7. Broadening the Corporate Bandwidth

When we set our sights on the world’s “poor,” we tend not to see complex societies with unique histories that also have economies. Instead, we see societies that are economies—albeit “underdeveloped” ones, from our point of view.¹ Indeed, my colleague Erik Simanis at the University of North Carolina has made it very clear to me that our conceptual categories, which seem as though they were decreed by God, are only one way of looking at the world.² Whether we speak of industry boundaries—automobiles, computers, energy, telecommunications—or societal categories—economy, government, education, church, family, community—all serve to blind us to the actual conditions and constraints that exist for those beyond our realm, particularly at the base of the pyramid.

Because we tend to impose our preexisting categories on the BOP, we often fail to see business opportunities of potentially vast proportion. Existing core competencies and strategies within companies further constrain our thinking. The BOP thus presents MNCs with a unique opportunity, a “license to imagine,” to reconceptualize the corporation in a manner that can recognize and serve the diversity of needs and values of all people in the world.³ This does not mean selling extractive products and services to the poor; it means learning how to codevelop a commercial model aimed at improving the lives of those who have been bypassed or actively exploited by globalization. Cultural sensitivity, environmental sustainability, and mutual learning hold the keys to this process.

Unfortunately, most managers in MNCs have little knowledge or understanding of those in the BOP, let alone their views about social equity, environmental quality, or what represents a “good life.” Indeed, it has been strongly argued that the dominant conceptualizations of “development” and “modernization” reflect a Western cultural bias and a preoccupation with simply raising GDP per capita.⁴ Together, these shortcomings significantly hinder efforts to imagine and build healthy BOP communities and markets.⁵ Successfully serving the needs of the entire human community therefore requires that corporations broaden their bandwidth and hear the true voices of those on the periphery of the global economy.

Learning from Ladakh

In her book Ancient Futures: Learning from Ladakh, Helena Norberg-Hodge provides a bird’s-eye view of both the problem—and the opportunity—confronting global capitalism.⁶ Trained as a linguist, Norberg-Hodge in the mid-1970s set about the task of documenting the language of the Ladakhi people, an ancient tribal society of the Himalayan region who had lived a self-contained existence, largely undisturbed for centuries, due to their remote location. Having mastered the language in the first year, she became increasingly fascinated by the way of life of the people of Ladakh.

Despite the rigorous climate, short growing season, and arid environment, the people had learned how to grow crops and utilize water for irrigation on a sustainable basis. They had evolved a society in which nothing was wasted or thrown away—a use was found for everything. The concept of crime was virtually nonexistent. The Ladakhis had developed a natural sense of responsibility toward each other and their environment, and were, by and large, happy, healthy, and fulfilled. They led a rich artistic, symbolic, and ceremonial life, “working” no more than about four months out of the year, during the short growing season. Norberg-Hodge was utterly struck by what she described as their joie de vivre, true joy and contentment. She set about documenting their way of life and committed to spending roughly six months in Ladakh annually, a practice she continues to this day.

However, things began to change rather abruptly in the late 1970s and ’80s. Given the growing conflict with Pakistan over the contested region of Kashmir, of which Ladakh was a part, the Indian government threw the area open to tourism, and concerted efforts were initiated to “develop” the region. This process, as usual, consisted primarily of building up the infrastructure, especially roads and utilities. Western-style health centers and schools were also established in even the most remote villages. Other fundamental changes included a growing police force, courts, banks, and radio and television. Spurred on by the development efforts, the formal sector grew rapidly. Traffic increased exponentially, with hundreds of trucks a day making the long journey to the Himalayan plateau. Jeeps and buses, crammed with thousands of tourists, added to the congestion and air pollution in the provincial capital of Leh.

