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Professor Minna Halme from Aalto University on the Importance of the Base of the Pyramid Markets and Practical Solutions. Minna Halme is the Professor of Corporate Responsibility at Aalto University. Her current research focuses on sustainable innovations for poverty alleviation, business models for sustainable services, and societal impacts of corporate responsibility. She has worked with a number of European and national research projects on material efficiency services, sustainable household services, responsible organization cultures, and sustainable business strategies. In our 20th of April event, Dr Halme made two presentations and the presentation here is a combination of them both. The presentation starts with background to the BOP approach, and the vast opportunities lying within the 4-billion-large BOP market. To show practical examples, she presents different business cases. She highlights corporate challenges for inclusive innovation and suggests solutions by highlighting different types of innovation that is needed for the Base of the Pyramid business models. Dr Halme explains also the focus that Aalto University and its partners have taken to working with the BOP market.
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Minna Halme
Commercialization and scaling up inclusive businesses at emerging markets
Focus on low-income emerging markets (Base of the pyramid)
4 billion people
live with less
than 5€ (PPP) per
day Minna Halme
Base of Pyramid Approach
Minna Halme
Vision: To enhance wellbeing and reduce poverty through innovative sustainable design and enterprise
A collaborative network of private sector, civil society, academia and public sector
Focus on capabilities and strengths of the people and communities
Emphasis to build long term partnerships and linkages between innovation ecosystems
Aims of Aalto & its network
Minna Halme
Finnish partners (2010-2012)
Minna Halme
International Partners
Minna Halme
Minna Halme
Key learnings for successful inclusive business models:
Examples of Grunfos Lifelink, Cemex, ITC eChoupal and MyC4
Base of the Pyramid Approach
Minna Halme
BOP business examples
Nearly 200 BOP business models have been documented.
Initiators range from multinational companies to SMEs, social enterprises and non-governmental organizations.
Minna Halme
Why go for the BOP?
Some BOP markets are large and attractive as stand-alone entities.
BOP markets are a source of innovation (disruptive innovations):
Local innovations can be leveraged across other BOP markets: A global opportunity for local innovations.
Innovation blow-back: BOP can be a catalyst of innovations also for the developed markets.
BOP markets can be a source of resource efficient innovations, because of scarcity of commodities such as water and electricity.
Opportunity for radical industry renewal.
Additionally, BOP-business may offer an opportunity for innovative corporate responsibility
4
Cemex
Problem: Lack of housing for the poor
Solution: Cemex’s saving & credit scheme Patrimony Hoy allows poor customers to add on to their homes kitchen, bathroom, one at a time
Groups of three families save
76 weeks
Good quality materials
Advice and technical help in the building the addition
Outcome: Since its inception, over 265,000 poor families have built additions to their homes with PH. 60 % of participants say they would not have been able to build their house without the program.
The program creates jobs mainly among local masons and those trained as promoters. 95 % of promoters are women, 51% of whom had no previous working experience. 29% of participants use their homes, or extra rooms that they have built through their participation in Patrimonio Hoy, to build their own businesses.
ITC eChoupal procurement hubs for farmers in India (1/2)
Problem: Small farmers do not always get a fair price for their produce at Mandi markets (Indian government controlled produce auction; picture), where cheating is a common practice during the weighing process. At the same time, companies can have difficulty finding good quality soy to make food products.
Case: ITC is a major agritrading company in India, which buys mixed quality soy from agents to make food products, particularly food oil.
6
Solution: eChoupal (two-part program):
Part 1: Through a chain of village internet kiosks,
farmers get access to grain and seed rates prior to
taking their produce to the market and can sell when
the rate is high or acceptable. ITC trains coordinating
farmers to help in this process (picture).
Part 2: ITC procurement hubs are set up with
electronic weighting to avoid cheating in Mandi
markets, to inspect soya quality and pay the farmers
accordingly and immediately.
Outcomes: ITC procures good quality soy and
removes agent commissions and farmers get a fair
price for their produce. 6,500 eChoupals serve
40,000 villages and 4 million farmers in India. Today
eChoupals trade in 13 commodities (2 million tons;
$400 million).
7
CASE 6: ITC eChoupal procurement hubs for farmers in India (2/2)
ITC eChoupal procurement hubs for farmers in India (2/2)
PROBLEM: Subsistence entrepreneurs have too little money or can’t get bank loans.
SOLUTION: MyC4 is a microfinance bank operating through the internet since 2007.
• MyC4 grants loans to small enterprises in African countries
• Investors are individuals and organizations in developed countries.
• Each investor can choose the loan recipient, follow
how the enterprise succeeds and can also give advice.
• Local ”providers” in Africa screen prominent entrepreneurs.
REVENUE MODEL: MyC4 charges a 6% interest fee on the loans when they are repaid.
OUTCOME: Over 19,000 investors from 115 countries have invested over €15 million through the MyC4 website. Over 8,000 businesses in seven African countries have been funded.
Microfinance over the internet
Grundfos Lifelink
PROBLEM: Lack of safe drinking water
SOLUTION: Water systems for rural communities, schools and hospitals
It is crucial to develop community ownership
Users pay with mobile phone & pre-paid key fob (RFID Technology).
Local banks participate in financing
Solar panel is power source
Maintenance and repair costs are included in the water price
On-line remote monitoring with GSM/GPRS
Quick repair in case of faults
Locals have been trained as repair mechanics
Minna Halme
BOP business innovation checklist
10
Types of innovation needed for BOP business models
Product
innovation
Delivery
innovation
Adaptation to
Infrastructure
Relationship
and labor
innovation
Partnership
and network
innovation
Affordability and
quality
Different
functionality
Commercial
scale
Resource
efficiency
Efficient
delivery
process
Group credit
schemes
Effective
distribution
systems
Usable
interfaces
Last mile by
local
subsistence
entrepreneurs
Design for
hostile
environment
(e.g. erratic
electricity, dirt
roads)
Hybrids: new
technology in
deficient
infrastructure
conditions
Deskilling work
processes
Local actor
involvement
Trust-based
relationships
Mutual benefit
Capabilities
development
Untypical
business
partners
Multi-
stakeholder
relationships
Common goals
Utilization of
complimentary
resources
Network
assembling and
coordination
Corporate challenges for inclusive innovation
BOP-markets are considered challenging for market-related barriers
Deficient market information and regulatory environment, lacking physical infrastructure or access to financial services
But inclusive innovation can often be hampered by corporate management frameworks
Short-term profit maximization, business unit based incentive structures, and uncertainty avoidance. Inclusive business innovation processes do not conform to these frameworks
Promoters of inclusive innovations may face shortage of time for the tasks they have, lack of adequate financing, and lack of access to expertise from within their organization.
Overcoming constraints: Intrapreneurial bricolage
Dedicated innovators may act like entrepreneurs within a large organization. They ”make do” with whatever scarce resources are at hand such as substantial amounts of their free time, private-life networks, or previously discarded technologies, and make creative combinations of these resources in order to promote their inclusive innovation. Occasionally they work underground and even against their superiors’ orders.
Success depends on organization’s tolerance to intrapreneurial bricolage
Read more: Halme, M, Lindeman, S & Linna, P. 2012. Innovation for Inclusive Business: Intrapreneurial Bricolage in Multinational Corporationsjoms. Journal of Management Studies. doi: 10.1111/j.1467-
6486.2012.01045.x_
Thank you!
Minna Halme
Professor Minna Halme For information: http://management.aalto.fi/en/research/groups/bop/ & www.aaltoglobalimpact.org/