Tuesday, August 24, 2004

Profits from Poverty

CK Prahlad is getting it wrong again (last time was when he sang euologies for Enron in Leading the Change). His new thesis, described in his book, The Fortune at the Bottom of the Pyramid (read the article), focuses on the 4-5bn people on earth who subsist on less than $2/day - or the $13trillion market!

With all noble intentions, CKP argues that this mass should be viewed not as victims or a burden, but as value-driven consumers, whose life can be made better, if large corporations design and focus their offerings to them, change their life-styles, and even help them with micro-credits to enable them to consume the goodies of life.

There are three biases which jar me, and which actually permeate the whole contemporary management literature:

1. that masses are primarily consumers, and not producers. Thus, their life becomes better, if they get to consume more, and not if they produce more. Compare Lijjat and, say, any biscuit manufacturer which targets the rural market - both focus on BOP, but with very different concepts of "making life better."

2. how much profit you make is more important than how you make that profit. CKP, like most management theorists, does not differentiate profits generated from, for example, selling more cigarretes/coke/candies, from those generated from selling milk/medicines/education.... I mean, a more profitable Playboy or mafia does not really make them more value-adding than maybe less profitable Amul, does it?

3. wealth-creation is same as making profits. Somehow, in management literature and theories, the concept of wealth has got reduced to just money. Rest - e.g., the community or the environment - have just become resources which need to be "exploited"...

but, well... some companies, even with their profit-motives, would end up, more by default than by design, creating wealth for people they serve. Two examples which come to mind are ITC e-Choupal, which not only is a channel for sales, but also for procurement of farmers' produce and for disseminating information; and Reliance Infocomm, which targetted the BOP profitably, but has also enabled people in that segment to be more productive...

10 comments:

Infinisri said...

Thanks for the perspective you posted on CKP.

I wonder if you could provide some links to the references you made about e-Choupal and Reliance. What did you see in their efforts specifically (you mention something generally like sharing information or creating a pull for the market products).

rahul suryavanshi said...

This link may be of some help, http://www.echoupal.com/

rahul suryavanshi said...

another one....http://www.itcportal.com/agri_exports/e-choupal_new.htm

Anonymous said...

Sir,
From whatever I have heard from my students working in ITC Agri Division (basically Agri MBA's) - e-Choupal is still a infant and it is (as of now an) exaggerated PR by ITC than anything happening in reality. Surely this is much better than investing in businesses to attract poor people to watch movies or blow beedis.
Regards

Sham said...

Aren't the biases you stated kind of pillars of modern economics or the so called rational behaviour of consumers ?

They say they can not model the market if they can not make such assumptions... I do understand that these biases affect any economic model significantly but no pragmatic solution exits either I guess?

Paddytheterrible said...

Madshuks

As much as CKP views the mass as consumers rather than producers, its amazing how much the mass views itself the same way as well. Living in California for the good part of the last 3 years, I've come to the conclusion that the massive "democratization of affluence" that is taking place is a big feedback loop into the corporations viewing masses as consumers. After all, its with the premise/intent of being bigger, better, cheaper, allowing someone to experience the thrill without necessarily having to buy it. Perhaps our generation(& I refer to that in a generic sense) is subconsciously hedonistic - that is hedonism isnt seen as something reprehensible, but is actually a means of confirming.
http://www.reason.com/0208/fe.jt.needing.shtml

The above link offers interesting insights into consumerist behavior..

M a D a N said...

I diasgree with Dr. C.K.Prahlad logic of creating profits from poverty. The premise defeats the purpose of societal economics. Our quest is to eradicate poverty, and not treat it as a huge cash cow by generating volumes (sales, consumption) for balance sheet growth. In the bargain, Dr. Prahlad will sacrifice corporate social responsibity. It should have been Eradicate Poverty from Profits.

Rich Molumby said...

I have an E-Cash Machine site/blog. It pretty much covers Making money on the web.

Come and check it out if you get time :-)

notjohnson said...

I think that you will appreciate the perspective of Staurt Hart who co-wrote the original Fortune at the Bottom of the Pyramid piece with Prahalad, and the Great Leap Forward article with Clayton Christensen (The Great Leap: Driving Innovation From the Base of the Pyramid, MIT Sloan Management Review). Stu melds the BOP idea with CSR and sustainability. His book "Capitalism at the Crossroads" is worth a read. You can check out the intro chapter at: http://www.phptr.com/articles/article.asp?p=369398&seqNum=11&rl=1

Anonymous said...

Though I haven't read this book by CKP, but what I think is that in the last few years there has been a lot written about the benefits and methods of eradicating poverty.

Thomas Friedman in his book "World is Flat" links up this topic to the great transformation that is taking place in the world today. He makes a strong case for any nation or community to eradicate poverty as in this closely integrated and "Flat" world, the presence of groups which do not have the opportunity or access to the benefits of globalisation evantually give rise to forces which "Un Flatten" the world.

One of the very good book in the last few years is "End of Poverty" by Jeffrey D. Sachs . He takes stand based on extremely insightful understanding of the global forces and the opportunities available with nations for addressing poverty. He makes a case that with some deft policy focus and execution by nations, poverty could be eradicated in the world by 2025. In this book, it builds a strong reason why all the stakeholders- Developed nations, Industries, .developing nations- need to work together to eradicate poverty.