THE BASE OF THE PYRAMID: TOWARDS A HIGH GROWTH …bestevent.management/event/7/session/8/contribution/27/material/paper/1.pdfBottom of the Pyramid’ (Hart and Prahalad, 2002) Lexicon

InternationalAssociationforManagementofTechnologyIAMOT2017ConferenceProceedings

THEBASEOFTHEPYRAMID:TOWARDSAHIGHGROWTHFRAMEWORKFORSMEACTION

M.D.VANDERMERWEStellenboschUniversity,DepartmentofIndustrialEngineering,SouthAfrica

[email protected]

S.S.GROBBELAARStellenboschUniversity,DepartmentofIndustrialEngineering,ANDDST-NRFCoEinScientometricsand

Science,TechnologyandInnovationPolicy(sciSTIP),[email protected](Correspondingauthor)

C.S.L.SCHUTTEStellenboschUniversity,DepartmentofIndustrialEngineering,SouthAfrica

[email protected]

K.H.VONLEIPZIGStellenboschUniversity,DepartmentofIndustrialEngineering,SouthAfrica

[email protected]

ABSTRACT

Thispaperpresentsaconceptualframeworktoguideownersormanagersofsmalltomedium-sizedenterprises (SMEs) in targeting thebaseof thepyramid (BOP) as a profitablemarket.Via a semi-structured literature review process, factorswhichwere deemed necessary for the attainment ofhigh growth were determined, including: the use of a business model for detailed planning, theincorporation of a suitable and detailed business strategy for long-term growth, the utilisation ofinnovation to consistently improve the value offering and respond promptly to changes in themarket, and the implementation of goodmarketing practices to ensure value is delivered to thecustomer.Inadditiontothehighgrowthfactors,anareaofconcerndeterminedtobenecessaryforsustainedgrowthintheBOPisthepursuitofsustainabledevelopment.

JaipurRugs,asuccessfulhighgrowthdevelopingcountryenterprisethatoperatesintheIndianBOPprovidesastrongcaseforassessingtheframework’sapplicabilitytoadevelopingcountrycontext.Itdemonstrates the relevance of the framework in the real world through practical examples thatrevealtheimportanceofthevarioushighgrowthpromotingfactorsincorporatedintheframework.FurthervalidationwasachievedthroughinterviewswithexpertsinthefieldsofSMEs,growth,andtheBOPmarket.

Keywords:Baseofthepyramid,smalltomedium-sizedenterprise,enterprisegrowth.

INTRODUCTIONANDPROBLEMSTATEMENT

Theterm ‘BOP’ isused todenote thepoorestsocio-economicgroupofpeople,generally speakingthosewholiveonlessthanZAR20(Eighty20,2011)orUS$2perday(Prahalad,2009),accountingforover25%oftheSouthAfricanpopulation(SAARF,2014).BylearningnewwaysofapproachingtheBOP, enterprises can approach it as a viablemarket (Ver Loren van Themaat, Schutte, Lutters &Kennon,2013).Recent literaturehasextendedthepurelymarket-basedviewof theBOP (i.e.BOP


1.0)toincludeabroaderarrayofkeyconsiderations(i.e.BOP2.0andBOP3.0).AsummaryofeachisprovidedinTable1.

Table1:BOPliteratureprogressionNotion BOP1.0 BOP2.0 BOP3.0

LexiconLexicon is ‘The Fortune at theBottom of the Pyramid’ (Hart andPrahalad,2002)

Lexicon is ‘The Fortune with theBottom of the Pyramid’ (BoPGlobalNetwork,2012)

Lexiconis‘BaseofthePyramid3.0:Sustainable Development ThroughInnovation and Entrepreneurship’(CasadoCañequeandHart,2015)

Promotes

BOP as mass market targeted viahigh volume, lowcost, lowmarginapproach to reduce poverty as aby-product of making a profit(Prahalad,2009)

Culturally embedded, inclusive,and sustainable progress inaddition to profit making (BoPGlobalNetwork,2012)

Acquiring skills necessary foreffectiveco-creation(mutualvaluecreation)byusingopeninnovationto gain crowd wisdom andgenerate new solutions (BoPGlobalNetwork,2012)

Emphasises

Adapting existing products,reducing price points, andextending distribution to un- orunder-served customers (Mohr etal.,2009)

Solution co-creation from bottom-up by partneringwith BOP (ratherthan top-down marketing of low-cost products) (BoP GlobalNetwork,2012)

Inclusive business andtransformation of whole socio-economic system of the BOP(Foster and Heeks, 2015; 2014;2013;Heeksetal.,2014;Swaansetal.,2014)

Relationships

Arm’s length relationship withBOP, using NGO partners tomediate with BOP to compensatefor lack of BOPmarket experience(Prahalad,2009)

NGOs facilitate relationships withBOP, promoting direct, personalrelationships with BOP (Mohr etal.,2009)

Sophisticated, complex cross-sector partnership networks withNGOs,governments,andacademicpartners,etc.(BoPGlobalNetwork,2012)

ApproachPilotprojectsconductedintheBOPto ascertain viability (Prahalad,2009)

Co-creation of value propositionswith under-served communities,innovating from bottom-up,leapfrogging to sustainabletechnologies (Arora and Romijn,2012)

Collaboration among various roleplayers in the development ofscalable solutions as opposed tospecific pilot projects (BoP GlobalNetwork,2012;Karnani,2006)

PremiseBusiness model innovations toderive adequate profits from BOPdealings(Prahalad,2009)

Shift from finding a fortune tocreating a fortune at the BOP,movingfromalogicoftappingintoexisting under-served markets toone of creating wholly newmarkets(LondonandHart,2010)

BOP are included in projects asentrepreneurs, consumers, andproducers, creating inclusiveinnovations through partnerships(Foster and Heeks, 2014; 2013;Swaansetal.,2014)

ContextStresses the creation of protected organisational white space, allowingBOP initiatives time and space for creative co-creation and embedding(BoPGlobalNetwork,2012)

Must consider BOP ventures inbroader context of enterprise’score ambition, mind-set, andpurpose (BoP Global Network,2012)

Focus Generalisedeconomicgrowth(BoPGlobalNetwork,2012)

Processes and structures neededto develop and deliver innovativeofferingstoBOP(FosterandHeeks,2013)

ConnectednessBusiness is a lone entity with success or failure driven by the businessmodel,pricepoint,strategy,andvalueproposition(BoPGlobalNetwork,2012)

For success, the enterprise shouldbe embedded in larger innovationecosystem (BoP Global Network,2012)

Distribution

Gaining effective distribution where there are decrepit or non-existenttransport routes, countering the high costs of having dedicateddownstream channels set up for single products and narrow valuepropositions(BoPGlobalNetwork,2012)

Focuses on collaborative andcreative distribution approaches,sharing channels with othercomplementary partners andplayers,andusingwiderbandwidthvalue propositions (BoP GlobalNetwork,2012)

DriveDrivenbythepowerofenterprisetoalleviatepoverty,createlivelihoods,andservethepoor(BoPGlobalNetwork,2012)

Aims to integrate sustainabledevelopment perspective (triplebottom line accounting) into BOPspace(BoPGlobalNetwork,2012)

Referring to Table 1, poverty alleviation is the end goal of each view of the BOP. Two mainapproaches to poverty alleviation exist, each shown in Figure 1, which are the objective and


subjectiveapproaches(StatisticsS.A.,2012:6).Bothaddressphysiologicaland/orsociologicalneeds(Philip&Rayhan,2004).Objectiveapproachesvalueclearlydefinedgoals,oftengeneric innature.Subjective approachesmaximise individual utility, i.e. the usefulness of BOP value offerings. For-profit organisations (FPOs) tend to better address poverty subjectively, achieving this throughmaximising individual utility in the value offerings presented to the BOP (Philip& Rayhan, 2004).FPOsaddressstructuralinequitiesthroughtheempoweringnatureoftheirvalueofferings,whereasnot-for-profit organisations (NFPOs) are more adept at addressing basic needs of those stuck inextremepoverty.

