people to learn a new way of thinking, and a new way of acting.

RK: What is the biggest challenge facing multinational companies seeking to work at the BoP?

ES: The management framework and innovation framework that companies use–to allocate capital to projects, as well as the kind of data you need to provide to get support–is antithetical to the management practice you need to do this work.? It’s premised on forecasts and data, and the need to prove yourself before doing anything.? This is the opposite of development–where you are out there, getting information, answering questions–which is the wrong way to go into a relationship.? The manager goes in and imposes on the existing power structure, which ultimately leads to rejection by the people you ultimately are looking to help.? The current way of thinking leads to a top-down approach, ’here’s the solution to your problems’ way of doing things.

RK: How did the BoP Protocol come about?

ES: In 2003, we started to realize that base of the pyramid success wasn?t about taking the 4 P’s of marketing (people, product, price, performance) and overlaying it onto the BoP.? It wasn’t about taking Six Sigma and overlaying that onto manufacturing processes to address the BoP, either. ?

We looked at how successful BoP cases came about–it wasn?t about the model, it was about how the social entrepreneurs used different processes to create value.

We created that first BoP Protocol group as a network of people with diverse backgrounds–including those from an Anthropology of Development perspective -structuralists–who could help understand how to engage and partner with communities.? Then we started thinking about how to create a totally new management practice that was informed by anthropology, social work, philosophy, etc.? This led to the initial Framework–a new theory–which we then took into the field.? This in-country work explains why, out of the past two and a half years, I have been in either Kenya or India for one of them.? I was embedded–doing action research–to create the Protocol–you need to be part of it to make it work.

RK: What are some of the most common misconceptions about your work?

ES: People look at the Protocol and think that it’s all about understanding people’s needs.? They see it as market research or anthropology or ethnography.? You can be in a community without being part of a community.? Exposing people to life in the village is not being part of the village. ?

The Protocol is not about understanding people’s needs; it is about building a long-term relationship.? So when we do homestays, it is about demonstrating long-term commitment.? We really want to have an exchange and build a level of common understanding.? People in the community refer back to the homestay as a signal that the Protocol is actually there and actually cares.? Simply visiting or spending time in a village or slum, which some corporations like Unilever currently do, doesn?t create the interdependence and mutual commitment necessary for success. ?

(Editor’s note: the concept of long-term relationships was touched on by Kashf Foundation’s Roshaneh Zafar in her recent talk at the Council on Foreign Relations:–Zafar’s belie[ves] that a non-sustainable MFI is fraudulent. I was intrigued by this line of argument. Why fraudulent? Zafar argues that, by going out and asking people to take a loan and then pay it back, you have to use that trust and be there for the long term; unsustainability (and the risk of closing) breaks that trust.)

We are trying to build shared identity.? Selling it cheaper, or selling something of better quality–that’s OK, but at the end of the day, I don’t think it will build a durable competitive advantage.? But if you build a close relationship, a partner relationship–that will persevere.? We want the people to feel a part of the company as much as the company feels part of the community.

RK: Is the BoP movement at odds with the “green” movement?

ES: I think this is a critical question.? I think how sustainability has been conceptualized as the triple bottom line (financial, social, environmental) inevitably sets up a conflict between the social and environmental.? I don?t think there’s an inherent conflict.? The TBL was set up in a way like the BoP paper–to raise awareness–and it may have reached its limits. ?

Its limits are exposed when you have BoP as a new management domain.? Environment/social/economic was a good way for people to get their heads around the concept as a whole.? But you inherently set up a management practice where there are three domains–that’s artificial.? By setting them up that way, you create conflict because they are independent within the structure–they are not in reality.

When we talk about embedded innovation, we start to put forward a new way of thinking about sustainability–as ’community ecology’.? The triple bottom line, as it is right now, is all about ’solving problems’–global warming, pollution–and you get technological, top-down solutions.? Ditto for BoP–4 billion people–it’s all top-down.

Community ecology is all about the community and the relationships within it.? Environmental and social issues are all linked, and you have to look at them as such.? These relationships are the basis by which people live their lives.? So creating a management practice where the idea of working with communities is simultaneously about how communities interact with their environments–that’s the way to go about it.? Start with the relationships.? So the new management skill that we need is the ability to connect with people. ?

I was a guest lecturer for an MBA class here at Cornell and talked about management skills for the BoP.? Typically, we think about accounting, finance, etc.? But for the BoP, you need to be able to go into a place and sit on the floor, eat the food, deal with the issues and connect with people.? And enjoy it.? Those relationships, and your ability to build them, are critical skills in themselves.? So when you are hiring people for the team, you need to be able to evaluate people’s ability to build relationships.

A CEO once told us, “The kind of skills and people you need to do BoP work with communities are the very kinds of skills and people that we weed out of our hiring processes.? And, if they get into the company, they are the ones that will leave because they won?t get promoted and they won?t succeed in our evaluation frameworks.”? Pretty telling.

RK: How do you create environmentally sustainable business models that also serve the BoP?

ES: I’d suggest using the community ecology framework and the Protocol as an embedded innovation process.? It’s about building long-term relationships within a community ecology.? That’s how you’ll have businesses responding to power relationships and context.? For example, do you use washable diapers or disposable diapers–there’s no one ’right’ answer.? If you are in a water-constrained area, then a biodegradable diaper may make more sense. ?

The shorter the distance between the community and the company, the better you get feedback on it.? Feedback loops–and having short distances between them–is the key to building value.? Communities aren’t bounded by place?it’s not a question of local vs. global–this abstract geography doesn’t get it–it’s about the relationships.

Companies typically start with an outcome focus, not a process focus.? To succeed, you need to have a successful process–that is the only way to lead to a successful output.

RK: If you could go back to when you started working in this field, what is the one thing you would do differently?

ES: In creating the Protocol and creating a new management practice, we are testing and refining it in real time.? There is an inherent responsibility that I have to the communities in which I am testing this.? From a research perspective, with action research, you are impacting people’s lives–and we could have been more thoughtful about our responsibilities and our power in the relationship.

RK: Describe the BoP movement 5 years from now.? Describe it 20 years from now.

ES: I feel like we are on a tipping point.? I would like to see broad understanding and awareness of the ideas of development and management practice.? I want to see these participation skills and new management practices being taught in MBA curricula and executive education programs.? I’d also like to see a lot of ongoing business efforts? (that will require a leap of faith–just do it.)? I’d like to see more experiments.

In 20 years, I see a new kind of business structure and a new kind of business–the ’embedded business’–which has a new kind of understanding of how to build a network of place-based businesses–a new corporate structure.

RK: How are environmental issues going to affect this process?? Could it derail it?

ES: It could.? If you frame it only as large-scale problems (climate change, water scarcity, etc.) then you go in with large-scale solutions.? But if we frame them as community problems that can be solved through the community, then they become a little easier to address.

Editor’s note: thank you to Erik Simanis for taking the time to sit down and have such a long, productive conversation.