The sudden influx of Western influence caused growing numbers of Ladakhis—the young men, in particular—to develop feelings of inferiority. Tourists would spend more money in one day than a typical Ladakhi family would earn in a year. Ladakhis did not realize that money played a completely different role for the foreigners; that back home they needed it to survive, whereas in their traditional culture, villagers provided for their own basic needs without money. Western media provided overwhelming images of wealth, luxury, ease, and glamour (the side effects of pollution, stress, drug addiction, and homelessness were never shown). By contrast, the Ladakhis’ own lives seemed primitive and trivial. As local people became more focused on earning money, the age-old practices of communal farming and local self-reliance began to erode. Cash cropping became the norm. More young people left for the city to find paid work, leading to a building boom in and around Leh, where urban sprawl began to resemble the slums that characterize cities throughout the Third World.

With the breakdown of the Ladakhi traditional extended family and the practice of polyandry,⁷ the population, which had been virtually stable for centuries, began to grow at a rate higher than the Indian average. For the first time, a noticeable gap between rich and poor developed. With unemployment on the rise, crime became a growing problem. Children no longer greeted strangers with wonder and laughter, but rather as beggars or worse. Modern education ignored the old ways and made the children think of themselves as inferior. As mutual aid gave way to dependence on faraway forces, people began to feel powerless to make decisions concerning their own lives. Striving for the modern ideal required that Ladahkis, in effect, reject their own culture. The resulting alienation gave rise to a growing resentment and anger, which lay behind much of the violence and religious fundamentalism that has come to plague the region.

In effect, the “development” of the region led to the systematic dismantling of Ladakhi culture and a growing economic dependence, cultural rejection, and environmental degradation. Although per-capita incomes definitely rose, it is quite clear that happiness, security, and contentment did not. That is not to say that there have been no benefits from development. Many aspects of the traditional culture were far from ideal: Communication with the outside world was limited, illiteracy rates were high (although this had little impact on the functioning of the traditional culture), and infant mortality was higher and life expectancy shorter than in the developed world. The introduction of money and technology, and the advent of modern medicine did bring with them certain benefits. However, on balance, the traditional nature-based society, with all its flaws and limitations, was probably more sustainable, both socially and environmentally, for the Ladakhis.

The Post-Development Challenge

The Ladakh situation is a microcosm of what has played out across the Third World over the past 50 years under the banner of development. As one of the last subsistence societies to survive virtually intact into the 1970s, it provided a unique vantage point from which to observe the process of development unfold. Throughout most of the Third World, the process began much earlier, in the 1950s, following the creation of the post-war Bretton Woods Institutions of the World Bank, International Monetary Fund (IMF), and the GATT.

As many have pointed out, the modern concepts of poverty and development were constructed only following World War II.⁸ For the United States, the dominant concern at that time was the reconstruction of Europe. Reconstitution of the colonial system was a key component of reconstruction because continued access to raw materials was seen as crucial not only for European recovery, but also for U.S. growth. By the late 1940s, however, many of the former colonies had achieved independence. The consolidation of the communist block had created three worlds: the free industrialized nations (First World), the communist industrialized nations (Second World), and the poor, nonindustrialized nations (Third World). There was a need, therefore, to define a new world order based not on subjugation, but rather on development.

In 1949, U.S. President Harry Truman announced in his inaugural address the concept of a “fair deal” for the entire world. An essential component of this was his appeal to the U.S. and the world to solve the problems of the “underdeveloped areas” of the globe. The intent was quite ambitious: to replicate the features that characterized the “advanced” societies of the time—industrialization, urbanization, and rapid growth of production and living standards, along with the adoption of modern education and cultural values—throughout the world. Greater production was seen as the key to prosperity and peace.

This was an audacious and visionary goal, to be sure. Within a few years, it was universally embraced by the First World and many Third World countries as well. Unfortunately, this framing ignored the immense cultural diversity, unique historical circumstances, and varied skills and capabilities of the Third World by focusing attention primarily on increasing production and standard of living. In short, poverty came to be defined across the world through a single metric—income poverty—and the solution to poverty was economic growth. The reality, we now realize, is that “standard of living” can actually be quite high in places where GDP per capita is quite low. Bhutan, for example, where people still provide for many of their own needs and produce beautiful art and music, is considered to be one of the poorest countries of the world because its gross domestic product is virtually zero.⁹ With GDP as the metric, no distinction is made between homeless beggars who live on the street and the Bhutanese or Ladakhi farmers. In both cases, there may be no income, but the life behind the statistics is entirely different.