SUBJECTIVEOBJECTIVE

PHYSIOLOGICAL

SOCIOLOGICAL

IndividualutilityfocusWelfareapproach

Basicneeds

Structuralinequitiesandinherentdisadvantages

Not-for-profitorganisations

For-profitorganisations

POVERTYALLEVIATION

Figure1:PovertyalleviationapproachesadaptedfromPhilipandRayhan(2004)

Numerousfactorshavebeenidentifiedintheliteraturetopromotethesuitabilityoffor-profitSMEsas poverty alleviators, including their: contribution to economic development (Cant & Ligthelm,2002:2; Santarelli & Vivarelli, 2007), geographical pervasiveness (The South African SME toolkit,2015;Goldstuck,2014:10),greatereconomicflexibility(Lee,Park,Yoon&Park,2010:292;Gélinas&Bigras, 2004:270), job creation capacity (Goldstuck, 2014:12; Cant & Ligthelm, 2002:2), resilience(Bhamra,Dani&Burnard,2011:5376), skill developmentability (Hughes,Keddie,Webb&Corney,2002:3),andtheirsocio-economictransformationcapacity(RepublicofSouthAfrica,2014).Assuch,theframeworkpresentedinthepaperisdesignedforusebyfor-profitSMEs.

ThehighgrowthpromotingframeworkforSMEsoperatingattheBOPdevelopedinthispaperaimstoincreasethelikelihoodofSMEowners/managersguidingtheirenterprisestowardslastingpositivesocialchangeandincreasingprofitsattheBOP.

Theneedforpursuinghighgrowth

ThefocusofthehighgrowthpromotingframeworkforBOPinvolvedenterprisesdevelopedinthispaperisendogenousinnature,focusingoninternalfactorsunderdirectcontroloftheSMEowner.

Neoclassical growth economics argue that multiple factors contribute to a nation’s economicgrowth, including: capital accumulation, population growth, and technological progress (Solow,1956; 1994). Newer, endogenous growth models, emphasise entrepreneurial idea development,institutional roles, good governance, and a focus on human capital as imperative to achievingeconomic growth (Romer, 1994; Barro & Sala-i-Martin, 1995; Rodrik, 2000; Grindle, 2004; Lucas,


2009). High growth firms are not the norm, yet they account for the majority of growth in anyeconomy (Henrekson and Johansson, 2008). High growth enterprises are usually able to attainconsistentexpansionintermsofemploymentandturnover,overaprolongedperiodoftime.Thesefirms are scarce (Davidsson, Achtenhagen & Naldi, 2010), and are of significant political andeconomicinterestduetotheirjobandwealthcontribution.

Attaining high growth is not the norm and has as much to do with the base from which theenterprisestartsaswiththeapproachtaken.Withonlyoneinsevencompaniesbeingabletoequalorsurpassarealannualrevenuegrowthrateaboveinflation,attainingsustained,profitablegrowth,and long-term shareholder value in SMEs is not the norm (Zook & Allen, 1999). This growth isseemingly fragile,asaverysmallpercentageofenterprisesareable tomaintainhighgrowthovermanyyears(Parker,Storey&VanWitteloostuijn,2010).Themajorityofenterprisesstart, live,anddiesmall(Davidsson,Achtenhagen&Naldi,2010),neverembarkingonanysignificantgrowthpath(Aldrich, 1999). High growth is furthermore oftentimes a variable state of the enterprise, varyingsignificantlyovertime(Acs,Parsons&Tracy,2008),ashighgrowthisinfluencedbymanyeconomicandtechnologicalvariables(Hölzl,2009).

High growth does not occur by chance, but is linked to specific enterprise attributes, behaviours,decisions,andstrategies(Barringer,Jones&Neubaum,2005).Highgrowthliteraturemostlyfocuseson the systematic differences that define high and low growth enterprises with similar externalstimuli. Inadditiontoexternalfactors,growthhasbeenshowntodependalotonthedecisionsofmanagement(Zook&Allen,1999).

Theheterogeneousnatureofgrowth,beitintermsofmeasures(sales,employment,valuecreation,etc.),modes (organicversusacquisitive),andpatterns (high, low,orerraticgrowth)ofgrowthhasbecomemuchmorewidelyacceptedoflate(Davidssonetal.,2010).Therefore,nosinglemeasureofhighgrowthrestrictedthedeterminationofhighgrowthfactorsinthispaper.

METHODOLOGY

Acomprehensive, systematic literature reviewwas conductedon the factors impactingenterprisegrowth, identifyingmultiple factors thatarguably influence thegrowthcapabilitiesofanySME.ByhoninginonthosefactorsthatarewithinthelocusofcontrolofSMEmanagers,andselectingthosethatfindrelevanceinthestart-upphaseoftheSMElifecycle(i.e.thefirstsevenyears),thefactorsaddressed in this paperwere arrived at. These factorswere addressed individually and from this,coreissuesforaBOPcontextwereoutlined. Inthisway,theframeworkforSMEsoperatingattheBOPwasdeveloped.Afterdeveloping the framework, the findingswerevalidatedviaa two-prongapproachwhich included interviewswith industryexperts andperformingan in-depth case study.Figure2outlinestheprocesstaken.

DeterminecoreissuesforsuccessintheBOPcontext Validatetheframework

InterviewswithexpertsConductacomprehensive,systematicliteraturereviewandselectgrowthfactors

Casestudyapplication

Figure2:Frameworkdevelopmentprocess


THEHIGHGROWTHPROMOTINGFRAMEWORKFORBOPTARGETINGSMES

TheframeworkforBOPtargetingSMEsdevelopedinthispaperiseffectivelyastructuredproceduralgroupingofthekeyfactorswhichhavebeendeemednecessaryforattaininghighgrowthattheBOP.Thefactorsareintroducedandthereafterformulatedintotheframeworkinthissection.

After conducting a comprehensive and systematic literature review of high growth firms, thefollowinginternalandbusinessstrategyrelatedfactorswerefoundtoberelevantforthepursuitofhighgrowth:

i. The use of a business model for detailed planning (Reid and Smith, 2000:179; HarvardBusinessSchool,2009)

ii. Theincorporationofasuitableanddetailedbusinessstrategyforlong-termgrowth(FeeserandWillard,1990;MacMillanandDay,1988;Fürst,2011)

iii. The utilisation of innovation to consistently improve the value offering and respondpromptlytochangesinthemarket(Schreyer,2000;Tidd,Bessant&Pavitt,2014:7)

iv. The implementation of good marketing practices to ensure value is delivered to thecustomer(Olson,SlaterandHult,2005:62;Pelham,2000:48;Anderson&Billou,2007)

Inadditiontothehighgrowthfactors,anareaofconcerndeterminedtobenecessaryforsustainedgrowthintheBOPwasthepursuitofsustainabledevelopment,andexistsmoreasanapproachandscreeningmechanismthananoutrightprocessstep.

