SPEAKER: This is a production of Cornell University.
STUART HART: Good day to you. I'm Stuart Hart. It's a pleasure to be with you today. And what I'd like to do with you today is to spend a little time thinking about how global trends-- and particularly the challenge of sustainability-- has altered the playing field when it comes to innovation, how it's really changed the innovation game in a fundamental way. And as part of that, at the same time, how new strategies have emerged, in particular, how clean technology and how strategies to serve the underserved at the base of the pyramid are beginning to converge together to form a whole new approach to innovation that I call the Green Leap. So that's, in a nutshell, what I'd like to talk with you about today.
And to start, let's provide a little bit of context if we can. If we look at how globalization has emerged over the past two or three decades, it's been very focused from the north or the west, as it were, large multinational corporations that have developed strategies and products that they only modify or adapt incrementally to sell into emerging markets. So it's been very top-down, very corporate-driven. The term used is glocalization.
And I guess I would argue that as we enter, now, the second decade of the 21st century, that pattern is beginning to change. In fact, I would go so far as to say as that era of globalization is now over. And you might ask, why? What's changed?
So if we look at the world income pyramid for a moment-- and you can kind of see there's those of us at the top, the wealthy that earn more than $15,000 a year per capita in GDP. There are about 800 million or so of us. And I would count myself among them and all of you in the audience-- or most of you in the audience, at least.
That segment of the population just isn't growing that quickly. Certainly, there will be growth at the top. But it's become quite a saturated market over the last decade or so. So the only way that you succeed as a large corporation is to take market share away from another large corporation.
And there are more and more large corporations coming into the world from the developing world and emerging markets, making this a really, really difficult space. So that's one of the reasons why we see this kind of old version of globalization changing. So a lot of companies, of course, over the last decade or two, have adapted by entering the so-called emerging markets. And we see a growing middle class-- at least, before the financial crisis, but still, a growing middle class-- especially in places like China and India, in particular-- Tom Friedman's flat world, if you will.
And many corporations, of course, have entered into this space and have realized tremendous growth by doing so as that middle class grows. It's now probably going on 2 billion that would fit that description. But of course, as companies have taken their existing products and their existing production processes and their existing technology and expanded them, adapted and expanded them, that's produced growing environmental problems around the world.
And we begin to see this, now, rear its ugly head in many, many forms, especially in places, again, like China, India, Latin America, Africa, and so forth. And that, of course, still leaves the vast majority of humanity-- what I'll refer to as the Base of the Pyramid, or the BoP-- poorly served, underserved, or even actively exploited. But what's happening as we begin to see strategy shift-- what's happening is that more and more companies, particularly those coming from the developing world, realize there's an enormous opportunity to invent entirely new products, new business models to actually serve the base of the pyramid and do so in an entirely new way and disruptively innovative way. So we see more and more innovation actually coming from the base of the pyramid. And that, of course, is what I want to talk with you about today for the rest of the time.
This has important implications for global sustainability, in my view. I think of sustainability in kind of two domains, two broad domains. For most of the last two decades, when we hear the term sustainability, again, it's kind of a buzzword. There are lots and lots of meanings to the term sustainability.
But probably the one that's been dominant in people's minds, especially in business people's minds really since the original Rio Earth Summit in 1992 when this whole notion of eco-efficiency was really unveiled-- the dominant conception is what I call greening. And greening is all about incremental reductions in negative impacts associated with existing products and processes. So it's about waste reduction, pollution prevention, product takeback, recycling, corporate social responsibility, initiatives, those kinds of things.
And the result, of course, if you're a large incumbent firm, is very positive. Because you're able to reduce cost, reduce risk, improve reputation at some level. And it, in a sense, strengthens the hold that incumbents have on current industries. So it's very much a continuous improvement kind of mentality. Enormously important, I'd say over the last two decades that greening or eco-efficiency has now become widely practiced throughout most of the world in large corporations and is now even beginning to kind of seep its way down into small and medium sized enterprises, although there's a long way to go there.
But this is only the first half of the story, I guess I would say. On the other side of greening are strategies that I've called beyond greening. And these are completely different. Beyond greening has to do with new emerging technologies, new underserved market spaces, new partners, different stakeholders, fulfilling unfulfilled needs.
And these kinds of strategies are more disruptive. They're more leapfrog in nature. They're discontinuous. In fact, they result in creative destruction, as Joseph Schumpeter would say. They could make current industries obsolete as they currently stand.