In this way, poverty has been used to define whole peoples not according to what they are or what they want to be, but according to what they lack (income). This, it turns out, is development’s fatal flaw. It has systematically failed to recognize the wealth of indigenous resources and alternatives. We have projected on the rest of the world our own Western post-war fixation with industrial production as the only path to prosperity. As a consequence, we have committed the better part of 50 years to using one-size-fits-all solutions to what are really complex, diverse, and unique problems.

Paradoxically, the development era, quite unintentionally, has created the base of the pyramid as we know it today. Traditional societies such as the Ladakh have been systematically disrupted by the development process. As peasants, nomads, and tribal peoples have been either lured away or driven from their land to urban slums in search of wage labor, poverty is often the result, not the cause. Populations that were once stable ballooned out of control as the old social norms and extended family structures that once kept them in check steadily eroded (why do we think that the human population has exploded from 2 billion to 6.5 billion since the end of World War II?). Increasing dependence on the money economy means that income eventually does become the most critical factor; unfortunately, job opportunities in the money economy have not been adequate to match the tens of millions of poor people flooding into the job market. Thus, massive poverty in the modern sense appeared only when development broke down community ties and cut off millions of people from access to land, water, and other resources.

The postwar development paradigm has come under increasing criticism in recent years not only from post-colonialists and antiglobalizers such as Wolfgang Sachs, David Korten, and Arturo Escobar, but also from development insiders such as Joe Stiglitz, Jeff Sachs, and George Soros.¹⁰ At this point in history, it is probably safe to say that the development era as articulated after World War II is officially dead. Of the major multilateral development institutions, the World Bank and the IFC may be the farthest along in recognizing that this is the case. The question, then, is, what will the post-development paradigm look like?

Clearly, this need not be a dichotomous choice between full-scale modernization and returning to the old ways: Neither Old Ladakh nor New Ladakh is viable any longer. As we have seen, a sustainable enterprise-led strategy has the potential to avoid the pitfalls of one-size-fits-all policies (such as structural adjustment), with development experts dictating the way people should live. Through decentralized business models and disruptive innovation, it is possible to foment a bottom-up revolution of wealth creation and life enhancement. As Norberg-Hodge observed, the real lesson of Ladakh is the realization that plateau-dwelling farmers in the Himalayas have as much to teach us about how to live as we have to teach them. They need not sacrifice the sort of social and ecological balance that they have enjoyed for centuries. To do so, however, they will need to build on their own ancient foundations rather than tear them down, as is the way of conventional development. It is time that we get on with this enterprise in a spirit of mutual respect and learning, rather than implied or explicit superiority.

As businesspeople, therefore, we cannot know in advance what is required to serve the real needs of those who have been bypassed or damaged by the globalization process. A new capability is needed, focused on hearing these voices for the first time. Rather than engaging only known or powerful stakeholders of existing businesses, we need to systematically identify, explore, and integrate the views of those on the periphery or at the “fringe”—the poor, the weak, the isolated, the disinterested, and even the voices of other species with which we share the planet (through a human interpreter, of course). Accordingly, my colleague Sanjay Sharma and I have proposed the idea of radical transactiveness (RT), the ability to access and combine knowledge with fringe stakeholders possessing radically differing views, to build the competitive imagination necessary for future business success and the pursuit of a truly sustainable form of global development.¹¹

Radical Transactiveness

RT is “radical” because it focuses on gaining access to stakeholders previously considered extreme or fringe, for the express purpose of facilitating disruptive change and creating competitive imagination. RT is “transactive” because it seeks to engage the firm in a two-way dialogue with stakeholders so that each influences and is influenced by the other.¹² Interactions among diverse stakeholders extend the boundaries of the firm, offering the possibility for learning and growth not envisioned at the beginning of the process. RT thus allows a firm to understand the complex and evolving issues that may affect its future competitive position.