EnsuresustainabledevelopmentEnsuresustainabledevelopment

DevelopthebusinessmodelDevelopthebusinessmodel PursueblueoceanstrategyPursueblueoceanstrategy

MarketMarket

InnovateInnovateProcessstepProcessstep

FeedbackloopFeedbackloop

Figure3:Thehighgrowthpromotingframework

ThefivefactorswhoseinterrelationshipsareshowninFigure2constitutestheframework.

Sustainabledevelopmentforalastingimpact(SD)

Sustainabledevelopmentis“developmentwhichensuresthatitmeetstheneeds(globaleconomic,environmental,andsocial)ofthepresentwithoutcompromisingtheabilityoffuturegenerationstomeet their own needs and requires meeting the basic needs of all and extending to all theopportunitytofulfiltheiraspirationsforabetterlife”(Brundtland,1987).Itrestsonthethreepillarsofeconomic,environmental,andsocial sustainability (Elkington,1997).Oddlyenough,growthcanlead topovertyexacerbation,worsening the lotofBOP individuals and communities (Daly, 1990).


This comesaboutwhengrowth is focusedpurelyoneconomicprogress. It is thus imperative thatdevelopmentissustainableinallthreespheres.

The core elements for successful sustainable development at the BOP include that owners andmanagersmust:

i. PursuesustainabledevelopmentforlastingpositiveimpactsintheBOPasthemagnitudeoftheBOPmakesreplicationofuppertierpracticesintheBOPimplausible

ii. Ensureenvironmentalsustainabilityasoftentimesthepoorestsuffertheworstasaresultofenvironmentaldegradation(WHO,2011)

iii. Promote social equality as inequality is a leading reason for why it is so difficult for thepoorest to escape their lives of poverty, as the system itself tends to marginalise them(Frederickson, 2005). Ensuring socially sustainable development via enterprise action willpromoteempowermentoftheBOP

iv. Achieve economic sustainability to make sure that the enterprise will turn over enoughprofittomaintaingrowth,andalsoensurevalueofferingsareaffordabletothespecificcashnuancesoftheBOP(Prahalad,2009)

Businessmodelgenerationforholisticplanning(BM)

A businessmodel “describes the rationale of how an organisation creates, delivers and capturesvalue” (Osterwalder & Pigneur, 2010). As a planning technique, the business model approach iscomprehensiveandaidsinmakingthefunctionalsectionsoftheenterprisemoreeasilyunderstood.Bybreakingdownthebusinessintofourareasmadeupofninebuildingblocks,managerscanplanforgrowthbyaddressingeachprimaryareaofbusiness (Osterwalder&Pigneur,2010).Theareasand associated building blocks are as follows, focusing on the: customer (customer relationships,channels, and customer segments), offer (value proposition), infrastructure (key partners, keyactivities,andkeyresources),andfinancialviability(coststructure,andrevenuestreams).Eachareamustbeaddresseduniquely(Osterwalder&Pigneur,2010).

ThecoreelementsneededforownersandmanagerstoensuresuccessfulbusinessmodellingattheBOPincludethat:

i. Customersegmentsarescalableandtransportableacrosscountries,cultures,andlanguages(Karnani,2006;Prahalad,2009)

ii. Channelsaredefinedtoallowformarketpenetration,usingextensivenetworkingwiththeBOP,andutilisingpre-existinginfrastructure(Simanis,2012)

iii. Customer relationships are fostered that maximise transparency, trust, acceptability,affordability,availability,andawareness(Espositoetal.,2012;Prahalad,2012)

iv. The BOP are seen as communities, consumers, co-creators, distributors, employees, andsuppliers(Viswanathan,Seth,Gau&Chaturvedi,2007;Karnani,2006;Espositoetal.,2012;Sanchez&Ricart,2010)

v. ValuepropositionsarearticulatedtoanswerthevariousneedsattheBOP(Ramani,Ghazi&Duysters,2012),creatingvalueandincreasingthespendingpoweroftheBOP


vi. Idealvaluepropositioncharacteristicsinclude:brandandstatusvalue,usability,robustness,lowcost,lowmaintenance,highutilityvalue,riskreduction,andconvenience(Christensen&Raynor,2003;Kim&Mauborgne,2005:120)

vii. Keyresourcesareleveragedandrenewable(Chopra&Narayana,2012)

viii. Key activities increase local embeddedness of the enterprise, be repeatable and scalable,andstrengthenthewholevaluechain(Jagtap,Larsson&Kandachar,2013)

ix. Key partnerships are formedwith BOP, seeing them as co-creators and potential venturepartners(Sanchez&Ricart,2010;Reficco&Márquez,2009).OtherpartnershipswithNFPOsthathavealreadyoperatedintheBOPmarketaregoodforgainingknowledgeandwisdomforsuccess(Schuster&Holtbrugge,2014)

x. Money required by the BOP per transaction is minimised, looking to building long-termrelationshipsandattainingscaleatlowprofitmargins(Hart,2010)

xi. Cost structure maximises value and minimises costs (achieving economies of scale),capturingthegreatestmarketsharepossible(HartandPrahalad,2002;Prahalad&Krishnan,2008)

BlueOceanStrategyfornewmarketspace(BOS)

BOSshowshowtocreateuncontestedmarket spaceandcutoutcompetition (Kim&Mauborgne,2005).Most start-up enterprises are imitative, and enter intomaturewhich do not exhibitmuchgrowth potential (Samuelsson, 2004). BOS is ideal when operating at the BOP as it is largely anuncontestedmarketspace,newandnon-competitive,unliketheupper-tiercompetitiveredoceansrifewithcompetition(VerLorenvanThemaat,2011).

BOS looks to value innovation to create increased buyer value whilst lowering costs (Kim &Mauborgne,2005).ThestrategycanvasoffersenterprisesapracticalapproachtounderstandingtheBOP (KimandMauborgne,2002)andenablesownersandmanagers toclearlyportray focus (onacleargoalrequiringcompetenciesoftheenterprise),divergence(fromotherenterprises’offerings)andacompelling tag line (thatconveysaclearmessageabout theenterprise) in thestrategy.Thecanvas also portrays the enterprise’s approach against that of competitors to ensure divergence(Kim&Mauborgne,1997)(seecasestudyforpracticalexample).ThefouractionsframeworkandsixprinciplesofBOShelpdevelopastrongstrategy(KimandMauborgne,2005).

The four actions pertain to the competitive factors, determining which should be: created,eliminated raised, or reduced in creating value at theBOP.Redefining the competitive factors viathisrouteisnecessarytocutoutcompetitionanddrivedowncosts.Thesixprinciplescomplementthe four actions framework, ensuring no crucial aspects of the market and offering have beenskipped,thusattenuatingrisk.