In that sense, there's the opportunity to restructure industries or actually create entirely new ones. And I guess I would argue that looking at the world moving forward, given the trends that I've just described, it's really the beyond greening strategies that become the most important. And the best way to realize beyond greening strategies is through small, experimental initiatives within large corporations or new ventures.
So in a sense, it levels the playing field. Whereas eco-efficiency gains were disproportionate to large corporations, beyond greening strategies-- which is what I'm going to talk about-- open up the possibility for all kinds of players to get into the game, which is why, of course, we see more and more coming from the base of the pyramid, kind of moving up market. That doesn't mean there isn't opportunities for corporations. It just means that it levels the game a little bit more. And it's going to be a much more disruptive world moving forward.
So I see these strategies, the beyond greening strategies, as really holding the key. And that's, of course, what I've written about in my book, Capitalism at the Crossroads. I really see the fundamental nature and premise of global capitalism shifting right in front of our eyes.
It started a decade to 15 years ago. We're in the midst of it now. Over the next decade to 15 years, it will play out. We're living in a transformational time. So it's actually quite exciting, opportunity-rich. But there's going to be a lot of change over the next couple of decades.
And that's because, as I've indicated before, we live in one of those very fundamental times, a pivot point in history, I would say. And you can use the metaphor of the funnel. On one side, we have environmental conditions providing greater and greater challenge, constraint.
Every natural system is in retreat. There isn't a single environmental scientist that would disagree with that, at least that I know of, if you look at the peer reviewed literature. As far as natural capital, whether it's soils or forests or watersheds or oceanic fisheries-- let alone climate-- all are in decline and being seriously challenged.
And it sort of forms this one side of the neck of the funnel, if you will. And on the other side are rising social challenges. These are the challenges of global sustainability that I referred to in the beginning.
Luckily, the rate of population growth is slowing. But inequity continues to widen almost everywhere in the world, with a few notable exceptions. But we're becoming a more unequal world. Even right here where I stand in the United States, that's very much the case.
So with poverty, especially inequity, on the rise and population still growing-- we're at 7 billion. If we're lucky, we'll level off at maybe 8 or 9, possibly 10 billion. This challenge becomes an increasingly large one. It also opens up opportunities, though, as I'll speak about in a moment.
And what's happening is that, the strategies-- at least from my view, the strategies that once provided great uplift, especially over the course of most of the 20th century, the industrial strategies from the 19th and 20th century, those are beginning to crash into the walls of the funnel, whether it's the BP oil disaster or the subprime meltdown. That's what's beginning to happen. And what we see, then, are the glimmer of new strategies, which, if developed and scaled, could take us through the neck of the funnel and out the other side.
This is the transformation of capitalism that I described. And I think there's real cause for hope. Because we see, when it comes to the environmental challenges on the top of the funnel, rather than just relying on regulation and that sort of thing, which had been the dominant way to try to address environmental problems in the past-- and, of course, we have some notable wins but also some continuing challenges, maybe even failures, on the regulation front.
But what we see over the last 10 years is the emergence of a whole new commercial space called clean tech. There's a clean tech revolution going on. At least, that's what we're told, and I think there is. We've now surpassed a trillion dollars invested in the clean tech space, just in the last five or six years.
So that's enormously important. I think it gives us enormous hope that there may be ways to address the environmental challenges that we see through new enterprise-based approaches, leapfrog clean technologies that have exponential growth potential. And I'll talk more about that.
But of course, there are challenges too. There may be a trillion dollars that have come in one end, but we don't necessarily see the commercialization success coming out the other yet. And I'll describe that in a moment.
And then on the lower part of the funnel, we've seen, rather than just aid and philanthropy, which have been the dominant strategies to try to deal with poverty and inequity and population growth-- and again, some notable successes over the last 50 years when it comes to the aid regime and philanthropy, but it hasn't been up to the challenge to address the core of the issues that we see here. But yet, over the last 10 years, we've seen the emergence of a whole new set of commercial strategies emerge. I'll label them base of the pyramid strategies, but they include things like microfinance, microcredit, micro-entrepreneurship, social enterprise, social entrepreneurship. In general, these are enterprise-based approaches to addressing poverty.
I think we should be very hopeful and excited that these commercial strategies have emerged over the last 10 years. But again, there are issues here too. And I want to discuss those in a moment. The important point, though, is that we see new strategies emerging that are fundamentally entrepreneurial in nature and have the potential to really take us somewhere in a very significant way toward a more sustainable world.