Exhibit 7.1 depicts the difference between core stakeholders—those visible and readily identifiable parties with a stake in the firm’s existing operations—and fringe, or peripheral, stakeholders. Whereas core stakeholders gain a seat at the table by virtue of the power, legitimacy, or urgency of their claims, fringe stakeholders are typically disconnected from or invisible to the firm. They may be affected by the firm but have little, if any, direct connection to the firm’s current activities. However, fringe stakeholders may hold knowledge and perspectives that are key both to anticipating potential problems and to identifying innovative opportunities and business models for the future. Hewlett-Packard’s “i-Community,” in the village of Kuppam in India, for example, was established to learn the possibilities for information technology and Internet use by the rural poor in developing countries. This is intended to help HP imagine and design the products and services that would respond to the real problems and needs of rural India.¹³

Exhibit 7.1. Engaging Fringe Stakeholders

Source: S. Hart and S. Sharma, 2004. “Engaging Fringe Stakeholders for Competitive Imagination.” Academy of Management Executive, 18(1) (2004): 7-18.

By opening communication channels to previously untapped sources of intelligence, RT helps the firm maintain a dynamic alignment of its strategy with the changing environment. Knowledge and learning from fringe stakeholders signal to the firm the investments it should make in appropriate resources and capabilities, allowing it to generate new value-creating strategies.¹⁴ For example, Hindustan Lever Limited (HLL, Unilever’s Indian subsidiary) requires its managers to spend six weeks living in rural areas, to generate knowledge about the hygiene needs and practices of the rural poor. This knowledge has resulted in new product ideas (such as a combined soap and shampoo bar) and promotional programs (such as street theater) for rural markets. These innovations have also been adopted by Unilever subsidiaries in Brazil and other developing countries.

As Sanjay Sharma and I have suggested, RT consists of two subcapabilities: 1. The ability to extend the scope of the firm (fan out); and 2. The ability to integrate diverse and disconfirming knowledge (fan-in). These two phases are similar to the concepts of idea generation (divergence) and idea evaluation (convergence) described in the traditional problem-solving literature.¹⁵

Fanning Out: Extending the Scope of the Firm

Competitive imagination requires divergent thinking by managers to identify the unmet needs of new, yet-to-be served markets. Divergent thinking is also necessary to envision new, disruptive technologies and business models that enable the firm to deliver functionality to customers faster, better, or cheaper than competitors. The knowledge needed to drive such innovation is usually widely dispersed outside the firm, within stakeholder groups that may be neither important nor salient, nor part of a firm’s current network.

As the previous HP and HLL examples show, these stakeholders are often at the unseen periphery of the firm’s stakeholder network, such as the urban homeless or the rural poor in developing countries, or are even nonhuman (for example, endangered species and nature).¹⁶ In fact, Janine Benyus, author of the path-breaking book Biomimicry, argues that by including biologists in the technology development process, it might be possible for companies to emulate (rather than dominate) nature in its designs. Spiders, for example, can manufacture a material (spider webs) at ambient temperature using no toxics that is stronger (pound for pound) than Kevlar. By treating nature as a mentor in product design, it may be possible to create a whole new generation of inherently clean and sustainable products. Distant voices from the fringe thus provide a panoramic view of a firm’s changing circumstances and opportunities.

To be truly effective, fanning out requires the reversal of traditional stakeholder-management models, by “putting the last first.”¹⁷ This means making a conscious effort to completely reverse the rules of stakeholder saliency by identifying actors who have been completely invisible to the firm in the past. It is extremely difficult for managers in existing businesses to identify fringe stakeholders such as the rural poor, urban shantytown dwellers, or advocates for nature’s rights. However, placing managers in situations that are the opposite of their current contexts opens them to hearing stakeholder voices from the periphery.