ThecoreelementsforsuccessfulstrategisingattheBOPincludethatownersandmanagersmust:

i. Create,eliminate,raise,andreducecompetitivefactors:soastocutoutcompetitors(Kim&Mauborgne,2005)

ii. Reconstructmarketboundaries:bylookingacross:alternativeindustries,strategicgroupsinsaid industries, functional or emotional appeal to buyers, complementary product and


serviceofferings,chainofbuyers,andtime(Kim&Mauborgne,2005).Thisreducessearchrisk

iii. Focusonthebigpicture,notthenumbers:thisinvolves:comparingthebusinesstothatofcompetitors and seeing where the strategy must change, exploration to understand theadvantages of specific value offerings for the BOP, gaining feedback from frontlineemployeestaskedwithfieldobservations,andcommunicationofthenewstrategy(relatingsimilaritiesanddifferences)tostakeholders(Kim&Mauborgne,2005).Thisattenuatestheplanningrisk

iv. Reach beyond existing demand: look at all non-customers, including: soon-to-be non-customers, refusing non-customers, and unexplored non-customers (Kim & Mauborgne,2005).Thisreducesscalerisk

v. Getthestrategicsequenceright:arriveatacommerciallyviableBOSideabyfollowingthesequenceof:buyerutility,price,cost,andthenadoption.Maximiseutilitybydesigningforthewholebuyerexperiencecycle.Determinestrategicpricingtocapturethelargestmarketshare. Streamline operations and introduce cost innovations, partnering, or changing thepricing model of the industry to arrive at target cost. Adoption can be fostered with allstakeholders including employees, business partners, and the BOP (Kim & Mauborgne,2005).Thisreducesbusinessmodelrisk

vi. Overcomekeyorganisationalhurdles:clearcognitive,motivational,political,andresourcehurdles(Kim&Mauborgne,2005).Thisreducesorganisationalrisk

vii. Buildexecutionintostrategy:engagewithactiveroleplayers,explainthestrategytothem,andclarifyexpectations(Kim&Mauborgne,2005).Thisreducesmanagementrisk

Innovationforcontinuousimprovement(IN)

Innovation is “the successful exploitation of new ideas” (Pittaway, Robertson, Munir, Denyer &Neely,2004). Innovation isvital todevelopingnewand improvedvalueofferings for theBOP. It isthe specific tool of entrepreneurs, taking opportunities and converting them into ever improvingvaluepropositions,thusmaximisingvaluefortheBOPandenterprise.

SMEsexhibitaheightenedabilitytoinnovatesuccessfully(Tidd,Bessant&Pavitt,2014:69),duetotheir: entrepreneurial spirit and risk taking propensity, energy, enthusiasm, and passion forinnovation, greater agility and flexibility, decision making speed, high quality of communication,informal culture, shared and clear vision, and generally heightened networking capabilities. SMEsvarylargelyintermsofinnovativecapabilities,increasingfrompassivetoreactivetostrategictothemost ideal, creative enterprises wherein owners and managers creatively pursue innovativesolutionsbeforetheyareneeded(Tidd,Bessant&Pavitt,2014;Leonard-Barton,1998).

Innovative solutions come in a number of forms, including products, processes, positions, andparadigms,whereinallinnovationsoccur(Tidd,Bessant&Pavitt,2014).Innovationsdifferinnature,beingeitherincrementalwherebycontinuousimprovementissoughtafter(Figueiredo,2001;Imai,1986), or radical whereby they aim at addressing discontinuous changes in the businessenvironment (Ettlie, 2007). Solutions range from component level to architectural level (Tidd,Bessant & Pavitt, 2014). The maturity of the industry also determines the type of innovation


generally required, with product innovation ideal in the early stage industries, and processinnovationideallateron(Utterback&Abernathy,1975).

CoreelementsforsuccessfulinnovationattheBOPincludethatownersandmanagersmust:

i. Promote platform innovation to provide a base from which other value offerings cancontinue, creating buy-in at the BOP andmaking offeringsmore affordable, enabling theBOPconsumertobuyadditionalfeatureslater,minimisingtherequiredupfrontinvestment(Prahalad,2009)

ii. Utilisevarioussourcesofinnovationtosearchforinnovativesolutions,including:design-ledinnovation, futures and forecasting, observing extreme users, knowledge push, need pull,recombinant innovation, regulation, users as innovators, watching others, and accidents(Tidd, Bessant & Pavitt, 2014). Search tools that aid in this include: corporate venturing,deepdiving,exploringmultiple futures,extendingexternal connections,managing internalknowledge connections, sendingout scouts,using theweb, andworkingwithactiveusers(Tidd,Bessant&Pavitt,2014;Kelley,Littman&Peters,2001;Pinchot,1999)

iii. Strike the correct balance between exploration and exploitation (March, 1991; Benner &Tushman, 2003). Cutting the search too soon will minimise the chances of arriving at anoptimalsolution,andresourceswillbewastedifundirectedsearchingcontinuesfortoolong

iv. LearnfrommultiplelensesofinnovationattheBOP,including:

a. Value innovationwhich looks tomaximising valuewhilstminimising cost (KimandMauborgnel,1997)

b. Bottom-upinnovationwherebysolutionsfortheBOParebroughtaboutbygettingto the frontlines, getting to know the target customer closely (Science Progress,2012)

c. Open innovationwhichpromotesgainingexpertise fromoutside,helping start-upslackingtheknow-howornecessaryskillsforsuccess(Chesbrough,2003)

d. BOPinnovationwhichputsforwardtwelveprincipleswhichgovernthedevelopmentofsolutionsfortheBOPinageneralisedfashion(Prahalad,2009)

e. Inclusiveinnovationwhichconsiders:

i. Innovation platforms which draw together stakeholders to addressparticular issues of common interest (Swaans et al., 2014; Cullen et al.,2014)

ii. Cluster innovation which takes place within a co-located group, wherebyeach individualhasacrucialknowledgeprovidingrole (VoetenandNaudé,2014)

iii. User–producer interactions which focus on producer-consumer relatedinnovationandlearning(FosterandHeeks,2014)

iv. Grassroots innovation which originates with emerging low-incomecommunities(Fressoli2014;Papaioannou,2014)

v. Frugal innovation which aims to minimise resource cost, complexity, andusage in the make-up, operation, and production of value offerings(Papaioannou,2014)

v. Practice good resource management, by (Tidd, Bessant & Pavitt, 2014): promotingincrementalism in resource allocation, performing sensitivity analyses to understand the


consequencesofunpredictableevents,adheringtoclearrules toensureresourcesarenotunknowingly depleted, setting in place stopping criteria to minimise resource wastage,settinginplaceevaluationcriteriaspecifictotheinnovation,andreducingkeyuncertainties

vi. Promotediffusionandadoptiontocapturemaximalvaluebyensuring(Geroski,2000):

a. Compatibilitywithpotentialadopters’existingexperiences,needs,andvalues

b. Complexityappropriatefortheenduser,easyenoughtouseandunderstand

c. ObservabilityofinnovationresultstomakeevidentthevaluetoothersintheBOP

d. Relativeadvantageofthenewofferingovertheoldoffering,soBOPbuyersperceivethenewofferingasbetter

e. Trialabilitysopotentialadoptersmaytestthevalueofferingbeforetheypurchaseit

Marketingtoaccruemaximalvalue(MA)

Marketingis“theactivity,setofinstitutions,andprocessesforcreating,communicating,delivering,and exchanging offerings that have value for customers, clients, partners, and society at large”(Keefe,2013).Holisticmarketingrequiresresolvingitsmultiplefacets,includingintegrationaspects(channels, communication, and products and services), relationship aspects (channels, customers,andpartners),performanceaspects (brandandcustomerequity, community,ethics,environment,legal, and sales revenue), and internal aspects (marketing department, seniormanagement, etc.)(Kotleretal.,2014).Eachfacetmustbereconciledwithoneanother.