But what's happened over the last, say, six, eight years or so, in my view, is the clean tech world and the base of the pyramid world have almost bifurcated. They're almost like two communities that C. P. Snow would have talked about in his book, The Two Cultures. The clean tech world tends to be populated with technologists, unsurprisingly, mostly scientists, engineers. You know, get us the R&D money, we'll build the technology, we'll develop the technology, and then somehow, it will magically spring into commercial reality.
Of course, it doesn't always do that, which is one of the reasons why the clean tech people-- I was at the clean tech investors summit a few months back. And again, it was observed there that with a trillion coming in, we don't necessarily see the output on the other end. So I think one of the shortcomings in the clean tech space has been there hasn't been the imaginative attention to commercialization that there could be and certainly hasn't been much focus on the idea of the base of the pyramid as a place to think about clean tech.
Most clean tech companies are focused on the very top, and I'll talk about that in a moment. Why? Because traditionally, we've thought about clean technology or green products as expensive, for rich people. And so this requires us to do a little bit of rejigging of our mental model if we're going to think about clean tech in a different way. And I'll come to that in a minute.
But then, the base of the pyramid, of course, has its own properties, maybe some of its own shortcomings. Here, we see fewer technology-oriented people. And when it comes to the base of the pyramid, these are more entrepreneurial, social change driven people, a lot of focus on business model innovation.
How do we get extended distribution out into the rural areas and into the slums and favelas and shanty towns? How do we create more inclusive supply chains with small suppliers and farmers? How do we reduce costs dramatically? How do we do local sourcing? How do we produce locally? How do we create livelihoods?
All really important when it comes to thinking about addressing poverty but yet, at the same time, in the base of the pyramid space, there's been a tendency to think that if we can just generate all of this new economic activity at the base of the income pyramid, it'll address poverty but that somehow this will magically produce an environmentally sustainable form of development. And of course, it won't. It could take us all over the cliff environmentally if we lift the base of the pyramid using existing methods taken from the United States and Western Europe and so forth.
So we have these two, I would say, very exciting trends. They're kind of separate. They have their own weaknesses. I think the big challenge, the big opportunity, is how to bring them together. How do we converge the clean tech and base of the pyramid spaces? I call this the Green Leap.
I see this, really, as a new opportunity to create tomorrow's next-generation sustainable distributed infrastructure. It doesn't really exist today. Because, as I'll say in a few minutes, most existing approaches are large-scale in their application or in their approach. So the emerging technologies are more distributed.
So the Green Leap is inherently a leapfrog disruptive approach and has its own set of inherent challenges, as I'll discuss in a moment. But I think this is a huge opportunity moving forward. And that's because, yeah, we want to keep putting money into research and development, for sure. Because there are all kinds of technologies that have huge exponential upsides.
But at the same time, there is a lot of technology just sitting on the shelf in universities, in corporations. We're not lacking for clean or green technologies. Right at Cornell University, where I'm a faculty member, there are hundreds of technologies sitting in what used to be the Intellectual Property Office, now the Center for Entrepreneurship and Technology Venturing.
Because most technologies that are developed at universities, if they're going to be commercialized, they're still licensed to large corporations, which means it has to fit the existing business model of the dominant core business. If it doesn't, it tends to sit. Even though there are more and more commercial venturing propositions coming forward, it's still more the exception than the rule.
The same is true in large corporations, lots of technology sitting on the shelf in big companies around the world, from GE to Toyota. There's lots of shelf technology in corporations. And they typically don't tend to it very well. In fact, a lot of it's being donated to universities.
So as I see it, there's tremendous opportunity to take this shelf technology-- you know, these are potential gems. There's some junk there too, to be sure. Don't get me wrong. But there's real potential if we take some of the shelf technology-- because a lot of it has the properties that I'm describing, small-scale, distributed, point of use, renewable, bio-based-- to take that, apply a different commercialization lens to it, which is starting from the base and then looking to trickle it up, and create an entirely new approach to business.
And this is how we're going to get through the funnel. That's the core premise that I want to put forward. This is what the Green Leap is really all about.
So starting a few years back, I organized something called the Cornell Global Forum on Sustainable Enterprise that was in New York City, where we brought about 100 intrapreneurs and entrepreneurs. Because again, this can be done from within corporations as intrapreneurial initiatives but also new ventures, entrepreneurial ventures. We brought about 100 intrapreneurs and entrepreneurs together in a variety of domains-- water, distributed renewable energy, inclusive health, affordable housing, across the board, really, sustainable agriculture-- to try to think about, how can we advance this kind of venturing more quickly?
