Inclusion, the Way to Market Growth

Thursday, May 10, 2007

C K Prahalad?s book, The Fortune at the Bottom of the Pyramid, asks managers to shed the blinkers of conventional guidelines that are constraining their view of markets for their companies. Conventional wisdom would suggest that until their incomes rise above a certain level, large masses of poor people cannot be a target market.

Prahalad points out that innovations in products and pricing could make products affordable to people with even lesser incomes and thus expand a company?s markets. HLL?s single use shampoo sachet became the short-hand version of this idea. A recent study by WRI and IFC sizes this market of, in its estimate, 4 billion low-income customers for a variety of products and services.

Down-sizing products and services to make them affordable is one way to tap into this potential market. The other is to accelerate the growth of incomes of people below the required income line by providing them with opportunities to increase their incomes through employment or business entrepreneurship.

Thus Henry Ford increased the wages of his employees dramatically so that they could buy his cars, he said. HLL?s ?shakti-amma? project, which engages women in Indian villages as its roving retailing agents enabling them to earn incomes, is another example.

Neither Ford?s nor HLL?s strategies of providing work and incomes to people can be described as charity. Ford?s well-paid workers were integral to his concept of mass production that enabled him to produce cars at prices well below his competitors. And HLL?s ?shakti-ammas? enable the company to reach into a rural market that the company finds difficult and costly with its conventional retail model. Similarly, Amul has provided incomes to millions of dairy farmers in India while creating a very successful business enterprise.

The lesson from these innovators is that new business models, not merely down-sized products, will grow the market at the bottom of the pyramid. However, most companies find it difficult to develop innovative models because their managers are trapped by their organisational ?theories-in-use? of who can be customers of the company, the conventional production and distribution infrastructure available to it, and how the enterprise must be organised. Therefore, they continue with business as usual while waiting for the world to change (and incomes to grow) to suit their ingrained model.

Leaders, however, take risks and break out of industry conventions. A principal factor for the remarkable success of Indian software and BPO companies is their access to the largest pool of educated, English-speaking youth in the world.

Therefore it is surprising that, with overall levels of unemployment remaining high in the country, many companies begin to complain about shortages and rising costs of employees. To break out of this constraint, Genpact, a pioneer of the Indian BPO industry, has tapped into non-traditional pools of manpower. Applying best practices from supply chain management and vendor development to the HR domain, it has redefined the paradigm of people recruitment and development.

It hires directly in Tier-2 and Tier-3 towns, traditionally beyond the scope of most companies? hiring processes. It also hires from non-conventional talent pools like students who could not complete college, retired people, housewives, etc. To access this wide range of sources, Genpact has begun applying the retail sourcing model to hiring by opening storefronts for recruiting ? job stores where candidates can walk in to apply for jobs and get offers within four to six hours.

By redesigning its people sourcing process, Genpact is obtaining resources at competitive costs and is also providing employment to people who were not considered ?employable? earlier. The Byrraju Foundation, an offshoot of Satyam Computers, has gone one step further and tapped into the rural areas for building a BPO business.

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Source: Economic Times of India (link opens in a new window)