Economist on Prahalad

The Economist writes in its profile of CK Prahalad and his view that “there can be a win-win relationship between business and the poor:”

Mr Prahalad reckons that there are huge potential profits to be made from serving the 4 billion-5 billion people on under $2 a dayan economic opportunity he values globally at $13 trillion a year. The win for the poor of being served by big business includes, he says, being empowered by choice and being freed from having to pay the currently widespread poverty penalty. In shanty towns near Mumbai, for example, the poor pay a premium on everything from rice to creditoften five to 25 times what the rich pay for the same services. Driving down these premiums can make serving the BOP more profitable than serving the top, he argues, and points to a growing number of leading firmsfrom Unilever in India to Cemex in Mexico and Casas Bahia in Brazilthat are profiting by doing precisely that.

But to be profitable, firms cannot simply edge down market fine-tuning the products they already sell to rich customers. Instead, they must thoroughly re-engineer products to reflect the very different economics of BOP: small unit packages, low margin per unit, high volume. Big business needs to swap its usual incremental approach for an entrepreneurial mindset, because BOP markets need to be built not simply entered. Products will have to be made available in affordable unitsmost sales of shampoo in India, for example, are of single sachets. Distribution networks may need to be rethought, not least to involve entrepreneurs from among the poor. Customers may need to be educated in how to consume, and even whyabout credit, say, or even about the benefits of washed hands. The corruption now widespread in poor countries must be tackled.

Prahalad’s new book “Fortune at the Bottom of the Pyramid” has just been published.

I am increasingly coming to the view that in the emerging markets there is also a “middle of the pyramid” that needs to be tapped before (or at the same time as) the bottom of the pyramid.

Bezos on Innovation

Innovation Weblog has excerpts from an interview with the Amazon CEO in Business Week:

The nature of innovation: “Innovation is part and parcel with going down blind alleys (exploring ideas that may or may not be commercially successful). You can’t have one without the other.”

Nurturing continuous innovation as the company grows: “If you want to have an innovative organization, you need to do at least a couple of things. One is it’s a lot about selection of people. Some people love a rapid rate of change. They love going down alleys, many of which turn out to be dead ends. They like inventing. And other people like a more stable environment where you know more what tomorrow’s going to be like. Those people, of course, flee Amazon.com in hordes.”

Keeping the ideas percolating: “You need to organize so that you can do as many experiments per unit of time as possible. Ifyou can organize in small, lightweight teams that have certain tools so they can do a lot of experiments per week or per month or what ever the right unit of time is, that youll get a lot more invention from that.”

The rate of future innovation: “Basically, since we’ve been recording history, the rate of innovation has been accelerating. I see no reason why that acceleration should change. You got much larger numbers of educated people. Youve got great information flow. You’ve got these technologies that are very mutable and allow a lot of innovation.”

Does Bezos view himself as an innovator? “I absolutely think of myself as an innovator. I actually think most people, unleashed, are innovators. I think we get hamstrung, and we learn helplessness, and we learn that we can’t improve things. But natively, were all innovators. We’re this great species of tool-using animal who likes to make our world better.”