And this has been aided and abetted by the emergence of and development of a global network actually of BoP learning laboratories. We started one here in the US about 12 years ago, and this has now proliferated. There are now about 18 Base of the Pyramid Learning Labs around the world.
And we're beginning to try to pull them together into a global network because there is a lot of learning that can be done. Each one has lots of initiatives and ventures attached to it. And of course, we drew heavily on the BoP network of Learning Labs for the Global Forum.
So we see the beginnings of a bottom-up learning system for how to do this venturing, how to create these initiatives, how to make them work. And as I see it, if I was going to summarize it in just a slogan or a phrase, the big challenge and the big opportunity, I think, is, can the emergence of these new exponential clean technologies outpace the growth in exponential impact that we see in the world, the funnel that I've just been talking about? That's really the great race that we face.
So in thinking that through, I want to just make a few more points. And then we can bring this to a close. Clean technology is a big domain. Again, all clean technology is not the same. Some clean technologies are large, centralized kinds of applications like big wind, solar, wind farms, smart grid. Some would say nuclear clean coal. They'd argue as to whether or not those are actually clean technologies. Centralized water treatment, these have the characteristics of being capital intensive, large-scale.
But they've gotten a fair amount of investment because they're institutionally aligned with the way we currently organize things. They fit the utility model. But we have this whole new set of technologies emerging that I'll call green sprout because they have a completely different set of qualities and characteristics.
They're distributed on-site, can be implemented close to the point of use, more labor intensive, less capital intensive, can be implemented bottom-up, can be done on a small scale to begin, on an experimental basis, to discover problems and unintended consequences before they're big. And these are things like decentralized solar, small wind, fuel cells, small head hydro, microlending, point of use water treatment. Again, it spans across industry sectors. And I'll mention a few more of those in a moment.
These, however, have, I think, been less successful in becoming commercial realities because of their disruptive qualities. They don't really fit in the current served market, especially at the top and the middle of the pyramid. They don't fit into the existing institutional infrastructure so well. In fact, they're disruptively innovative, in the Clayton Christensen sense of the word.
So the result is that we need a different commercialization strategy for them if they're going to be successful. And there are a lot of these. So I'm just putting a few up, kind of flashing a few up here for you to see. And you'll notice they cut across industry boundaries.
It's not just about distributed energy. There are all kinds of these emergent technologies that have incredible exponential growth and improvement qualities and possibilities. And if we can just figure out how to wrap innovative business models around them, then I think the chances for moving more rapidly toward a sustainable world are manifest.
The problem has been that, for many of them, we've kind of stuck with the old model of commercialization, like Green Giant. There's been a tendency-- let's think, for example, about distributed solar or even electric vehicles-- to assume, again, that these are going to be more expensive. And therefore, only the wealthy can afford them. So we want to ram them into the top of the pyramid first.
So it would result in a premium price, small, green, niche market, not much scaling, and therefore, limited benefit. And there's kind of a hard stopping point. If you think about a $25,000 rooftop solar system or a $42,000 electric vehicle, there aren't so many people that can afford those kinds of products and services.
So our model of commercializing a lot of these distributed technologies has been fairly limited to this mental model that green technologies are only for the wealthy. And what I'm arguing is that part of the Green Leap is liberating our mindset. It's thinking about turning everything upside down.
And really, this is about innovation from the bottom up. How do we leap to the base of the pyramid where people typically are underserved, get the worst stuff at the highest price? It's called the poverty premium. Poor people pay more for stuff that we-- water, energy. They pay much more than you or I do at the top of the pyramid. Sort of a reversal in logic, it's counterintuitive in many respects.
So if we think, again, in the space of solar, distributed solar, or even electric vehicles, a couple of Chinese companies-- [? Himin ?] Solar or Tsinghua Solar or Xinri Electric Bike in the electric bike space-- have taken very different strategies. Rather than starting at the very top, they've leaped more to the base, wrapped entirely new business models around these technologies, and then began to trickle them up. This is, kind of, up-market migration, reverse innovation-- the term being used now.
So there's the possibility for leapfrog technology to lift the base of the pyramid, to create livelihoods, to incubate entirely new industries, and then trickle it up market, kind of the reverse innovation engine. So for those of you that have been to China and you get outside the big cities, you will have seen these things everywhere. These are solar glass vacuum tube solar hot water technologies. These are everywhere. Tsinghua Solar was the technology innovator.