Marketing is imperative in that it is crucial for building customers value, satisfaction, and loyalty.CoreelementsforsuccessfulmarketingattheBOPincludethatownersandmanagersmust:

i. Distinguishbetweenthevarioustypesofneeds(delight,real,secret,stated,andunstated)andwantsthatexistattheBOP(Franke,Keinz&Steger,2009).Maslow’shierarchyofneedsisausefultoolforknowingwhichtoaddressfirst

ii. Target specific and ideal markets (Prahalad, 2009; Dillon & Mukherjee, 2006; Wedel &Kamakura,2012),bymakinguseof:

a. Effectivesegmentationcriteria, includingthatsegmentsare:accessible,actionable,differentiable,measurable,andsubstantial(Kotleretal.,2014:231)

b. Suitablemarketcoverage,either: fullmarketcoverage(near impossibleforastart-up),multiple segments (more favourable for a start-up), or single segments (mostfavourabletoastart-up)(Kotleretal.,2014:231)

c. BOP specific segmentation criteria, including segmentation by: living standard(increasingfromextremepovertytosubsistencetolowincome),andvalue-creationrole(eitherasconsumers,co-producersorclients)(Ranganetal.,2011)

iii. Develop strong branding (Kotler et al., 2014:241) by maximising brand equity throughincorporating brand building elements such as meaningfulness, memorability, andlikableness alongside the brand defending elements of adaptability, protectability, andtransferability(Kotleretal.,2014;Wheeler,2012)

iv. Determineappropriatemarketingchannels(Stern,El-Ansary&Coughlan,1996,Kotleretal.,2014),including:


a. Communication channels to raise awareness and relate customer views regardingthevalueoffering

b. Distributionchannelstogettheofferingtoandbackfromthemarket

c. Servicechannelstomaximisethevalueforthecustomerthroughtraining,installing,ordisposingoftheinnovation,etc.

v. Determinethemostbeneficialformsofexchange,rangingfromstructuredtonetworked,topure,andfinallycentralisedexchange(Viswanathan,2007;Layton,2007)

vi. Integratethemarketingmixby lookingatboththetraditional4Psofproduct,price,place,and promotion (Kotler, 2011) and the 4As of availability, affordability, acceptability, andawareness(AndersonandBillou,2007)tomaximisevalueattheBOPandfortheSME

Havingdiscussedthevarious factorswhichconstitutethetheoretical framework, it isnecessarytothentestitsvalidityintherealworld.

VALIDATION

There exist three routes to validation (Mouton, 2011), including: interviews, case studies, andimplementation. Given the short timescale of this study, two routes in particular were deemedrelevanttovalidatingtheframework,includinganapplicationtoacasestudyandanexpertanalysisviasemi-structuredinterviewswithexperts.

Expertanalysisoftheframework

Via a semi-structured interview with experts in the fields of growth, the BOP, and SMEs, theframeworkwasverifiedandvalidatedaccordingtothestepsshowninFigure4.

Engageindialoguewithexpertstoanswertheirquestionsandheartheir

recommendations

Getexpertstocompletethevalidationquestionnaire

Amendtheframeworkaccordingly

Presentfindingstoexpertstoexpandtheirknowledge

oftheresearch

Figure4:Processofexpertanalysisviasemi-structuredinterviews

Thequestionnairefeedbackfromthefiveexpertswaspositive,andthusdeterminedtheframeworkasarguablydesirableandculturally feasible for its intendedBOPoperatingSMEaudience.Table1revealstheresultsforthemeasuresofperformanceoftheframework,accordingtotheexperts,interms of its: efficacy (E1), efficiency (E2), effectiveness (E3), and ethicality (E4), ranging from 1(stronglydisagree)to2(disagree)to3(neutral)to4(agree)to5(stronglyagree).

Table1:Measuresofframeworkperformanceaccordingtoexperts

Expe

rt

E1 E2 E3 E4

DK

HH

PM

VDSB

LL

DK

HH

LL

PM

VDSB

DK

HH

LL

PM

VDSB

DK

HH

LL

PM

VDSB

Businessmodel

4 5 5 5 5 4 5 4 4 5 4 5 5 4 5 4 5 4 4 5

BOS 3 5 3 4 4 3 5 4 3 5 4 5 4 5 5 4 5 4 5 5Innovation 4 5 3 4 4 4 4 4 3 4 4 5 4 4 5 4 4 4 4 5Marketing 3 4 4 4 4 3 5 4 4 5 3 4 4 3 5 3 5 4 4 5


Sustainabledevelopment

4 5 4 5 4 4 4 4 3 5 3 5 4 4 5 4 4 4 5 4

Framework 4 5 4 5 4 4 5 4 3 5 4 5 3 4 5 4 5 4 5 4

As can be seen the framework passed eachmeasure of performance adequately. The frameworkcomplexity was minimisedto ensure that SME owners targeting the BOP will be able to quicklyascertaintheirenterprises’stanceandarriveatasuitableresponse.

FrameworkapplicationtotheJaipurRugscasestudy

OnecasewhichshowstheimportanceofthehighgrowthfactorstoBOPsuccessisthatoftheIndiancompanycalledJaipurRugs.ToensurethatitstenetsareapplicabletoaSouthAfricancontext,andto ensure this, a brief comparison of the two countries is conducted. Once the case has beendiscussed,theimportanceofeachofthefactorsaddressedintheframeworkisshowninlightoftheJaipurRugscase.ItshouldbenotedthatfactswhicharenotbackedupwithaspecificreferenceperseareallavailableinPrahalad’s(2009)publication.

ComparabilityoftheSouthAfricanandIndianBOP

IndiaandSouthAfricahavemanysimilaritieswhichmakesthemrelativelycomparableregardingtheBOPmarket(NationMaster,2015;CIA,2015).Table2givesabriefcomparisonofthetwocountriesonsomekeymeasures.

Table2:ComparisonofkeyBOPmeasuresforIndiaandSouthAfrica(NationMaster,2015;CIA,2015)Keymeasure(year) India SouthAfricaAgriculturalland 60.5% 79.4%Environmentalconcerns deforestation; soil erosion; overgrazing;

desertification;airpollutionfromindustrialeffluents and vehicle emissions; waterpollution from raw sewage and runoff ofagricultural pesticides; tap water is notpotable throughout the country; huge andgrowingpopulation isoverstrainingnaturalresources

lack of important arterial rivers or lakesrequires extensive water conservation andcontrol measures; growth in water usageoutpacing supply; pollution of rivers fromagricultural runoffandurbandischarge;airpollutionresultinginacidrain;soilerosion;desertification

Languages(2015) 15 11Agestructure(2015) 0-14years:28.09%

15-24years:18.06%25-54years:40.74%55-64years:7.16%65yearsandover:5.95%

0-14years:28.43%15-24years:18.52%25-54years:41.07%55-64years:6.53%65yearsandover:5.46%

Dependencyratio(2015)* totaldependencyratio:52.4%youthdependencyratio:43.9%elderlydependencyratio:8.6%potentialsupportratio:11.7%

totaldependencyratio:52.1%youthdependencyratio:44.5%elderlydependencyratio:7.7%potentialsupportratio:13.1%

Literacy(2015) definition: age 15 and over can read andwritetotalpopulation:71.2%male:81.3%female:60.6%

definition: age 15 and over can read andwritetotalpopulation:94.3%male:95.5%female:93.1%

