Model Management: Turning traditional business thinking on its head

In the few months FTdynamo has been online, we flatter ourselves that we have made a small contribution to the management agenda. We have published original research. Our reports on the Thinkers 50 and The Future of the CEO have been widely quoted. And our guru interviews have opened windows on to some unexpected vistas of management thought.

Yet none of these is as significant as the publication of Strategies for the Bottom of the Pyramid, a paper by CK Prahalad and Stuart Hart that we analyse and comment on this week. The "bottom of the pyramid" consists of the two thirds of humanity - four billion people - whose income is less than the $1,500 a year considered the minimum to sustain life and who are currently invisible to the world's businesses. In a bold and provocative reversal the authors argue that it is this hidden iceberg of humanity that holds the key to the future of capitalism. Their paper is no less than a blueprint for the reinvention of business from the ground up.

As by now we should be uncomfortably aware, phase one of capitalism has constructed not only a grossly unequal world but also an unsustainable one. While one billion people live on less than $1 a day the four per cent of the world's population that lives in the US consumes 25 per cent of its resources. Six billion people consuming at current US rates (a demographic probability by 2050) would need three planet earths to support them.

What does this have to do with business? Simple: business is the only agency that can turn the problem into an opportunity by bringing those at the bottom of the pyramid - the hidden iceberg of humanity - into the market economy where their ingenuity can be channelled into something more liberating than scratching subsistence.

At first sight this seems ridiculous. How can companies make money from markets which don't exist and people who don't have any? The answer is: by standing conventional thinking on its head and creating them.

The biggest shift is one of attitude in the developed world: from treating developing markets as junkyards for cast-off products to test-beds for the cleaner technologies and management styles that will allow them to avoid the environmental and human degradation of the West. In other words, far from being 'backward', the new markets need to be thought of as the advance guard of the sustainable capitalism of the future.

Wishful thinking? Less so than you might think. On each of the dimensions necessary for this huge enterprise - creating buying power, shaping aspirations, improving access and growing markets - Prahalad and Hart point to role models showing how it could (and should) be done. For instance:

The Grameen Bank in Bangladesh provides micro credit to three million poor women in 35,000 villages across the country, jump-starting small-scale entrepreneurial activity and transforming local living standards.

Fuel cells and ultraviolet water treatment technology have the potential to provide electricity and water for rural communities at a fraction of the developed world's industrial costs.

Ruf and Tuf jeans are distributed as $6 kits through a network of Indian town and village tailors. They are now by far the largest selling jeans in the country.

Indian companies are using technology and deep local insight to tailor products to local conditions - 30 per cent of personal care and other consumables are sold in single-serve packages costing around 1 cent, for example.

Putting all these together, of course, will require more than just business: NGOs, local and state governments and communities too are critical to the development process. Yet there are compelling reasons why multinational business should be in the vanguard of the movement. The 'push' is that their developed markets are increasingly saturated, commoditised and competitive. The 'pull' is that it gives business back a legitimacy which is more and more tarnished by grotesque senior salaries, outsize mergers which have nothing to do with customer interests, and increasingly trivial products.

Apple's Steve Jobs famously recruited John Sculley, then president of Pepsi, by asking him if he wanted to spend the rest of his life selling sugared water. Well, the 'bottom of the pyramid' now asks a similar question of all big company bosses of the West. For instance, a cheap, low-end computer that would transform the lives of rural villagers and make a profit for Apple would be far greater technical and business challenge than building ever more whizzy Macs to rip, burn and mix for the amusement of wealthy Western couch potatoes. That really would be a "computer for the rest of us". It might even justify a fraction of those $1bn share options, too.

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