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Thursday, May 15, 2008

Guest Post: John Paul Responds to Al Hammond

By Derek Newberry

JPGuest blogger John Paul is a Co-Founder and former Managing Editor of Nextbillion.net. He is currently finishing up his MBA at Cornell University, where he has focused on private-sector solutions to global poverty with the school's Center for Sustainable Global Enterprise

In this post, Paul responds to Allen Hammond's series on taking Base of the Pyramid models to scale. This week, NextBillion.net will publish responses from a number of BoP experts and practitioners, followed by a concluding post from Hammond.

By John Paul

The implementation of transformational sector strategies is a compelling idea, and has a number of comparative advantages over the traditional business-only approach. First, focusing on sectors takes a systems view of the problem, allowing for the identification and mitigation of bottlenecks and missing pieces that might have prevented other initiatives from scaling. Second, what is being created is a platform network that can be adapted as needed, as the examples cited of adding IT infrastructure or remote diagnostic equipment to an established distributed healthcare network demonstrate. This ensures the increasing utility, rather than inevitable obsolescence, of what is put in place. Most intriguingly, in some ways what are being developed are human capital networks, in many ways akin to online social networks.

These platforms provide tangible inroads to large populations that many large corporations may otherwise be unable or unwilling to try and serve. The Next 4 Billion report did an excellent job of identifying the potential market. This approach provides one possible roadmap on how to reach it. Viewed in this light, transformational sector strategies enhance, rather than replace, existing efforts to reach BoP markets.

There are two primary areas, though, that I think are worth further examination. First is, how do you make the most of what already exists? Although providing IT services is a greenfield opportunity, other basic services such as healthcare, housing, and energy are already often being met by local entrepreneurs, albeit in an arguably limited or inefficient way. Even so, the current provision does support local livelihoods, and any new transformative sector approach should do its best to integrate them into the new value chain. ITC's eChoupal Initiative adopted this strategy when it hired the local agricultural middleman to manage the produce procurement operations that made their positions obsolete.

While working with existing SMEs is a good idea, understanding the informal economy will also be critical. By relying on and building the capacity of local talent already in place, such a strategy can help proactively address two of the biggest challenges a scaling BoP business faces: managing human capital and integrating the business with existing local relationships.

Second is the approach taken to "understand deeply the critical problems and opportunities of individual BoP sectors". These sector-specific problems and opportunities will differ between countries and within them, as will the implementation challenges that the business model faces. While I agree that there will be a certain amount of ?DNA' that will be transferable, there will be a trade-off between creating a model that is highly scalable and one that is simultaneously adaptable. Finding this "sweet spot" will take time. WaterHealth's model, for example, was iterated several times before they came up with the business plan they are now scaling internationally.

In my mind, the process of identifying transformational sector strategies is less about starting with a complete business plan, and more about doing business model R&D. The latter takes longer, requires more patient capital, and involves the participation of a host of local partners, but the end result will be a more robust, scalable, and culturally appropriate business model.

One such approach is the Base of the Pyramid Protocol, developed by Erik Simanis and Stu Hart at Cornell University. Designed for use by an established company, the Protocol uses development approaches, such as participatory rural appraisal and asset-based community development, to co-create business solutions with the local communities the company intends to serve. It has already been successfully implemented in India and Kenya, and soon will be used in both Mexico and Flint, Michigan.

Identifying and working with the potential ?winners' among the existing initiatives already in place is another strategy. But here again, it will take time and a local presence to understand the problems and promise associated with each model, as well as the limits to localization, and then develop the transformational sector model that mitigates the key challenges they face. As Al says, this will be hard, but not impossible. And certainly worth the investment.

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