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This blog explores insights for multinational corporations, NGOs, academics, social entrepreneurs and others working at the Base of the Pyramid.

Monday, January 7, 2013

NexThought Monday (With Video) MNCs vs. Social Entrepreneurs: Leveraging their respective strengths to reach the BoP

By Rutger Bults

The BoP Innovation Center is managing three pilots in its Pro-Poor Innovation program. In Vietnam, one pilot examines linking small farmers and retailers. (Image: BoP Innovation Center/Africa Interactive)

 

Multinationals (MNCs) have encountered many challenges developing products and services at the Base of the Pyramid. Social entrepreneurs are considered by many the solution to implement more effectively inclusive innovations. But, these individual entrepreneurs – with limited resources – do not reach scale easily. How do we leverage then the strengths of both MNCs and social entrepreneurs to reach maximum impact for and with low-income groups?

It is now over a decade since C.K. Prahalad and Stuart Hart launched the ‘BoP’ business movement. Their groundbreaking work resulted in a large collection of predominantly corporate initiatives. However, as Hart acknowledges himself in our recent publication on inclusive innovation, “many of these ventures have failed; some have been converted into philanthropic programs; a few have taken root and gathered commercial momentum.” Doubts have arisen, both inside and outside the companies involved, if multinational corporations can or should be the main driver for innovation in low-income markets. Most recently at our gathering of thought leaders, Al Hammond’s keynote[1] signalled what works in market-based development approaches and gave reasons why MNCs have largely failed at the BoP. His central idea is that MNCs either did not understand the BoP market or did not know how to deal with it. They were too optimistic in terms of return on investment and their projects lacked a formal connection with core business activities or stakeholders in these markets new to them.

An emerging and intriguing trend is that the strength of the (multinational) company taking the lead is reinforced more and more by smaller, more flexible, innovative companies, both international and local. These flexible and innovative ventures are often led by ‘social entrepreneurs’. This is a widely used term in the discourse on private sector development, but it was coined by Ashoka to describe individuals with innovative solutions to society’s most pressing social problems. In line with Hammond’s point of view, many professionals perceive social entrepreneurs as BoP innovators; actively creating impact for and with low-income communities.

What is the added value of social entrepreneurs then? According to Scott Anthony, president of global strategy firm Innosight, the ‘sucking sound of the core’ prevents MNCs to being able to deliver new innovations to market. This means that a company’s core structures ‘want’ an innovation to conform to what a company has done before, not what is necessary for success. The sucking sound makes innovation slow and complicated. Contrary to MNCs, social entrepreneurs often lack this burden, they possess a natural flexibility. No standard operating procedures that stand in the way of disruptive and innovative solutions. Social entrepreneurs often emphasize cost reduction to achieve sufficient margins, instead of constantly seeking to increase profits through higher sales, and utilize innovative techniques and unconventional practices to serve their market. These crucial characteristics make that social entrepreneurs are acknowledged more and more by MNCs with ambitions at the BoP.

 

 

 

 

- Commentary from Al Hammond

Many large corporations remain interested in the BoP, but their investment and their rate of innovations for these markets remains very modest. In contrast, thousands of social entrepreneurs have been innovating, experimenting, and investing both capital and sweat equity in the BoP at a high rate, and these efforts are beginning to show significant returns in such sectors as low-income housing, off-grid energy, safe drinking water and sanitation, and health. It seems likely that fusing this entrepreneurial energy with the capital and new market ambitions of corporations could accelerate the scaling and mainstreaming of BoP innovations that can transform hundreds of millions of lives.

It was gratifying to see the degree of interest in these ideas in the Netherlands during my recent visit there—in the NGO community, among major corporations, and in the government. I think that with a little boldness, the Netherlands could become a center of such activities within Europe. 

 

Different structures are put in place to grasp the innovation capacity of smaller entrepreneurs doing business in challenging low-income markets. Big businesses can offer skills, knowledge and geographical reach to grow social enterprises sustainably and at scale. For instance, GDF Suez, with its Rassembleurs d’Energies program, is increasingly committed to a stronger involvement with social entrepreneurs to, in the first place, leverage innovations and gain an advantage over other companies at the BoP or in other markets. The BipBoP initiative from Schneider Electric could be placed under the same umbrella, with Schneider having a stake in projects around the world. All these social businesses networks supported by MNCs are forming a bridge between smaller entrepreneurs with the flexibility to innovate and bigger corporations looking for new business opportunities.

 

 

MNCs or social entrepreneurs cannot maximize impact on their own; both are needed to look at a geographical or sectorial ecosystem as a whole. Large-scale social change requires broad cross-sector coordination, instead of focusing on the isolated, yet successful, intervention of individual organizations. The acceleration of social entrepreneurs, the strategy adopted by GDF Suez and Schneider, allows multinational companies to support successful social enterprises and replicate them. However, we need organizations that do more than bridging alone, but that engage in support to a whole range of actors including MNCs, (social) entrepreneurs and governmental bodies. This is a start to work toward ‘collaborative system solutions’, as Hammond would call it. As my colleague Benjamin van der Hilst stated in his thesis on Inclusive Innovation Systems, based on an analysis of the agro-food sector in Vietnam, we need inclusive innovation intermediaries[2] to enable the innovativeness of one or more firms and to enhance the innovative capacity of whole regions, nations or sectors.

 

Resources

To accelerate the development of successful and profitable inclusive innovations the BoP Innovation Center captures and shares knowledge and identifies issues that impact all stages of BoP-venture development through the 3 pilots for pro-poor innovation program (see the video below for more on this). ‘Implementing Inclusive Innovations’ (29/11), a side-event of the International Supply Management Congress (ISMC) at the Amsterdam RAI, featured the latest insights on implementing inclusive innovations, based on the outcomes of the the 3P4PPI program. Hammond gave a keynote speech on the above topic and in different brainstorm sessions social entrepreneurs pitches their concept. Main outcome of the day and main reason for this blog; different participants stated explicitly they will become a social entrepreneur as soon as possible!

 

 

 



 

[1] Al Hammond gave a keynote speech at the event ‘Implementing Inclusive Innovations’ on November 29 in Amsterdam.

[2] The BoP Innovation Center has the ambition to be an Inclusive Innovation Intermediary. The 2SCALE initiative is exemplifying for this approach, aimed at improving rural livelihoods and food security in 15 countries in sub-Saharan Africa through the development of competitive agro-food industries. 

 

 

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