Recently, for example, in an effort to expand the scope of the firm, Grameen Bank founder Muhammad Yunus challenged his employees to embrace the poorest of the poor by focusing the bank’s attention on beggars.¹⁸ Beggars, he noted, had generally been excluded from the bank’s portfolio because most current clients did not want to include them as part of their peer lending group, for fear that they would not pay back their loans. As a consequence, Yunus requested that every employee take the personal responsibility to recruit one beggar to become a client of the bank. This required each employee to directly confront the reality of the poorest of the poor. As of October 2004, over 23,000 beggars were recruited to the bank and have been saved from the humiliation of taking handouts. In the process, bank employees have greatly expanded their conception of what is possible by working directly with the beggars to get them on the path to microentrepreneurship. In one case, for example, a limbless beggar who previously simply sat all day with a cup in hand, transformed his “strategic location” near the village center into a miniconvenience mart. With a $50 loan guarantee from the bank, the beggar now sells bananas, cookies, and beverages sourced from a local shop with a less desirable location.

Another example, this time in the context of an MNC, is the Biotechnology Advisory Panel set up by DuPont to consciously seek divergent views from the periphery to help it formulate a more robust strategy for biotechnology development. The company has purposefully sought to include a diversity of stakeholders from India, Africa, and Latin America in its deliberations. It has also invited environmental advocates, such as the former head of Greenpeace International, to provide divergent views on the issue. Exposing senior managers and business leaders to radically different perspectives has resulted in significant modifications and improvements to the company’s approach to and strategy for biotechnology commercialization. New ideas have been generated for future business models in accordance with the company’s push to move away from products based upon petrochemical feedstocks and into knowledge-intensive businesses with a biological base.

Exhibit 7.2 identifies the actions that firms can undertake to extend the scope of the firm. The costs in terms of managerial time and effort are likely to be a fraction of what a large firm would normally spend on research and development to generate new ideas and innovations.

Exhibit 7.2. Extending the Scope of the Firm

Managers should begin intense interactions with fringe stakeholders only after suitable cultural and ecosystem sensitivity training. They then can immerse themselves in radically different contexts to learn firsthand about the needs of those that they do not cater to with existing products. As a result, they come to understand the potential for and feasibility of applying innovative technologies to develop new business models and products. For example, Procter and Gamble has launched a pilot venture in rural Nicaragua to help its managers generate creative ideas by immersing themselves in a context where the company currently has no presence, infrastructure, or partners. By doing so, they avoid having the voices from the fringe contaminated by the dominant logic of the marketing model used to serve their existing markets.

Extending the scope of the firm by reaching out and seeking knowledge from fringe stakeholders enables managers to suspend disbelief, thereby broadening the corporate bandwidth. New knowledge is generated only when managers escape from the old ideas and mindsets that underpin the current business system. Effective fan-out thus focuses on engaging with unconventional and nontraditional stakeholders to understand dynamic and complex problems that might result in new, breakthrough products, technologies, or strategies.

Fanning In: Integrating Diverse and Disconfirming Information

Once the company’s boundaries have been expanded and divergent thinking has opened up the firm to both new concerns and emerging opportunities for the future, the challenge is to integrate this new information into practical, useable strategies. Having initiated contact with these stakeholders, managers need to build bridges so that extended, informal conversations can take place. The transfer of tacit or unwritten knowledge residing in people and their traditions requires intense interaction; it cannot be transferred in large group meetings or during formal negotiations. Practical strategies emerge only after the apparent contradictions between knowledge from fringe stakeholders and the current business model have been reconciled.

Just as living in a different country allows managers to better identify appropriate product/service modifications in developed markets, spending time in homeless shelters, rural areas in developing countries, or areas where nature has been depleted or devastated provides a radically different physical and mental context to spark the imagination. To be able to absorb knowledge from fringe stakeholders, however, especially those that are adversarial or peripheral to the firm’s current operations, managers need to empathize with differences in perspectives. Empathy depends upon deep listening and speaking in depth with those who have different views.

As we have seen, HLL generates empathy by requiring all company employees to spend six weeks living in rural villages and actively seeking local consumer insights and preferences as they develop new products.¹⁹ The company has also created an R&D center in rural India that focuses specifically on technology and product development to serve the needs of the poor and that sources raw materials almost exclusively from local producers. HLL uses a wide variety of local partners to distribute their products and also invests in developing the capabilities of those partners. By developing local understanding and empathy, and experimenting with codevelopment through new partnerships, HLL has been able to generate substantial revenues and profits from operating in low-income markets.

