Introduction
The term “the bottom of the pyramid” has gained prominence in the field of economics in recent past. As a concept, it is used to refer to the “largest, (but) poorest socio-economic” class at the bottom of the hypothetical pyramid used in economics to depict resource distribution (Gunther 9). Estimates of the number of people in the society who fall within this segment vary.
The World Bank estimates that about 2.5 billion people globally fall under this segment (Gunther 9). These people, according to these estimates, these are the people who survive on less than $2.50 in a day (Gunther 9).
The business world has been abuzz with this concept of “the bottom of the pyramid” given the sheer size of this market. Business analysts who are keen on formulating new business models that specifically target this population are the ones that use this term most of the times.
They develop new business strategies using new technology to target this group of consumers (Karnani 6). They also refer to this strategy as the base of the pyramid model.
Several writers with business inclinations have made this concept more popular by writing several books and articles on it. The books and articles exalt the potential market and the profits that business enterprises can make by targeting this market. The Fortune at the Bottom of the Pyramid by C. K Prahalad is such one book dedicated to this subject.
This essay is going to review this book by Prahalad. The author will look at the organisation and structure of the book as well as the themes riding on the book. A critique of the book will also be provided along the way.
C. K. Prahalad: A Brief Historical Overview
Before embarking on the analysis and critical review of his book, it is important at this juncture to look briefly at the background of the author. With this background, the reader will have a clear picture of the kind of person that they are reading about in the paper, as well as their way of thinking. The background will create a link between Prahalad and the book within the mind of the reader.
The late Coimbatore Krishnarao Prahalad was born on August 8, 1941, in Coimbatore region of Tamil Nadu (Viklund 9). He took after his father, who was an established Sanskrit scholar and a judge (Viklund 9). He graduated with a Bachelor of Science degree in Physics from Loyola College in Chennai. He is also a graduate of Harvard Business School, where he got his D.B.A degree in mid 1970s (Viklund 8).
Before his death on April 16, 2010, this man was a renowned scholar and a professor at Stephen M. Ross School of Business at the University of Michigan (Karnani 7). He was a distinguished professor, and this means that his works at the time were taken seriously in the business world, and this continues today.
Several works are credited to this scholar. This is for example The Core Competence of Corporation, which he co-authored with Gary Hamel, and Competing for the Future, with the same author. He co-authored his last book two years before he succumbed to lung infection, in 2008. The book, The New Age of Innovation, was a joint effort between him and Krishnan (Schumpeter 4).
The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits is one of the books that Prahalad authored alone. It is one of the popular books in his collection, and continues to attract the attention of business analysts and other players in the business world today, one year after his death.
The Fortune at the Bottom of the Pyramid: An Overview
This book was published by Wharton School Publishing press in the year 2004. In about 389 pages, Prahalad talks of the bottom of the pyramid consumer and how businesses can exploit the segment to make profits. By targeting this group, the businesses will not only be making profits for themselves, they will also be playing a part in eradicating among the poorest populations in the world.
In this book, Prahalad asserts that about 80 percent of the world population lives within the bottom of the pyramid. By using the approach advocated for in this book, businesses will be able to mobilise resources, in partnership with other stakeholders such as non-governmental organisations, to eradicate poverty in this group (Stefan 4).
The resources will be used to formulate and implement solutions that will address the socio-economic challenges of the more than 4 billion people living in this segment of the society (Stefan 4). This way, business corporations will be eradicating poverty through their profit making ventures, as the title of the book suggests.
To achieve this, Prahalad is of the view that the bottom of the pyramid consumers have to be respected (Prahalad 9). This means that the input of the consumers in the formulation of solutions to their problems has to be respected. According to Prahalad, the consumer should be “……. (taken as) equally important joint problem-solvers” (67).
When this is done, the situation of the consumer (read poverty) will be turned into an opportunity to be exploited by all stakeholders in the strategy. The investors will use it to make profits, while the consumers will use it to pull themselves out of the cycle of poverty.
The book, which is divided into three parts, provides the concerned parties with a strategy to collaborate for the benefit of all. Prahalad provides a blue print for a profitable coalition among the business executives, non-governmental organisations, the poor themselves and other stakeholders where all parties emerge as winners (Viklund 2).
To achieve this, Prahalad suggests that all the players have to make adjustments, accommodations and sacrifices, otherwise the results of the coalition will not be realised.
To undergird his arguments, Prahalad uses 12 case studies, where the owners of the business, either through design or by default, applied a business strategy similar to the one proposed in this book (Landrum 27). The businesses emerged as success cases, and the author is of the view that the strategy can be used by other businesses to excel.
According to Prahalad, in all these case studies, the “bottom of the pyramid is becoming an active market……… (which brings) benefits that go beyond the products consumed by the customers” (Prahalad 56). All the enterprises in these cases are interested in something more than just making profits.
They are all interested in changing the face of poverty among the consumers by actively involving the consumers and other players in the field.
