A Portfolio Approach Is Not Necessarily The Wisest

Eric Simanis and Duncan Duke’s article, “Profits at the Bottom of the Pyramid” exhibits an Opportunity Map the authors built for companies looking to make a profit from the four billion individuals around the world making less than $1,500 annually (1), like SC Johnson or Pepsi have done. The authors divided up the investment opportunities in nine ways. Though a company can use a single approach listed in the Map, Simanis and Duke insist that, “smart companies take a portfolio approach, following up on each for its manageability and potential return (1).” This point seems particularly interesting to me, because I initially wondered if it truly enabled companies to build their most effective businesses in each market. I question whether companies are equipped to tackle the needs demonstrated by a variety of regions and behaviors all at one time.

My concerns are certainly legitimate, but I will also admit that I possibly underestimated the span and manpower multinational companies can activate in a variety of regions to serve the bottom of the pyramid best. Serving these consumers most effectively requires careful attention to what the company can do to impact and improve the lives of consumers while also generating a profit. I was most reassured when Simanis and Duke dove into the experience of Lafarge, the largest cement manufacturer worldwide. Lafarge is based in France, but has taken a three-pronged approach to improve housing in their “target countries.” The company uses different approaches categorized in the article’s Opportunity Map that include a mature market opportunity, growth market opportunity, and greenfield market opportunity.

One question I have is at what pace Lafarge has implemented these ventures? If Simanis and Duke are correct in their recommendation of the portfolio approach, should a multinational company, like Lafarge, implement these opportunities concurrently? Is Lafarge’s success an example of successful scaling? I initially assumed that using a multipronged approach all at once in various target countries meant less attention towards pushing for change in consumer behaviors and the effective delivery of the company’s product in individual regional markets. Perhaps it has nothing to do with the number of ventures a company pursues simultaneously.  What likely determines the success and failures of these ventures is the kind of undertaking a business chooses and the environment a company works.

Simanis and Duke discussed the difficulties SC Johnson faced with their cleaning services in Nairobi verses the achievements they made in the Ghanaian market for insect control. Simanis and Duke shared details of both ventures, but I think there were likely more external factors surrounding insect control and cleaning services that contributed to and perhaps determined the level of success both ventures had. The article demonstrates the success of SC Johnson’s business model in Ghana, but I wonder if there was a well-cultivated ecosystem for insect control already present. Perhaps, on the flip side, SC Johnson put more effort into cultivating the environment for their success and effectively scaling their business model in Ghana. Maybe that is what played a role in the difficulties they had in Nairobi?

My questions certainly have the potential to oversimplify the efforts multinational companies are making at the bottom of the pyramid, but understanding the pace and range of these ventures as well as the ecosystem they are built into could help to decide which ventures are able to serve the bottom of the pyramid most effectively, and which are not.

1. : Profits at the Bottom of the Pyramid (Simanis and Duke, Harvard Business Review, October 2014)

2. It’s Not All About Growth For Social Enterprises (Harvard Business Review Blog Network, January 21, 2013); http://blogs.hbr.org/cs/2013/01/its_not_all_about_growth_for_s.html