Unemployment,youthages15-24(2012) total:10.7%male:10.4%female:11.6%

total:51.5%male:47.1%female:56.9%

Legalsystem common law system based on the Englishmodel; separate personal law codes applytoMuslims,Christians,andHindus; judicial

mixed legal system of Roman-Dutch civillaw, English common law, and customarylaw


reviewoflegislativeactsGDPcompositionbysectoroforigin(2014) agriculture:17.9%

industry:24.2%services:57.9%

agriculture:2.4%industry:28.5%services:69.1%

Labour force by occupation (India 2012,SouthAfrica2014)

agriculture:49%industry:20%services:31%

agriculture:4%industry:18%services:66%

Unemploymentrate(2014) 8.6% 25.1%Populationbelowpovertyline(India2010,SouthAfrica2012)

29.8% 35.9%

Cellular phone subscriptions per 100inhabitants(2014)

76 150

Populationwithinternetaccess(2014) 19.2% 46.9%Ruralpopulation(India2005,SouthAfrica2003)

488.84peoplepersquarekmofarableland 129.44peoplepersquarekmofarableland

Terrain uplandplain(DeccanPlateau)insouth,flattorollingplainalongtheGanges,desertsinwest,Himalayasinnorth

vastinteriorplateaurimmedbyruggedhillsandnarrowcoastalplain

*Thedependencyratioisanage-populationratioofthosetypicallynotinthelabourforce(thedependentpart)andthosetypicallyinthelabourforce(theproductivepart).Itisusedtomeasurethepressureonproductivepopulation

Forthepurposesofthisstudy,IndiaisarguedtoprovideasufficientlycomparableenvironmentforbusinesswithrespecttotheSouthAfricanBOPbusinessclimateasitiscomparablysimilaralongthemajorityofmeasureslistedinTable2.BotharedevelopingcountrieswithlargeBOPsegments,andbothcauseSMEstofacepoliticaldifficulties.

The Indian JaipurRugscasemaynotbe transferred intoaSouthAfricancontext, yet itprovidesagood example of the positive social and economic impact a firm operating in the BOP canmake,evenwithmultipleimpedimentstosuccess.Thecoreissuesconsideredintheframeworkareclearlyaddressedhereafter.

IntroductiontoJaipurRugs

Chaudhary’shigh-qualityrugweavingandexportingenterprise,JaipurRugs,hadacompoundannualgrowth rate exceeding 38% from 2005 to 2008, turning over a fiscal annual revenue in excess ofUS$21.1million.

Thousands of employees operate independently to create high quality rugs by operating on acomplex, yet decentralised basis guided by Jaipur Rugs. By developing and coordinating a globalsupplychain,theenterpriseachievesscalewhilstoperatingatagrassrootslevel,positivelyeffectingchangeinthelivesofmanyintheBOP(Prahalad,2009).

JaipurRugsbreakdown

Four entities make up the Jaipur Rugs operation: Jaipur Rugs Company (JRC), Jaipur RugsIncorporated (JRI), Jaipur Rugs Foundation (JRF), and Bhoomika Wools. A detailed breakdown isshowninFigure5.


JaipurRugsFoundation,Jaipur

Weaverwelfare|grassrootsmobilisation|production

capacitybuilding

BhoomikaWools,BikanerRawwoolprocurementthrough

auctions|inspectionandstorageofrawwool|wool

carding(outsourced)|spinning(outsourced)

BranchofficesReceivingandissuingrawmaterialsandrugs|weavingsupervisionand

management

JaipurRugsHQ,JaipurProcurementandstorageofraw

material|designanddevelopment|productionplanningandcontrol|

logisticsandsupplychainmanagement|information

management|qualityassurance|salesandmarketingforrestofthe

world

InternationalHomeDecoPark

Productdisplayandmerchandising|buyer

interaction

JaipurRugs,USACustomerrelationshipmanagement|businessdevelopment|market

intelligence|orderfulfillment|inventorymanagement

JaipurRugs,USA,BackOffice(locatedinJaipur)Ordermanagement|shipping

andinvoicing|inventorymanagement|onlinesales

Figure5:JaipurRugsentitiesbreakdown(Prahalad,2009)

JRCattendstooperationsineverymarketexcepttheUSA,fromrawmaterialprocurementtofinalsale. The JRCheadquarters are in Jaipur,with the JRC showroomat the InternationalHomeDecoPark in Delhi. The JRC has 22 branch offices spread across India. The JRI is runwith a handful ofemployeesinAtlanta,Georgia,andhandlesmarketing,distribution,andsalesintheUSA.TheJRFisanNPOestablishedtopromotemobilisationofgrassrootsweavers,andaidin improvingthelotofemployees. JRF employees mostly work in the field, with the communities. The sole purpose ofBhoomikaWoolsistoassistintheacquiringofwool.

JaipurRugsproductionprocess

From sourcing of rawmaterials to delivering the finished product to end users across theplanet,JaipurRugsemploysabout300 full-timeemployees, including: seven familymembers,70 regionalbranch office staff (with 40 area commanders), and 226 headquarters employees. Indirectly, itemploysover40,000contractors,28,000ofwhichareweaverswith12,000beinggenerallabourers.Detailedqualitycontroland logisticssystemsensurestandardsarekepthigh.Figure6outlinestheentiresupplychain.

1RAWMATERIALPROCUREMENTANDSPINNING

2DYEING,PRODUCTIONPLANNING,DESIGNING,ANDFINISHING

4SALESANDMARKETING,RETAILING

3WEAVING

Yarnspinners Dyeingcenters Spoolingcenters Finishingcenters

JaipurRugs,USA

Cardingserviceproviders

BhoomikaWools,Bikaner

JaipurRugs,HQ,Jaipur

Endcustomers

Buyers/retailers

Weavers

Contractors

Branchoffices Over20differentlocationsspreadacrossIndia

Contractor

Spoolingworkers

Contractors

Auctionag

ents

Shepherds

Individualspinners

Figure6:TheJaipurRugssupplychain(Prahalad,2009)


Activitiessuchasyarnspinning,carding,dyeing,spooling,weaving,andfinishingareoutsourcedtocontractors, yet closely governed by the company. Deep internal knowledge of the process andintricaterelationshipsbetweenthoseinvolvedresultsinasupplychainabletosuccessfullymanageover30producthandovers.

Themeshighlightingtheapplicabilityoftheframework

In order to show that the framework encompasses all of the key concerns according to the corerequirementsoftheframework,itisnecessarytounderstandthoseaspectsofthecasestudywhichled to the success of Jaipur Rugs. In the proceeding sections, the various framework corerequirementsthatareaddressedbythespecificJaipurRugsapproachwillbelistedinbrackets,e.g.(IN-ix)wouldsignifycorerequirementnineoftheinnovationcomponentoftheframework.

Sustainabledevelopment

Chaudhary (2009) believes that “it is vital for a company to view and focus Corporate SocialResponsibility(CSR)asasourceofcompetitiveadvantageratherthanapracticeofphilanthropy.CSRis the continuing commitment by business to behave ethically and contribute to economicdevelopmentwhileimprovingthequalityoflifeoftheworkforceandtheirfamiliesaswellasofthelocalcommunityandsocietyat large.”This is indeed inkeepingwiththecorerequirementsoftheframeworkoutlinedinthispaper.