Prahalad writes the book from the point of view of the bottom of pyramid consumer (Karnani 7: Viklund 4). These are the players that the author assumes to be poor, and they benefit by accessing products and services at affordable rates. However, this is not the only benefit that they draw from the business strategy.
The consumers also “………….get recognition, respect and fair treatment (from the entrepreneurs)” (Prahalad 87). From this, the self-esteem of the consumers is boosted, giving the business plan a human face.
The Fortune at the Bottom of the Pyramid: Book Structure and Organisation
Book Structure and Organisation
As earlier indicated, the book covers about 389 pages. These are organised into three parts, and each of the parts is further sub-divided into several sections. The following is an analysis of the organisation and structure of this book:
Part I: The Fortune at the Bottom of the Pyramid
This part is divided into six chapters, with each of the chapters addressing a specific aspect of the so called fortune at the bottom of the pyramid.
Chapter 1: The Market at the Bottom of the Pyramid
This chapter addresses several aspects of the market segment in this portion of the society (Prahalad 3-22). Among the issues that are addressed in this chapter are the power of dominant logic and the nature of the bottom of the pyramid market.
Prahalad asserts that “there is money at the bottom of the pyramid” (10). This is considering the sheer size of the market and the fact that members of this segment of society also have a disposable income, albeit at lower levels than those of the upper echelons of the society.
Chapter 2: Products and Services for the BoP
In this chapter, Prahalad provides the business executives with a philosophy that will help them develop products and services for the consumer at this level (Nicola 9: Prahalad & Stuart 2). He is of the view that there are “twelve principles of innovation” that the businesses should employ (Prahalad 25), including innovativeness and respecting the consumer.
Chapter 3: BoP: A Global Opportunity?
Here, the author analyses the BoP market within the global context. He is of the view that local growth opportunities are linked to innovations and opportunities in the global market (Prahalad 50, 52: Saritha 20).
Chapter 4: The Ecosystem for Wealth Creation
In this chapter, the author talks of the environment within which wealth is made as far as the BoP is concerned. He particularly talks of the contract between the poor and the business enterprises amongst them. The author is of the view that the poor must be respected in these contracts, and the “inequities in the contracts (should also) be reduced” (Prahalad 69, 72).
Chapter 5: Reducing Corruption
Here, the author identifies corruption as one of the hindrances to eradication of poverty among the 4 billion poor people of the world (London 5). He provides strategies to reduce corruption here by creating what he refers to as “transaction governance capacity” (Prahalad 77) amongst the poor.
He provides several case studies where this strategy has worked, including the Andhra Pradesh e-Governance project and the Centre for Good Governance (Prahalad 85, 90: Kandachar & Minna 30).
Chapter 6: Development as Social Transformation
In this chapter, the author argues on how development can be conceptualised as a social transformation in the society, providing a social aspect of development. He identifies several barriers to this form of development, such as communication barriers and exclusion of women, and provides possible remedies to the same.
Part II: Innovative Practices at the Bottom of the Pyramid
It is in this section that Prahalad provides case studies of business enterprises that have adopted his proposed mode of operation and succeeded (Prahalad 113-381). Some of these case studies are provided in text while others are provided in audio CDs. This part is divided into six sections.
In section I, Prahalad talks of the market at the BoP and provides the cases of Casas Bahia and CEMEX. In section II, he talks of the missing link in engaging community in eradicating poverty via a business model. He provides the story of the Annapurna Salt Company and the Hindustan Lever Limited. The same structure of providing case studies to drive home some of the arguments is used in throughout the other sections.
Part III: CD
This section is provided in a CD format. It is 35 minutes of video coverage depicting success of the case studies that were covered in text format in section II. The filming for the CD is done on location, with BoP locations in five countries acting as the stage. These are India, Peru, México, Brazil and Venezuela in Latin America (Prahalad 34).
Critique of the Book Structure and Organisation
The book starts with a preface, which is a great idea as it prepares the reader on what to expect within the text. This is followed by a section titled About the Author, where a brief overview of Prahalad is given. This is also a great idea, as it provides the reader with an idea on the kind of person that they will be interacting with throughout the book.
It was also a great idea for the author to organise the book into three parts, each of which is further subdivided into several sections. This makes the book appear organised, and it also makes it easy for the reader to go through it. There is no unnecessary clutter in the organisation of the book as far as the sections are concerned.
The use of the CD was similarly ingenious. It enriches the interaction of the reader with the book. Prahalad uses the same innovation that he beseeches business executives to use in interacting with his readers.
Thematic Analysis
Several themes emerge from this book, the major one been eradication of poverty through the BoP business model. The other themes revolve around this major one, and they can be seen as supporting the same. The following are some of the themes that are discernible from the book:
The Theme of Poverty
Prahalad is of the view that the consumers at the bottom of the pyramid are afflicted by poverty, meaning that more than 4 billion people in the world today live on about $2.50 per day (Landrum 28). This state of affairs is brought about by interplay of various factors. This is for example illiteracy among this group, lack of employment and high birth rates among others.
