Friday, January 31, 2014

Building Iterative Boundary Capabilities to Succeed at the Base of the Pyramid

Read the working paper
INSEAD Working Paper 2014/12/EFE

Over the last 15 years, articles about the world’s poorest populations, known as the base of the pyramid, have begun to appear in scholarly business journals. Although the initial wave of attention was driven by claims that large corporations could earn a fortune selling to these consumers, it soon became clear that executing on this premise was more difficult than anticipated. Against this background of theoretical and empirical difficulties in addressing global poverty, we take up the question of how business can create both profit and positive social impact. We answer this question by linking iterative boundary capabilities at the level of the firm with effective business models to manage the institutional interfaces between the mostly informal economies of impoverished communities and modern market institutions. We conceptualize the relevant boundaries in terms of knowledge institutions, e.g., the definition of market actors, and behavior institutions, e.g., the design of market architecture. We develop a framework that emphasizes the iterative boundary capabilities built by local, for profit enterprises that have succeeded in creating markets in base of the pyramid communities. We review and refine this framework by analyzing two cases of such firms, one in Laos and the other in Kenya. Based on our finding, we develop specific implications for future theory, research, and practice with regard to building business models that succeed financially and socially.