KeyfactorspertainingtosustainabledevelopmentthatareevidentintheJaipurRugscaseincludesthat:

i. Socialresponsibilityisvalued:multiplebenefitsarerealisedfromtheCSRinitiativesoftheenterprise,including:aboostinbrandimageandreputation,higherproductivityandquality,improved attraction and retention of employees, increased sales and customer loyalty,reductioninoperatingcosts,andreducedregulatoryoversight(SD-iii)

ii. Rules and regulations are adhered to: to ensure adherence to international qualitystandards, Jaipur Rugs has gained ISO 9001:2000 certification to standardise thedocumentation of company processes, as well as ISO 14000 certification ensuringenvironmental sustainability (SD-ii), and SA8000 certification ensuring social sustainability(SD-iii)

iii. Economic and social value is prioritised: by focusing on impacting the lives of the“economically and socially backward class of people” (Prahalad, 2009) (SD-iii; iv). Theenterprise’s social values are central to its success, as evidenced by the company’scommitmenttoprovidingthefollowing:

a. AccesstohealthcareandeducationwherebyJRFleveragesitsallianceswithNGOsinprovidingimprovedhealthcareandeducationtoweavers(SD-iii)

b. Competitive wages so the level of income offered by Jaipur Rugs is competitive,enablingweaverstoincreasetheirqualityoflifemoresothanwithotherjobs(SD-iv)

c. InvestmentinskillstrainingbyJRFtorecruitandtrainnewweavers(SD-iii)

d. Opportunities for aspiring entrepreneurs such as loans that high performingcontractorscanusetoimprovetheirstandingintheoverallproductionprocess,thusenablingcontractorstorealisetheirtalentsandimprovetheirearnings(SD-iii;iv)


Businessmodel

Jaipur Rugs’ businessmodel departs from that of the average rugmanufacturing firm in India byreducing capital intensity (Prahalad, 2009) (BM-xi). This reduction is achieved by takingwhat aretraditionallyseenasfixedcosts,turningthemintovariablecosts.Beyondminimisingfixedcosts,thisalsoincreasesflexibilityas:

i. Investment is decentralised:manufacturing operations are distributed due to the use ofcontractors (BM-ix).Capital requirementsare reducedas keymanufacturingassetsdonotneed to be owned, e.g. carding machines (process of brushing wool in preparation forspinning),dyeingequipment,spinningmachines,washingfacilities,andlooms(BM-xi)

ii. Management leverages its influence on key functions: as mentioned, only 300 directemployeesarehired,withover40,000artisansoperatingonacontractualbasis(BM-vii)

iii. Work is decentralised: via a pay for performancemethod, rug quality ismaintained eventhoughtheoperationissodecentralised,thusthemajorcostsoflabourandmaterialremainvariable(BM-viii;xi)

iv. Middlemen are removed: removing themiddlemen entrenched in the rug industry stopsthemfromdeprivingartisansof theirdeserved income(BM-vi; ix).Helpingweaversobtaintheirownloomsbyeitherloaning,giving,orsubsidisingthem,morelocalweaverscanworkindependentlyofmiddlemen,makingthepartnershipsmorelucrativeandappealingtothepoorest(BM-iv).Contractorsandentrepreneurswhoarego-betweensforthecompanyandtheweaversarenotmiddlemenastheywereonceweaversthemselves

v. Human capital ismaximised: communication and distribution networks in rural India areoften non-existent, therefore area commanders at multiple branches allows information(e.g. order status), materials, and finished products to be relayed back and forth withrelativeease(BM-ii)

Blueoceanstrategy

Although JaipurRugsdoesnot claim to followaBOSapproach, themethodsemployedarehighlycongruentwiththetenetsofBOS.ToseehowJaipurRugsfosteredablueocean,albeitunknowingly,drawinguparetrospectivestrategycanvasbasedonthecasestudyevidenceisuseful.ThestrategycanvasisshowninFigure7.ThestrategycanvasshowstherelativeperformanceofJaipurRugsalongits key success factors, in comparison to the industry’svaluecurve.Deviation fromthe industry isideal,andthevaluecurveofJaipurRugsdoesjustthat.


JaipurRugsBlueOceanStrategic

Move

IndustryValueCurve

CompetingFactors

OfferingLevel

High

Low

Desig

ncomplexity

Qualityconsisten

cy

Foreignmarketfocus

Directemployeecou

nt

Fixedcosts

Middlem

enusage

Executiveexpe

rtise

in

rugmanufacturin

g

Outsourcingofkey

activ

ities

Abilityofe

mployeesto

workfrom

hom

e

Steadyincome

provision

UseofanER

Psystem

Eliminatedfactor

Createdfactors

Figure7:HypotheticalstrategycanvasforJaipurRugs

Thesuccessfactorsreferredtointhestrategycanvasrelateto:

i. Design complexity: undereducated BOP Indians can produce high complexity rugs due totheiruseofmaps,anapproachuniquetoJaipurRugsdiscussedinmoredetailshortly(BOS-vi)

ii. Qualityconsistency:constantqualityisachievedviastringentqualitycheckingproceduresateverystageofproduction,fromrawmaterialselectiontotheendcustomer(BOS-vii)

iii. Foreignmarketfocus:exportingupto98%ofitsrugstoforeignmarkets,with90%goingtotheUSAalone,JaipurRugshasvastlyexpandeditscustomerbase(BOS-iv)

iv. Direct employees count: though unconventional, with relatively few direct employeesearningafixedsalary,thefirmhasalotofflexibility(BOS-I;vi)

v. Fixedcosts:minimisingfixedcoststhroughoutsourcingkeyoperations,andnotowningormaintainingmultiplenecessaryassetssavesalotofmoneycomparedtocompetitors(BOS-v)

vi. Middlemenusage:middlemenminimisetheearningsoftheweaversandhavebeencutout.Traditionally themiddlemenown the loomsand thereforedetractmuchofwhatmakes itprofitableforweaverstomakerugs.JaipurRugsactivelysupportsitsweaversthrougheithergiving, subsidising up to 75%of the loom cost (Tyagi, 2014), or lending looms toweaversuntiltheycanbuytheirown,departingfromtheindustrynormofmiddlemen(BOS-iii;vi)

vii. Steady income provision: steady income provision is not the norm in India, whereseasonalityofpredominantlyagriculturaljobsleavesmanyunemployedduringoff-seasons.Therugindustryisnotso,andisthusappealingtomanyBOPIndians(BOS-ii)


viii. Outsourcingofkeyactivities:outsourcingminimisescosts,howeveritalsorequiresstrategicallianceswhichhavebeenbuiltupoveryearstoarriveatconduciveagreements,resultingingainsintermsofrawmaterialprocurementtoproduction,andfinishing(BOS-v;vi)

ix. Executive expertise in rug manufacturing: area commanders and executives know thedifficulties and intricacies associated with the process of weaving, having done itthemselves, though this is not common in the rug industry whereby owners often justproviderawmaterialstotheirweaversandleavethequalityuptothosetheyhire(BOS-vi)

x. Abilityofemployees towork fromhome:manyworkers in Indiamust leave theirvillagesagainst theirwill toearna living,however the JaipurRugsbusinessmodelallows themtoworkfromtheirownhomes(BOS-iii;vi;vii)

xi. Use of an ERP system: as will be discussed, JRC utilises a detailed Enterprise ResourcePlanning (ERP) system to integrate each production step, listing their status in a centraldatabaseforcustomerstotracktheirorders(BOS-v)

The collectiveeffectof theabove factors’ divergence from the rug industry approachacrosseachfactorhasledtoablueoceanofrelativelyuncontestedopportunityforthecompany.