To underscore the status of poverty in the society, Prahalad provides the case of India, where more than 5.5 million people have their limbs amputated (Schumpeter 4). More than 25,000 continue losing their limbs in this country per annum, further increasing the population.
The loss of limbs is caused by several factors such as disease, accidents and such others. These people cannot afford a prosthesis, which goes for about 7,000 dollars. This being the case, it becomes very hard for this people to exploit their potential, and as such, they continue wallowing in poverty.
The author also provides the case of México, a country where, according to latest statistics, approximately 24 million people live on less than five dollars in a day (Prahalad 45). The banks are unwilling to provide these people with credit facilities, making it really hard for them to escape from poverty.
Prahalad is of the view that business enterprises need to tackle this problem of poverty in order to create a sustainable consumer base. As such, instead of focusing so much on profits, businesses should come up with strategies that will make these people escape poverty, increase their per capita income and subsequently, their purchasing power.
Eradicating Poverty Through Profits
The proposed business strategy points out to the fact that it is possible for businesses to make profits and at the same time eradicate poverty in the community. This can be done through collaboration with the consumers and other stake holders such as non-governmental agencies (Kandachar & Minna 31).
When this happens, all the stakeholders benefit, creating a win-win situation, as opposed to the win-lose situation where businesses appear to exploit the local communities. The local community benefits by having the poverty levels reduced, the business enterprises benefit by making profits, while other stakeholders such as the NGOs benefit by having attained one of their goals, that of reducing extreme poverty in the community.
The Need for Collaboration
Another theme is that of the need of collaboration among the various stakeholders in order to make the proposed business model work. It is noted that the players cannot work in isolation; rather, they have to make adjustments and sacrifices to accommodate each other.
The business enterprises need to respect the consumer, taking their perspectives into consideration when coming up with strategies to fight poverty. The consumers, on their part, need to look at the business enterprises as partners in development, rather than viewing them as exploiters.
On their part, the NGOs should strive to ensure that the members of the community and the business enterprises work in tandem. This is for example encouraging the businesses to contribute to corporate social responsibility efforts in the community.
Conclusion. A Critique of the Book
Prahalad’s arguments in this book and largely logical, and are acceptable and significant in reducing poverty among the bottom of the pyramid segment. However, there are several inherent assumptions made by this author that waters down the credibility of their book.
For example, it seems that Prahalad overestimates the purchasing power of the poor within the bottom of the pyramid bracket. A case in point is when he seems to exaggerate their number. His statistics vary from those of other analysts in the field, and they seem to be the highest. The World Bank puts the number of the poor at about 2.7 billion, while Prahalad doubles this to about 4 billion (Landrum 29).
There are also those who question whether the multinational corporation are suited to the bottom of the pyramid market as Prahalad suggests. His argument to this end is further weakened when one takes a critical look at the profile of the businesses that he uses in his twelve case studies.
These businesses, at least most of them, are small to medium enterprises, while others are non-profit making (Karnani 9). Given that none of the case studies given seems to support a multinational in this market, questions arise regarding the tenability of Prahalad’s recommendation to this end.
Apart from these minor weaknesses, Prahalad’s book can be regarded as a bold and significant step towards eradication of poverty among the world’s poorest. The suggestions put forth, as well as the business model, appear credible enough to be adopted by business enterprises.
Works Cited
Gunther, Gregory. The Theory of Economic Growth. London: Allen and Unwin, 2006.
Kandachar, Peter & Minna, Hay. (Eds.) Sustainability Challenges and Solutions at the Base of the Pyramid – Business, Technology and the Poor. Sheffield: Greenleaf Publishing, 2008.
Karnani, Aneel G. Fortune at the Bottom of the Pyramid: A Mirage. Ross School of Business, Paper No. 1035, 2008.
Landrum, Nancy. Advancing the “Base of the Pyramid” Debate. Strategic Management Review, 1(1): 27-29, 2007.
London, Titus. The Base-of-the-Pyramid Perspective: A New Approach to Poverty Alleviation. In G. T. Solomon (Ed.), Academy of Management Best Paper Proceedings, 2008.
Nicola, Day. Bottom of the Pyramid from the Perspective of Poverty Reduction. NRI. June 18, 2007. Web.
Prahalad, Coimbatore K. The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits. Wharton: Wharton School Publishing, 2004.
Prahalad, Coimbatore K., & Stuart, Hart L. The Fortune at the Bottom of the Pyramid. Strategy and Business, 26(3), 2002.
Saritha, Rai. In Rural India, a Passage to Wirelessness. The New York Times, August 4, 2001.
Schumpeter. The Guru of the Bottom of the Pyramid. The Economist, April 24, 2010.
Stefan, Stern. Manifesto Writer for Business Survival. Financial Times, April 19, 2010.
Viklund, Andreas. Book Review: The Fortune at the Bottom of the Pyramid. First Friday Book Synopsis. September 1, 2010. Web.