“Disruptive innovations are best incubated outside of the mainstream market,” proposes Cornell University’s Stuart Hart in a recent online Q&A session hosted by Greenopolis, the environmentally-focused social networking site. “It’s difficult for many companies to bring these next-generation, potentially inherent clean technologies forward on a commercial basis in established marketplaces,” Hart said, noting that incumbent firms have a vested interest in protecting the status quo. “But it is possible to construct a new, next-generation form of living and infrastructure from the beginning.”
That beginning can be found at the base of the pyramid (BoP), believes Hart. Economically, the BoP refers to the 4 – 4.5 billion people in the world who earn less than $4 per day and are vulnerable to malnutrition, disease and exploitation. Demographically, the BoP is composed of those people in the world who derive most of their sustenance from the informal economy — livelihoods that are not recorded in GDP statistics like bartering, subsistence farming, hawking, and unregistered businesses. “The BoP is two-thirds of humanity and has been largely ignored by companies. Indeed, these are the people who have been bypassed or damaged by economic globalization thus far.”
Starting from a Clean Slate
Hart feels that underserved markets, where the infrastructure has not been built out, offer a clean slate and ideal testing ground for companies to develop “disruptive” clean technologies. A new solar infrastructure, for instance, would disrupt the coal mining industry and coal-fired power plants. On his list of emerging and disruptive technologies that could succeed in emerging markets:
* Renewable energy
* Distributed generation
* Point-of-use water treatment
* Sustainable agriculture
* ICT, especially wireless technologies
By driving innovation from the underserved spaces at the base of the pyramid, companies can avoid the inertia, stranded assets, and customer un-learning problems they face in developed markets. For example, since there are 2 billion people in the world without access to electricity, isn’t the BoP the place to launch the distributed generation and renewable energy industries? BoP consumers pay a premium for kerosene, candles, and batteries, so solar energy would be cheap by comparison. The same logic does not apply in developed countries where long-entrenched (and often heavily subsidized) oil and coal industries make it difficult for clean energy innovation to take hold.
Taking the Green Leap
Professor Hart is chair of Cornell University’s Center for Sustainable Global Enterprise, and has recently been appointed Director of the Green Leap Initiative (GLI), which is associated with University of Michigan’s William Davidson Institute. The GLI’s initial focus will be on China where it will look to partner with companies with clean technologies yet to be commercialized. Target areas will include underserved parts of China with little existing energy infrastructure.
Regions in China can be ideal laboratories to launch the GLI because of the country’s size, growth rate, environmental problems, social challenges, and clean technology potential. It is possible to imagine these next-generation technologies fueling local economic growth and development, building livelihoods, creating jobs, increasing income, and also moving to tomorrow’s inherently clean technology at the same time.
The GLI is now building relationships with corporations, universities and other entities in China. They’ve adapted the business creation methodology from Hart’s “Base of the Pyramid Protocol” developed at the Center for Sustainable Global Enterprise. The approach is inclusive and participatory. Local companies, start ups, NGOs and others all play a role as co-creators. And new solutions are locally developed, rather than imposed from the developed world. “The objective is to create something that neither partner could on their own to create mutual value.”
Hart doesn’t seem deterred or daunted by the economic downturn and bleak forecast. The recent global financial crisis can serve as the stimulus to reformulate global institutions and corporations for the 21st century. It has demonstrated clearly the business strategies that do not serve all stakeholders are unsustainable.
Also, the financial crisis is an excellent litmus test to separate the companies that are serious about sustainability from those that see it more as a social responsibility or PR play. Those that are serious are looking to double down at this point, since the BoP and clean tech could provide the vehicle for emerging from the crisis.
Hart concedes that most companies have just begun this journey. Companies typically have clean tech or BoP initiatives, but few have sought to consciously connect these two. Of course, the ultimate impact will depend on how these technologies are developed and deployed. None will be perfect. All will produce new problems to be solved. “But if we are really successful with this, eventually the sustainable innovations that take root in the BoP will trickle up to the top of the pyramid.”
Let’s hope he’s right.