Innovation

Jaipur Rugs utilisesmultiple innovativemeasures to promote its success. This includes a focus oninformationcommunicationtechnology(ICT)infrastructure,innovativedesigntoenableemployees,andhumaninteractionandtrainingwhichalsopromotesloyalty.

InnovationisevidentintheJaipurRugscaseduetohow:

i. Developmentisdrivenfromthebottom-up:withmanagementbelievingthat“theattitudeof the population poses a serious hindrance to any mission that can be accomplished”(Chaudhary,2009), it isclearthatBOPspecificdifficultiesareaddressed, including:culturaldifferences,difficultyforwomenworkingawayfromhome,lackoftransportationformanyruraldwellers,andinherentbeliefsregardingthegeographicalareaoneisfrom(forinstancesomepeoplearealmostdestinedtoworkasgarbagecollectorsiftheycomefromtheDalitcommunity). This approach is congruent with the tenets of bottom up innovation, asprescribedinthecorerequirementsoftheframework(IN-iv’b’)

ii. Aclearinnovationprocessisfollowed:theJaipurRugsinnovationprocessiscongruentwiththat prescribed in the framework (Misra & Chaudhary, 2010): conceptualisation, proof ofconcept,design,prototype,andthenimplementation(IN-i;ii;iii;v)

iii. Innovative products are developed to maximise value creation: examples of innovativevalueaddingcomponentsofJaipurRugsincludestheuseof:

a. Maps to aid in complex design rug manufacturing (Prahalad, 2009), namelylaminated blueprints of the rug designs with colour samples which standardiseseventhemostcomplexrugdesign,enablingrelativelyuneducatedandnewweaverstoimmediatelyproducehighqualityrugs(IN-ii;v)

b. ICTinfrastructureintheformofanERPsystemusedtooptimisethesupplychainofthe geographically diverse business model, allowing for continual flow of work,formal quality assurance, and above all the ability to achieve scale. Standardisedbookletsenableareacommanderstomonitorprogressofunfinishedrugs,enablingthecustomertotrackthestatusoforders(IN-iv’e’)


iv. Personalised training is provided to promote good resource management: Personalisedtrainingofweavers isanother innovativeapproachtakenbyJaipurRugs, includingtrainingof(Prahalad,2009)(IN-v):

a. Thosethathaveneverwovenbeforeforsixmonths,guidedbymasterweaversandlivinginfreeaccommodation

b. Womeninatraditionallymaleindustry,empoweringthemwhichisidealastheyarestatisticallymorelikelytoremainweaverswhenseasonaljobsreturn

c. Spinnerswith too lowquality yarn,providing incentives for them to improve theirquality

d. Weaverswithlowqualityrugs,resultinginlessthan0.5%rateofreturntoweavers

v. Theenterpriseexpandsinnewdirections:JaipurRugsextendsitselfbeyondrugproduction,tofurtherempoweringruralIndiansviatheJaipurRuralToursinitiative(Ahuja,2012)whichenablesforeignerstoexploreruralrusticIndianvillages,furtherempoweringtheBOPtoselltheirothercraftsdirectlytotourists(IN-i)

Marketing

Themarketingcomponentof the frameworkaimsatcreatingvalue for thecustomerandtheBOPsimultaneouslyintheeventthattheyarenotoneandthesame.ValuefortheBOPinthisinstanceiscreatedwiththemactingasco-producers.

ThemarketingcomponentofJaipurRugsexhibitsthefollowingstrengthspromotinggrowth:

i. Well-designed communication networks: these are imperative to the delivery of rawmaterials, communication with weavers, and to ascertain how far specific rugs areprogressing inremotevillageswithoutelectricity.Thesechannelsenableminimal rejectionofyarnsuppliesanddyeingoutputs,i.e.5%,and7%respectively(Prahalad,2009)(MA-iiiab)

ii. Relationship building: key to Jaipur Rugs’ success is a “model of building long-lastingrelationships built on interdependence among employees and contractors at every level”(Prahalad, 2009) with the connections between artisans and end-consumers viewed ascrucial to both sustainability and scalability, thusmaximising awareness and acceptability(MA-v)

iii. Monitoring of key information: Jaipur Rugs monitors important measures including:customer satisfaction, retention and profitability, supply chain efficiency, and employeetraining and development to ensure acceptability, affordability, and availability of valueofferingsforcustomers(MA-iiic;v)

iv. Effectivedistributionchannels:withacomplexmaterialandrughandlingprocedure,JaipurRugs relies on area commanders to distribute raw materials and maps, and collect thefinishedrugswhichsimplifiesthewholeoperationastransportisnotonlyexpensivetotheruralBOPweavers,itisalsonotalwaysavailable(MA-ia;iiic;v)

CONCLUSIONSANDRECOMMENDATIONS

ItisthereforearguablytruethattheBOPisaviablemarket,sportinggreatpotentialforthesociallyinclinedSMEowner.Thisbeingsaid,theBOPasamarketexhibitsamultitudeofkeyconcernswhichmake it very different from the upper-tier markets. Thus, it is imperative that SME ownersunderstandtheimplicationsoftheBOPcontextfortheirfirms’planningandactivities.


InthisstudythefollowingfactorswerealldeemedrelevantandnecessaryforlastingsuccessattheBOP: sustainable development to ensure a lasting positive impact is realised in terms of theenvironment, the economy, and society; conducting a holistic planning process for each of thebuildingblocksofthefirm,bymakinguseofthebusinessmodelcanvas;followingaBOStocreatenew anduncontestedmarket space; being innovative so as to continually improve the enterpriseand its value offerings to the BOP, and lastly;marketing in the BOP so as to address the specificconstraintsandthereafterachievemaximumvaluecreation.Bydevelopingastep-by-stepprocedurefor SME owners to follow, i.e. the framework, the chances of SMEs attaining high growth whilstoperatingintheBOPareimproved.

Expertanalysesachievedthroughsemi-structuredinterviewsprovidedaprimaryroutetovalidatingtheframework,withtheJaipurRugscasestudyprovidingaclearexampleoftheimportanceofeachof the factors, and therefore the framework, to the attainment of high growth in the BOP as asecondary validation route. The framework not only provides a good account for the success ofJaipurRugs, italso identifiesareas inwhichtheenterprisemight improve, includingtargetingBOPconsumers and developing more suitable branding. As the developed framework’s corerequirements takecognisanceof thedevelopments inBOP literature, it is indeedconstructiveandusefulforBOPorientedenterpriseownersandmanagersseekinggrowthintheBOP.

Further research would benefit from performing a detailed survey built on the tenets of theframework,andthusarriveataclearunderstandingofthecurrentstanceofSMEsoperatingintheBOP. This would provide an empirical basis on which the value of the framework and itsconsiderationsmightbeestablished. Inthiswaytheframeworkmaybeadaptedand improved,toincreasethelikelihoodofSMEsattaininghighgrowthattheBOP.

ACKNOWLEDGEMENTS

ThefundingoftheNationalResearchFoundationofSouthAfricaismuchappreciated,withoutwhichthisstudywouldnothavetakenplace.

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