College of Business: University of Illinois at Urbana-Champaign

Important Site Links

“It’s All About Social Justice” C.K. Prahalad on Democratizing Commerce


4/24/2006

C.K. PrahaladC.K. Prahalad, a world-renowned educator, business thinker, author and consultant, delivered the 2006 Alan M. Hallene Lecture on April 21. Prahalad, the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan, believes that companies that strive to serve the world’s five billion poor people have the potential to earn huge profits by viewing the poor as creative entrepreneurs and value-conscious consumers.

His lecture, titled “Democratizing Commerce,” focused around the question of “how we get every person to have access to the benefits of the global economy,” Prahalad said. “Poverty we can see. Opportunity is not that obvious.” He explained that poor people need to be given autonomy and choice to shape their own experiences rather than remain the victims of ideological battles.

“The bottom of the pyramid is an extraordinary opportunity for innovation,” Prahalad said. There are four “mother” industries that are key to creating a global economy that reaches out to the poor: connectivity, health care, energy, and microfinance. He discussed connectivity and microfinance in more detail during the Hallene Lecture, sponsored by The Hoeft Technology & Management Program. Both industries are well on their way to reaching out to those less fortunate.

For example, Prahalad explained how without connectivity, poor people are staying poor because of their lack of access to information. He expects that three billion people will be connected by cell phones and personal computers by 2010 with help of the private business sector.

Many challenges make it difficult to turn those suffering from poverty into value-conscious consumers. Prahalad focused on three major challenges that the private sector has confronted and overcome: creating the capacity to consume, creating the capacity to produce, and forming a co-creation of value.

For example, Casas Bahias, one of the largest retailers in South America, became an innovator in building their business operations for the poor to give them the capacity to consume. Casa Bahias allows its customers to make easy payments, offers a “pay for use” concept similar to payphones that gives customers access to computers for a price as little as 10 cents per hour, and provides everyday products like food and shampoo in single serve sizes, allowing customers to buy small amounts as they need it for only a penny.

The capacity to produce became a reality for farmers in India when they were given free access to computers, one per village. One farmer explained that he spent most of his time online at the Chicago Board of Trade website where he followed the price of soybeans on the futures and options markets in the United States. Understanding the US and gloabl markets helped farmers time their sales to reap greater profits. Several farmers said they would purchase their own computers if those being provided were taken away. Prahalad emphasized how a simple action like providing internet access for free allows poor people to advance so quickly that they will eventually increase their consumption upon learning how to better earn an income.

“People in poverty change more rapidly than the rich,” Prahalad said, and explained how people in India text message 60 times per day on average and they’ve only had cell phones for about five years.

In order to be successful in poor markets, Prahalad says that companies must see them as active markets with great opportunity. The value of women in society is also crucial he said. Women are critical for economic development because they are “the glue within families, the custodians of families.”

Success at the bottom of the pyramid is not all about intellect. Prahalad says the private sector must work with imagination, passion, courage, humanity, and also hope for some luck.

“Can 21st century people tolerate other people living in squalor, without opportunity?” asked Prahalad, posing an important question that leaves the future wide open.

The direction we’re heading, he said, is multinational corporations and non-government organizations co-creating to develop collaborative relationships with each other. Hopefully, that effort can begin to change world.

“There will always be a bottom to the pyramid,” he said, “but at what level will that be?”

The Hallene Lecture is named for Alan Hallene, the retired president of Montgomery Elevator Company in Moline, IL. In 2001, the John D. and Catherine T. MacArthur Foundation made a gift to The Hoeft Technology and Management Program that provides for the series, in which leading academics and senior executives visit students with insights on management issues and industry trends. The gift honors Al Hallene, who was a member of the MacArthur Board of Directors.

 

 –Sarah Judd

 

UIUC College of Business