GREEN HORNET NEXT WAVE OF INNOVATIONS WILL BE DRIVEN BY SUSTAINABILITY:

C.K. Prahalad
Hes going green. After core competence and the bottom of the pyramid, the worlds best-known management guru of Indian origin, C K Prahalad, is talking sustainable development . Why? Because, as he argued in a recent article in the Harvard Business Review, sustainability is the mother lode of innovations that yield both bottom-line and top-line returns . In an exclusive interview, the Paul and Ruth McCracken professor of strategy at Stephen M. Ross School of Business at the University of Michigan, talks about sustainable development, the bottom of the pyramid, and his own intellectual journey over the years. Excerpts: You say that for companies theres no alternative to sustainable development. Thats a sweeping statement to make. I am just recognising the inevitable. If you look at the water shortage, high commodity prices and certainly global warming, then the need for sustainable development is obvious. So, my starting point is, dont deny the obvious, get on with it and innovate. But most companies today are fighting for wafer-thin margins. So, whats the incentive for them to invest precious capital in sustainable technologies or processes? If you deeply understand sustainability, then its just like the quality movement some 30 years ago. If you recall, there was a lot of debate about whether quality will increase cost. What did we find? That if you deeply understand quality and you put methodology in place, costs automatically come down. I believe sustainability can be the next quality challenge . Its going to drastically reduce costs and increase consumer acceptance. Dont look at sustainability as compliance and regulation, but as an opportunity for breakthrough innovation. But can sustainability be a source of competitive advantage? Absolutely. If you really look at it, the first ones to start developing sustainable technologies as their core strength will have a huge advantage over others. Especially, if they publicise it and get consumer acceptance. But how do you sell sustainability across a value chain that spans hundreds of vendors? First, you have to recognize that large companies are allies in sustainable development and not adversaries. And large companies must also recognize how their large footprint allows them to create sustainable development. Take WalMart, for example. There are thousands of suppliers around the world and they touch millions of consumers every week. And its a small node called WalMart through which all suppliers go to the consumer. So WalMart is in a position where it can both help establish standards with suppliers and it can also educate consumers by boldly challenging choice and pricing. So large companies can make a great contribution in a relatively short period if they embrace sustainability. India can argue that its not a big polluter compared to developed countries, so the companies here dont really need to start thinking of sustainable development. What would you tell such companies? In India, you dont have to start (on sustainable development) because you are a big polluter. You can start because theres a shortage of resources . If I look at a washing machine that recognises when electricity was cut off and starts the wash cycle from there and not the beginning, then it saves energy, it
1 The Economics Times 20 November 2009

saves water and it is acceptable in India because it is sustainable development and its good business. The beauty of this is, if you innovate here, you can take those innovations back to the US. Its been five years since you wrote the book, The Fortune at the Bottom of the Pyramid. How successful have companies been in tapping this market? Over the last five years, theres been a broad acceptance that the bottom of the pyramid (BoP) is a viable market. And if you look at BoP, its 5 billion people. Its not a monolith, its a whole number of segmentations. At least in India, this is not a debate anymore for me. These are our markets. The 800 million people are our markets. So companies are recognising it and launching products aimed at these consumers. But critics like Aneel Karnani, your colleague at Michigan, say that the BoP is a fallacy. That the only way you can improve their lot is by buying from them and not selling to them. People dont necessarily realise the totality of my argument. First is to energise 4 billion people. And I use the term consumers, because I want them to be treated with dignity. But in the very first book and article, theres not only sachets (i.e. selling to BoP), but also ITC e-choupal (which is about buying from the poor). Its a production supply chain. So was Amul and so is Jaipur rugs. So its not either-or . If you want to create a market-based ecosystem , you must accept four minimum roles for the poor: As microconsumers , mico-producers , micro-innovators , and micro-investors . And these roles are co-mingled . If I get money from a money lender at 250% and then I go to self-help group where I get microfinance at 18%, is that consumption or increased income? Thats the question people dont ask. Borrowing at 18% may look too much, but for the poor borrower its a huge discount from the money lenders rate. Its almost like creating income. So in BoP we need much more nuanced understanding of income generation and consumption. The irony is, if we create consumers out of millions of poor people, we are putting greater stress on the environment. How does this marry with your argument on sustainable development? Thats an important question. As you start including additional 4 billion people into the process of globalisation, you are going to put a lot more pressure on sustainable growth. Therefore, inclusive growth and sustainability are joined at the hip. You cant separate the two. In fact, what inclusive growth and sustainability force us to do is recognise how to do more for more people with less. And this is the organising principle I am proposing . We cant say that since sustainability is going to be an issue, lets keep all these people in squalid conditions. No, we have to innovate. Finally, whats next from C K Prahalad? If you look at my work, it is centered around four areas: globalisation, role of connectivity, inclusive growth and sustainability . Nobody has looked at all four of them and said what are the linkages. If you think for a minute, globalisation means nothing if I cant include more people . As soon as you include more people, its going to impact sustainability, and as soon as you have connectivity, people are going to be more informed. Therefore, globalisation changes in character. So its this intersection of the four thats going to create the next big opportunities for management, the next big opportunities for humanity in general.

The Economics Times 20 November 2009