By reconciling disconfirming information, Arvind Mills was able to create an entirely new value-delivery system for affordable blue jeans in India.²⁰ As the world’s fifth-largest denim manufacturer, Arvind found Indian domestic denim sales limited because a $20–$40 pair of jeans is neither affordable to the masses nor widely distributed. In direct response, Arvind introduced Ruf and Tuf jeans, a ready-to-make kit of components (denim, zipper, rivets, patch) priced at about $6. A network of 4,000 tailors, many in small rural towns and villages, assemble the pants for customers, providing employment and building a motivated and decentralized distribution system for the kits. Ruf and Tuf jeans are now the largest-selling jeans in India, easily surpassing Levi’s and other brand names from the United States and Europe.

In contrast, the failure of Nike’s attempt in the late 1990s to produce an athletic footwear product for the booming low-income populations in China can be traced, at least in part, to a lack of empathy and inability to reconcile disconfirming information.²¹ Based upon a relatively low price point ($10–$15 per pair), the “World Shoe” was designed (without extensive contact with potential customers) as a product that could appeal to the masses who could not afford Nike’s top-of-the-line products. In China, Nike relied exclusively on its existing contract factory network to produce the product, utilized the firm’s established in-country channels to distribute the World Shoe, and did not develop a context-specific marketing plan for the product. In fact, the World Shoe was displayed side by side with the $150 Air Maxx in upscale retail outlets in Beijing and Shanghai. Relying on familiar partners and the existing business model for high-end athletic footwear products left the World Shoe struggling to meet its sales goals. The initiative was terminated in 2002.

Designing and producing a lower-cost shoe using the existing business system meant, paradoxically, that Nike failed to reach its target customer. The company failed to develop an empathetic understanding of the context before designing the product. Nike was also singularly unsuccessful in resolving the contradictions that existed between its current business model and the one that would be required to appropriately serve the need for affordable athletic footwear. Thus, competitive imagination is sparked only when the company commits to integrating the disconfirming information introduced by fringe stakeholders.

As we saw in the last chapter, Mexico’s largest cement company, Cemex, provides a more instructive example.²² Cemex has achieved extraordinary profitability through a shrewd strategy of targeting developing countries such as Bangladesh, Egypt, Indonesia, Thailand, and others in Latin America. The poorest residents of these developing countries represent a special opportunity because they are currently served inadequately, if at all. Cemex learned how to tap the enormous market of low-income customers in developing countries by first studying how to do business with the poor in Mexico. By gaining an in-depth understanding of the constraints and conditions that existed in the shantytowns of Mexico, Cemex was able to forge a business model that reconciled the company’s need for growth with the idiosyncratic needs of poor, do-it-yourself homebuilders.

Other examples reinforce the point. To help reconcile contradictions and leverage learning, DuPont has designated a senior executive to serve as point person for all new initiatives in the company aimed at the base of the pyramid. In this way, efforts of individual project teams can be better coordinated and learning more effectively communicated from one part of the company to another. Similarly, Unilever has created an international committee to transfer BOP-based innovations, such as HLL’s products and promotion programs, to other countries and markets.

As Exhibit 7.3 shows, integrating diverse and disconfirming information means engaging, on an ongoing basis, with fringe stakeholders. This is how the radical new ideas and business models identified in the previous step are operationalized, tested, and leveraged. Such implementation takes into account the real needs of remote stakeholders and builds in the capacity to adjust and learn based upon actual experience. This step focuses on the implementation of practical solutions to the problems and opportunities identified in the fan-out stage. The final challenge is then to link both stages of the RT process into a coherent approach for new strategy formulation and implementation.

Exhibit 7.3. Integrating Diverse and Disconfirming Information

Together, the capabilities of stakeholder fan-out and fan-in reinforce each other. By integrating knowledge from fringe stakeholders, radical transactiveness has the potential to challenge fundamental business models and frames of reference, leading to new bases of growth and competitive advantage. This capability also helps the firm engage stakeholders in an ongoing two-way dialogue that enables it to anticipate and respond to their concerns instead of facing unanticipated conflicts such as those faced by Monsanto.

