Tuesday
January 18
2011

Scott Anderson

NextThought (Tuesday): Meeting Customers in the Middle and Other HBR Insights

Editor’s Note: Typically, I try to write this post on Mondays, but with the launch of NextBillion Brasil, I pushed the NextThought Monday to today. Incidentally, we’re really proud of the new site and encourage you to check it out. If you do not speak Portuguese and/or do not have a web browser with a built-in translator, some some recent posts from NextBillion Brasil are translated in English here, here, and here.

The Big Idea: Creating Shared Value,” the cover story of January/February edition of Harvard Business Review, ambitiously re-calibrates the dialogue on the issue of corporate social responsibility and the true meaning of shared value in rebuilding capitalism’s sullied reputation following the financial crisis. Authors Michael E. Porter and Mark R. Kramer write that most companies view social responsibility as more of an appendage than the heart of their business plans, building on many of the arguments that were introduced in their earlier paper “Strategy and Society.”

“The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.”

As fascinating as the cover story is, what also caught my eye was a sidebar article detailing why many companies are failing to reap profits in emerging markets. In “New Business Models in Emerging Markets,” authors Matthew J. Eyring, Mark W. Johnson, and Hari Nair note that in their rush to bring new products and services to low-income consumers, many multinational companies have gone about it in cut and paste fashion. Several firms have taken successful go-to-market strategies in developed nations and tweaked it to fit an emerging market. But the answer to the profitability problem is not to merely shrink the portion size and/or reduce the quality of a particular product, or simply lower the price point (and the profit margin) in an attempt to make up the difference on sales volume in emerging markets. Instead, the writers argue that what is tripping up many of these firms is their fundamental business models.

“Consumers there are defined not so much by any particular income band as by a common circumstance: Their needs are being met very poorly by existing low-end solutions, because they cannot afford even the cheapest of the high-end alternatives,” they write.

This resonated with me especially as I reflected on some recent conversations I’ve had with consultants to multinational firms, who have lamented a lack of immersion on the part of MNCs in the cultures in which they hope to do business. The HBR authors implore established companies to “take a page from startups” by treating each market as new, and designing products that satisfy unmet needs. Framing the question around ’how does my company serve an unmet need?’ will in turn drive the business model.

Certainly, we have written about many companies (as does the HBR cover story) that are diligently taking the time to understand their customers and grappling with the appropriate marketing, packaging and pricing strategies, and creating shared value in the process. Treating each market, and market segment as individual is arguably the mindset for successful business second acts in mature markets as well. Think of companies that were declared dead or near dead – from Apple Computer to Ford Motor Co. to HP. Facing oblivion, these firms looked at their customers with new eyes and designed products to meet their lifestyles and, in many instances, created societal gains or as Porter and Kramer suggest, shared value. There’s no reason MNCs shouldn’t do the same for each emerging market they hope to enter.

“Companies that devise new business models and offerings to better meet those consumers’ needs affordably will discover enormous opportunities for growth,” the authors conclude. Ultimately, that’s where the rubber hits the road in creating shared value AND social change.

It’s both interesting and heartening to see long-standing BoP concepts interwoven throughout the HBR article and indeed throughout the edition. Whether it’s Vijay Govindarajan detailing a $300 house, Google CEO Eric Schmidt vowing to increase the proliferation of Android phones for poor countries, or Procter & Gamble Chief Technology Officer Bruce Brown discussing the role of Future Works, which recently joined with HealthPoint Services to deliver services in rural India – this is no longer a niche discussion.

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