Social innovation and sustainability: case studies for the bottom of the pyramid in Brazil.

Author:Borger, Fernanda G.
Position:Bibliography - Company overview

    New trends and business models, such as the bottom of the pyramid (BOP - Bottom of the Pyramid) by Prahalad (2005), are altering the offer of products and services in general as well as the issue of social inclusion through public services like electric power and innovative solutions such as micro franchising (Fairbourne, Gibson & Dyer, 2007; London, 2009) for the BOP. This concept of a business model is a new approach proposed by Prahalad and Hart (2002). According to the authors, the BOP segment provides a new context for corporate innovation, company strategies and the development of community organizations. Brugmann and Prahalad (2007) shows with the liberalization of markets is forcing executives and social activists to work together. They are developing new business models that will transform organizations and the lives of poor people everywhere.

    The objective of this article is to identify, describe and analyze cases of provision of electric power distribution services in Brazil that present an organizational model and management practices that can meet the needs of the low income population with high quality and efficiency, as well as innovations introduced in these cases. The objective, furthermore, was to provide an understanding of the organizational trends and of the new business models applied to the provision of electric power distribution services for the poor, the critical factors for success as well as failure, and the lessons that can be learned from these experiences. Thus it will be possible to generate hypothesis about the alternative approaches to the provision of electric power distribution services for the poor.


    2.1 The Business Model in the Botton of the Pyramid (BOP)

    Bottom of the social and economic pyramid is the definition of the four billion individuals, in emerging countries, whose per capita yearly income is below E$1,500 or US$ 3,000 in PPP (Purchase Power Parity), a segment of the population that has become the target of companies and organizations not only for the provision of their consumer needs, but also as a new business opportunity (WRI, 2009).

    According to Sachs (2005), poverty, defined as lack of income, can be divided into three different levels: extreme poverty, moderate poverty and relative poverty. The World Bank defines extreme poverty (World Bank, 2009) as the situation in which the income is less than US$ 1 a day, measured in terms of PPP. This means that families cannot satisfy their basic survival needs, are chronically hungry, without access to health, drinking water and sanitation, lack of access to education for some or all their children, live in a rudimentary shelter and do not have access to basic articles like clothes and shoes. Moderate poverty, defined as the situation in which the income ranges from US$1 to US$2 a day, refers to conditions in which the basic needs are satisfied, but with extreme difficulty. Relative poverty is defined by a family income level below a certain percentage of the average national income, meaning lack of access to goods and services that the middle class enjoys. Recently, researchers and managers have preferred to use the term "low income sector" (LIS) to refer to segments of the BOP market (Austin & Chu, 2006). The LIS includes persons in the condition of extreme or moderate poverty, and the main argument to include them is that they are not inserted in the market economy and do not benefit from economic growth. What characterizes the market is not so much the lack of income, but the lack of conditions to access goods and services. The population in the three segments of poverty (extreme, moderate and relative) do not have their needs satisfied in a significant way, as, for example, access to water and sanitation services, electricity and basic health services, many live in informal dwellings, without any formal title of property, depend on the informal market to get jobs and live in conditions of subsistence, being penalized for the conditions in which they live, that is, pay higher prices for basic goods and services than wealthier consumers, and frequently receive lower quality goods and services, so that they are incapable of escaping poverty.

    In Brazil, the low income market totals 114.5 million, accounting for 65% of the population, but holding just 22.6% of the total family income, US$ 171,585.3 million in PPP. About 86% of this sector (LIS) lives in urban areas (WRI, 2007) and not in rural areas.

    The rapid growth in emerging economies cannot be sustained in the face of mounting environmental deterioration, poverty, and resource depletion (Hart, 1997). Given the dimension of the problem and the scarcity of resources, an effective answer must also include the most productive allocation of these means. Empirically, industries and markets have shown the capacity to operate massively, in a permanent and efficient way (Austin & Chu, 2006).

    The traditional form of increasing the consumption capacity of low income populations has been to offer free products and services according to the welfare model, through charity and social assistance, or through the supply of public goods and services. These solutions are not very effective, as they are not sustainable, making the production of these goods and services economically unfeasible and, when offered as public goods and services, generating market distortions and deficiencies--in the case of free products--which compromise their availability in the long term and the quality of goods and services. Lovins, Lovins e Hawken (2007) coined of the "natural capitalism" concept. Successful businesses in the new era of natural capitalism will realize that solutions lie in understanding the interconnectedness of problems, not in confronting them in isolation. Tightly correlate sustainability solutions with existing strategic goals and help top executives use sustainability to find best solutions for existing problems. Natural...

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