From Transparency to Transactiveness

Radical transactiveness helps firms cast a wider, more inclusive net to generate competitive imagination about possible future products, services, markets, and business models. It complements other approaches to business creativity, such as increased employee diversity, lateral thinking, and conventional R&D and technology management. To leverage the disruptive innovations that have emerged from HLL and other grassroots initiatives, for example, Unilever has begun adding managers from these developing country subsidiaries to its board of directors and top management committees at the head office. Such diversity is now paying dividends in the form of increased innovation in conventional R&D and product development.

The RT framework proposes that firms go beyond the traditional logic of stakeholder engagement by consciously seeking out remote stakeholders that have previously had no connection with the company. Putting the last first reverses the logic of the established business and seeks to generate imagination and ideas about unmet needs, potential new products, and business innovations. Fanning–in, then, requires training managers to empathize with diverse and disconfirming stakeholder perspectives, and understand the culture, thought processes, and language of distant stakeholders. To convert the insights thus gained into practical business strategies, however, it is crucial to reconcile the contradictions between current reality and the needs and requirements of those on the fringe.

RT thus means going far beyond the notion of radical transparency, which entails full and open disclosure of the firm’s current activities, strategies, and impacts. Radical transparency, which has become increasingly common over the past decade, is targeted primarily at managing core stakeholders—those who can directly affect the current business by virtue of their power, urgency, or salience.²³ It seeks “permission” to operate from those interests and groups that might otherwise withhold resources, approval, or legitimacy.

Unfortunately, in an interconnected world populated by tens of thousands of NGOs and activist groups, it is increasingly perilous to depend upon radical transparency alone. The experiences of organizations such as Monsanto, Nike, Shell, and the World Trade Organization demonstrate that fringe stakeholders with no direct connection to the organization’s activity can have a significant impact on the company’s ability to execute. RT thus helps the firm anticipate and even preempt such difficulties by identifying new strategies for a smarter, more inclusive form of globalization—strategies that seek, from the outset, to address social, cultural, and environmental issues.

From Alien to Native

Radical transactiveness provides the basis for widening the corporate bandwidth that is crucial to the development of a more indigenous form of enterprise. The conventional development paradigm of the past half-century has been based on a deductive approach to problem solving. It has imposed a problem definition (income poverty) and a solution (economic growth and development) without any real knowledge or understanding of the history, complexity, or indigenous resources that existed in the Third World. Top-down policy prescriptions and large-scale infrastructure development have made inroads into some problems, such as infant mortality, curable disease, and illiteracy, but they have created bigger problems in the process—a burgeoning mass of truly impoverished people with little hope or opportunity for the future.

As corporations have globalized their strategies over the past few decades, they have succeeded in developing worldwide supply chains capable of serving a customer base around the globe. However, these strategies—even ones focused on being locally responsive—still rely heavily on world-scale production and one-size-fits all solutions. These solutions may be appropriate for the wealthy at the top of the pyramid, but they hold little hope of being either appropriate to the real needs of the poor or within their means. To serve the poor effectively, companies need to hear the voices of those who historically have been excluded from capitalism’s reach. Developing this skill will enable companies to make the transition from being alien forces in the world, with strategies that extract natural resources, plunder rural villages, and accelerate the rush to the city, to becoming native to the places in which they operate.

Unfortunately, most MNC strategies to date—even those developed with sustainability in mind—have remained alien. Monsanto’s aborted attempt to commercialize genetically modified seeds, and Nike’s failed effort to develop an athletic shoe for low-income markets in China, provide two instructive examples. Even the few MNC success stories described in this chapter and elsewhere—Hindustan Lever’s BOP business development in rural India, Hewlett-Packard’s i-Community in Kuppam, and Cemex’s Patrimonio Hoy program—represent important first steps, but still have a ways to go before we can think of them as indigenous business models. Broadening the bandwidth is the first step in the development of native capability. The next chapter delves more deeply into what it means to become truly indigenous.

Notes

¹ This insight is drawn from Wolfgang Sachs, Planet Dialectics (New York: Zed Books, 1999).

