The concept of a market waiting to be tapped at the ‘bottom of the pyramid’, articulated by C.K.Prahalad, has caught the imagination of business people. Prahalad urged corporations to redesign products that are presently targeted to richer customers to bring them within the reach of the billions of poorer people in India and other developing countries. Of course, another way to increase the size of the market is to increase the incomes of the poorer people. The two approaches, from the supply and demand side can go hand-in-hand, as ITC is showing in its approach to rural marketing.
Actually Henry Ford I had hit upon this same market-building idea eighty years ago. He said he wanted the masses to buy cars. Therefore he produced a much simpler and cheaper car and, at the same time increased the wages of his employees way higher than prevailing norms. Ford’s business model worked because he simultaneously redesigned the production organisation. In his mass production model, the workers at the bottom were extensions of machines that followed the instructions of supervisors who, in turn, executed the steps in the production chain designed by expert engineers. This has been the underlying production model in most industries including white goods, consumer goods, food products, and agro-inputs that are venturing to tap the rural markets. Processes are streamlined within this model by ‘reengineering’, invariably reducing the number of people required in the supply chain. However, to tap the latent market at the bottom of the pyramid, more poor people must be included in the supply chain—so that they can earn more—while reducing the cost of the products that are sold to them. This is the challenge for business leaders.
An analysis of the experience of companies trying to expand into poorer markets reveals two organisational challenges they face. Firstly managers have a very hard time adjusting their roles to the new form of production organisation that may be the solution. They are used to running their production and distribution organisation like a machine, geared to supply the customer at the end of the supply chain. The customer is king. The production employee is not. But what if the customer is also part of the production chain, implying that the king may also be the servant? What is the relationship the manager must have with such a person? What tools is the manager provided for this unusual job?
Secondly, no corporation by itself can provide income-generating opportunities for all to whom it wants to sells its products. That is clearly impractical. Therefore a network of businesses is required that, by pooling their initiatives on the demand and supply sides can accelerate economic activity at the bottom of the pyramid. This results in the other organisational challenge for managers. Which is to work in a cooperative endeavour with other managers across organisational boundaries. ‘Silo mentality’ is notorious within large organisations. To work as partners and align incentives with others outside the organisation is much harder.
The new form of organisation that will unlock the market at the bottom of the pyramid is a web of relationships within and across the business organisation. The pyramidal model of organisation, with the chief at the top and the workers labouring at the bottom, which like it or not is the underlying model of large business organisations today, may be the wrong concept to unlock the market at the bottom of the pyramid. Therefore managers have some unlearning to do. Because they have to learn to make use of resources they do not own nor have direct authority over, and yet be accountable for results.