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TECH TALK: The Best of 2006: 7. Bottom of Pyramid Innovation

January 2nd, 2007 · 2 Comments

CK Prahalad has been championing innovation for the bottom of the pyramid for some time. He elaborated these ideas in an article around the theme of the innovation sandbox:

The process for designing…breakthrough innovations started with the identification of the following four conditions all of which are difficult to realize, even when taken one at a time:

1.The innovation must result in a product or service of world-class quality.
2.The innovation must achieve a significant price reduction at least 90 percent off the cost of a comparable product or service in the West.
3.The innovation must be scalable: It must be able to be produced, marketed, and used in many locales and circumstances.
4.The innovation must be affordable at the bottom of the economic pyramid, reaching people with the lowest levels of income in any given society.

In countries like India, with 700 million bottom-of-the-pyramid consumers at varying levels of income, the need for innovations that meet these criteria is now becoming obvious. The seemingly impossible demand of a hitherto unserved customer base a $20 hotel room in an environment of $250 to $300 hotels, or a cookstove for use by an impoverished villager became, in this case, a specification for starting the innovation process.

This approach could be called an innovation sandbox because it involves fairly complex, free-form exploration and even playful experimentation (the sand, with its flowing, shifting boundaries) within extremely fixed specified constraints (the walls, straight and rigid, that box in the sand). The value of this approach is keenly felt at the bottom-of-the-pyramid market, but any industry, in any locale, can generate similar breakthroughs by creating a similar context for itself.

Why do multinational corporations find it hard to embrace these approaches? The answer may lie in the dominant logic of successful companies: the business practices that have been successful in the past, the mind-set tied to those old practices, the internal evaluation systems that reinforce this mind-set, and the daunting problem of lack of experience in the new way of operating. The zone of comfort drives away the zone of opportunity. If managers believe that 80 percent of humanity is too poor to pay for our products and services and is not part of our target market, then a new offering at one-fiftieth the price of the current offering, made without sacrificing quality and at the same time ensuring the companys profitability, looks at first glance like an impossible task. So those managers assume that the idea will be impossible; instead, they make minor changes to existing products and business models, start endeavors that often fail, and conclude from those failures that success was indeed impossible.

Tomorrow: Biofuels


TECH TALK The Best of 2006+T

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