² Some of Erik’s most powerful ideas can be found in Erik Simanis, Entrepreneurship and Global Development: An Antiessentialist Critique and Extension (Chapel Hill: University of North Carolina, working paper, 2002).

³ My thanks again to Erik Simanis for this wonderful concept.

⁴ See, for example, Arturo Escobar, Encountering Development (Princeton, NJ: Princeton University Press, 1995).

⁵ My thanks to Erik Simanis and Gordon Enk for some of the language here; it is excerpted from our joint Project Proposal for a Protocol for Strategic Initiatives at the Base of the Pyramid (Ithaca, NY: Cornell University, 2004).

⁶ Helena Norberg-Hodge, Ancient Futures: Learning from Ladakh (Berkeley, CA: Sierra Club Books, 1991).

⁷ Polyandry refers to the practice of a woman having more than one husband. Such a practice limited the number of women having children and contributed to keeping the population in check.

⁸ See, for example, Wolfgang Sachs, Planet Dialectics; Gilbert Rist, The History of Development (New York: Zed Books, 1997).

⁹ Helena Norberg-Hodge, Ancient Futures.

¹⁰ See Wolfgang Sachs, Planet Dialectics; Arturo Escobar, Encountering Development; David Korten, When Corporations Rule the World (San Francisco, CA: Berrett-Kohler, 1995); Joseph Stiglitz, Globalization and Its Discontents (New York: W.W. Norton, 2002); Jeffrey Sachs, “Helping the World’s Poorest,” The Economist (14 August 1998): 17–20; and George Soros, On Globalization (New York: Public Affairs, 2002).

¹¹ Portions of the following section are excerpted from Stuart Hart and Sanjay Sharma, “Engaging Fringe Stakeholders for Competitive Imagination,” Academy of Management Executive 18(1) (2004): 7–18.

¹² The idea of a “transactive” approach to planning in the public domain was first articulated in John Friedmann, Retracking America: A Theory of Transactive Planning (New York: Anchor Press, 1973).

¹³ For a detailed description, see Deborah Dunn and Keith Yamashita, “Microcapitalism and the Megacorporation,” Harvard Business Review (August 2003): 46–54.

¹⁴ Kathy Eisenhardt and Jeffrey Martin, “Dynamic Capabilities: What Are They?” Strategic Management Journal 21 (special issue) (2000): 1105–1121; and David Teece, Gary Pisano, and Art Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18 (1997): 509–533.

¹⁵ For an excellent summary of this literature, see Gordon Enk and Stuart Hart, Stuart, “An Eight Step Approach to Strategic Problem Solving,” Human Systems Management 5 (1985): 245–258.

¹⁶ For examples of each of these, see David Collins, “Serving the Homeless and Low-Income Communities Through Business and Society/Business Ethics Class Projects: The University of Wisconsin-Madison Plan,” Journal of Business Ethics 15(1) (1996): 67–85; C. K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business 26 (2002): 1–14; and Mark Starik, “Should Trees Have Managerial Standing? Toward Stakeholder Status for Non-human Nature,” Journal of Business Ethics 14(3) (1995): 207–217.

¹⁷ For an in-depth discussion of this concept, see Robert Chambers, Rural Development: Putting the Last First (London: Longman, 1984).

¹⁸ Personal communication with Muhammad Yunus, April 2004.

¹⁹ See Miguel Angel Rodriegez, Reinventing the Wheel: Hindustan Lever in India (Barcelona, Spain: IESE, 2002).

²⁰ M. Baghai, S. Coley, D. White, and C. Conn, “Staircases to Growth,” McKinsey Quarterly 4 (1996): 39–61.

²¹ See Heather McDonald, Ted London, and Stuart Hart, Expanding the Playing Field: Nike’s World Shoe Project (Washington, D.C.: World Resources Institute, 2002).

²² See K. Herbst, “Enabling the Poor to Build Housing: Pursuing Profit and Social Development Together,” Changemakers.net Journal September (2002).

²³ Witness the explosion of standards and reporting initiatives over the past decade (The Global Reporting Initiative, The Global Compact, ISO 14000, SA 8000, and so on).