Very simple technology, it's just glass. So from the standpoint of clean tech, no precious metals, no toxics, no antifreeze, half the cost of flat panel solar. And they've begun with essentially a business model out in the underserved rural areas.
This industry has taken off over the past 10 years. It's gone from essentially nothing to a $10 billion industry in China, growing very rapidly. Only a matter of time until it scales out laterally and then begins to trickle up back this way to the US or Western Europe or Japan.
Some large corporations, of course, have begun to see that there is real possibilities in this, like GE, which has gotten a fair amount of press for going from this-- what you see, a $150,000 to $200,000 ultrasound device which can only be used in a hospital. By enabling people in India and China to get out into the villages, over a matter of a couple of years, they were able to innovate first, a laptop-based device and then finally, a handheld, as you can see, which opens up a whole new marketspace and takes it down to just a few thousand dollars for the equipment.
Not only has this liberated and given better health care to many people in the developing world-- of course, it has its own issues as well-- but it's also trickled up. And now, every first responder in the US carries an ultrasound device like the one Jeff Immelt is holding there. And it's become one of their fastest growing, most profitable businesses in the US for General Electric.
Lots of entrepreneurs emerging in India, for example-- here's a few logos for some of the innovative startup companies. But it's not limited to startups. As I said, there are plenty of corporate intrapreneurial ventures as well adopting this kind of approach, a lot of it coming from the developing world itself-- enormously exciting, enormously exciting.
And so I wanted to just close by mentioning that I'm involved in creating an entirely new business and entrepreneurial development and training center called the Indian Institute for Sustainable Enterprise, which is geared exactly toward this idea of the Green Leap. And the idea behind the Indian Institute is to create an entirely new model of business education and entrepreneurial training appropriate to the challenges that I've just described, in other words, to take business education and turn it on its head.
And the mission is to increase dramatically the number and success rate of intrapreneurs and entrepreneurs focused on socially inclusive and environmentally sustainable business development for the 21st century. That's what we're focused on. The aim is to not just do education. For sure, there will be. There'll be a postgraduate certificate program, executive education. But we want to build a whole ecosystem of innovation around Green Leap in order to increase the likelihood of success.
So we will also build a patent bank of these kind of technologies so that these new emerging technologies can collide with entrepreneurs in creative ways, along with an incubator with cluster labs, which are social networks of people in particular challenge areas like water and renewable energy and inclusive health and so forth. We're also starting a new fund. Because there's a dearth of investment capital in this space. So we have a new fund called Papillon Fund focused on this space in particular.
We're looking, as we say, to accelerate the rate of new initiatives and ventures and build an action research platform around it so that this is an ecosystem to try to increase the number of these ventures. And the focus is on creating tomorrow's more sustainable distributed infrastructure and to make it happen as quickly as possible. And we see enormous growth and profit opportunities, here, in doing it.
So just to close-- as I see it-- kind of as I opened up, the old strategies focused only on the wealthy. That's very much a saturated space, becoming more and more difficult to be successful. The incremental strategies of moving into the emerging markets that leverage existing capabilities are running into their own headwinds, especially environmental headwinds. And so it's really the base of the pyramid that provides enormous opportunity looking forward.
But that's going to require new skills, new capabilities. And it's about creating markets that don't exist today, a huge intrapreneurial and entrepreneurial opportunity that's going to take a different mindset. So if we think about where the opportunity is, just to close, it's sort of like the old adage of the drunk who lost his house keys.
And so a couple walking along see this guy stumbling around looking for his keys under the streetlight. They ask him what he's doing. He says he lost his keys. They ask him why he's looking for them under the streetlight. And he said, that's where the light is.
I think that this is the same kind of deal. The drunk who lost his keys is a metaphor for where we stand in the world. That as long as business people continue to look for the keys where the light is, we won't find it. It's time to get out into the less well-lit areas, into the dark areas. That's where we'll find the keys to the future.
So let me close with that, and thank you. If you want to get in touch with me, that's my email. I'm involved with Enterprise for a Sustainable World and the Indian Institute. Thank you all very much.
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Professor Stuart Hart, spoke about "Driving Innovation from the Base of the Pyramid" at the National Academy of Engineering Regional Symposium on May 16, 2012.
Cornell University and the College of Engineering hosted the Regional Symposium of the National Academy of Engineering on the topic, "Toward a Sustainable Future." The symposium brought together distinguished Cornell University faculty members to address the numerous elements of sustainability from the perspective of the physical sciences and engineering, environment, economics, business development, international implications and social sciences.