Thursday, May 27, 2010

More dispatches from the Renewable Energy front

By Tara Kalwarski

Americans are using less renewable energy as a share of their total energy consumption than they did in the early 1980s. And the oldest forms of renewable energy, water and wood, are in decline. Since 2000, alternative-energy companies’ shares have risen far less than those of traditional energy companies.

Managing Forward; The Reset Economy
Rewiring the Utility Business

Peter A. Darbee used to dock his three children 50¢ when they left a room without turning out the lights. Now, as CEO of PG&E (PCG), the former investment banker and high school wrestling champion is trying to save energy on a grander scale. Paradoxically, he is helping his customers buy less of his product. “When I tell big customers we would be happy if we sold them less electricity, they look at me like I’ve burned out a few brain cells,” says Darbee. But the logic is inescapable. “You are not making a lot of money anymore building large power plants,” says Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission. “You have to figure out what business you are in, big time.”

How can utilities make more by selling less? Instead of spending $2 billion on a new 1,000-megawatt power plant, it can use the money to insulate homes, pay customers to install more efficient equipment, and make the grid smarter. Those steps would slash power consumption, eliminating the need for the power plant. The CEO would then ask the state public utility commission to raise electricity rates enough to pay for the $2 billion investment—plus a negotiated profit—just as he would for a new power plant. If the commission agrees, the utility gets revenue from its investment.

Continue article here

Wednesday, May 12, 2010

Bottom of the pyramid

The phrase “bottom of the pyramid” was used by U.S. president Franklin D. Roosevelt in his April 7, 1932 radio address, The Forgotten Man, in which he said “These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power...that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”

Green Future; A Synergistic Approach to the Triple Bottom Line (*TBL)
A project to build community and more participatory political and economic systems and a green consumer base using a synergy of people, commerce and social objectives by building a business with social justice and green metrics as bottom line.

Social Entrepreneurship; The Bottom of the Pyramid (BOP) Model

Social Entrepreneurship; The Bottom of the Pyramid (BOP) Model

Revisiting the "Bottom of the Pyramid"

A few years back, CK Prahalad’s conceptualisation of “The Fortune at the Bottom of the Pyramid” woke up a large number of corporates and entrepreneurs to the huge business potential that lay dormant in the lower strata of the masses. CKP’s thesis was that 4bn people on earth subsist on less than $2/day, and therefore, collectively and globally constitute a $13 trillion market!

With all noble intentions, CKP argued that this masses at the Bottom of the Pyramid (BOP) should be viewed not as victims or a burden, but as value-driven consumers. If large corporations design and customise their offerings for this huge segment of consumers, it can change their life-style, and enhance the quality of day-to-day living for them.

CKP’s proposal, however, suffers from three underlying biases that permeate much of the contemporary management literature. The purpose of this note is not to diminish the value of the concept of BOP, but to surface these biases and reinterpret the concept, so that real the “fortune” that is embedded in the BOP can be leveraged:

Bias 1: Masses are primarily consumers, and not producers. And therefore, their life becomes “better”, if they get to consume more, and not if they produce more. This assumption, while partially correct, misses out on the entrepreneurial potential that lies in BOP. For instance, it neglects facts such as the exports from Dharavi, Asia’s largest slum in Mumbai, exceeded the total international earnings of a company like Ranbaxy in 2004.

This is allthemore more relevant in context of India where the “unorganised sector” accounts for 93% of the country’s economically active workforce. More than just being consumers, this workforce (consisting of hawkers, construction workers, domestic helps, road-side mechanics, scrap workers, etc.) account for 60% of net domestic product, 68% of national income, 31% of agricultural exports, and 41% of manfactuing exports.

The real “fortune” of BOP lies not merely in serving these low-income markets, but in organising and unleashing the under-utilised entrepreneurial potential of its inhabitants. For instance, Sri Mahila Grih Udyog (more popularly known for Lijjat Papad) mobilised the grassroot entrepreneurship of women into organising them into a Rs. 312crore business. Similarly, Aavishkar India Micro Venture Capital Fund provides venture capital to rural entrepreneurs to leverage rural innovations and appropriate technologies.

Bias 2: The quantum of profits is more important than its source. Like most contemporary management concepts, BOP primarily focuses on how corporates can create and exploit markets to reap large profits (though to be fair, along with “growth” and “profit”, CKP also added “incalculable contributions to humankind” as a benefit of focusing on BOP).

The concept of BOP, however, does not essentially discriminate among the sources from which the profits are generated. It would treat the profits from selling a Rs.5 bottle of aerated drink, or a Re.1 shampoo sachet as identical to the profits generated from making medicines or education available to this segment.

Like much of contemporary management literature, BOP also does not distinguish between the motives of “profit-making” and “being profitable”. Profit-making motive tilts the prioities away from the society to the owners of capital. It follows the dictum of the economist Milton Friedman: “there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits…”

Being profitable, on the other hand, is an imperative for the sustainability of any entrepreneurial venture. As Prof Mohammad Yunus, the founder of Grameen Bank (the largest bank of Bangaldesh which services almost 3mn “poorest of the poor” across more than 40,000 villages) once mentioned: “Volume of profit is not important in Grameen in money-making sense, but important as an indicator of efficiency. We would like to make more profit so that we can reduce interest rate - and pass on the benefits to the borrowers.”

Bias 3: Wealth-creation is same as making profits. Lastly, the BOP concept takes a very narrow view of wealth-creation. It neglects the fact that a society’s “wealth” is not just the income-levels of its members, but also the the sustainability of its community relations and environment. By focusing on profit making, BOP reduces the concept of wealth to just money, and the rest – i.e., the community and the environment - become mere resources which need to be "exploited".

To make BOP a viable concept for social change, there is a need to reinterpret the meaning of wealth. Take for instance, the Yasaswini health insurance scheme, pioneered by Narayan Hrudayalaya in Bangalore, which provides complete health cover (from common cold to brain surgury to 1.7mn farmers at a cost of Rs.5/month). The scheme is self-funding, but the “wealth” it creates is not money, but a healthy community of economically active people.