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THE NATURE OF CORPORATE RESPONSIBILITY AND CORPORATE CITIZENSHIP, RELEVANCE IN THE PRESENT DAY BUSINESS ENVIRONMENT.

Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/ Responsible Business)[1] is a form of corporate selfregulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. In some models, a firm's implementation of CSR goes beyond compliance and engages in "actions that appear to further some social good, beyond the interests of the firm and that which is required by law."[2][3]CSR is a process with the aim to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders. Some commentators have identified a difference between the Canadian (Montreal school of CSR), the Continental European and the Anglo-Saxon approaches to CSR.[11]It is said that for Chinese consumers, a socially responsible company makes safe, high-quality products; for Germans it provides secure employment; in South Africa it makes a positive contribution to social needs such as health care and education.[12]And even within Europe the discussion about CSR is very heterogeneous.[13] A more common approach to CSR is corporate philanthropy. This includes monetary donations and aid given to local and non-local nonprofit organizations and communities, including donations in areas such as the arts, education, housing, health, social welfare, and the environment, among others, but excluding political contributions and commercial sponsorship of events.[14] Some organizations do not like a philanthropy-based approach as it might not help build on the skills of local populations, whereas community-based development generally leads to more sustainable development.[clarification needed Difference
between local org& community-dev? Cite]

Another approach to CSR is to incorporate the CSR strategy directly into the business strategy of an organization. For instance, procurement of Fair Trade tea and coffee has been adopted by various businesses including KPMG. Its CSR manager commented, "Fairtrade fits very strongly into our commitment to our communities."[15] Another approach is garnering increasing corporate responsibility interest. This is called Creating Shared Value, or CSV. The shared value model is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy. CSV received global attention in the Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School; and Mark R. Kramer, Senior Fellow at the Kennedy School at Harvard University and co-founder of FSG Social Impact Advisors. The article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive

advantage from building a social value proposition into corporate strategy. CSV has a limitation in that it gives the impression that only two stakeholders are important - shareholders and consumers — and belies the multi-stakeholder approach of most CSR advocates. Many companies use the strategy of benchmarking to compete within their respective industries in CSR policy, implementation, and effectiveness. Benchmarking involves reviewing competitor CSR initiatives, as well as measuring and evaluating the impact that those policies have on society and the environment, and how customers perceive competitor CSR strategy. After a comprehensive study of competitor strategy and an internal policy review performed, a comparison can be drawn and a strategy developed for competition with CSR initiatives.

Cost-benefit analysis with a resource-based view In competitive markets the cost-benefit analysis regarding positive financial outcomes upon implementing a CSR-based strategy, can be examined with a lens of the resource-based-view (RBV) of sustainable competitive advantage. According to Barney’s (1990) "formulation of the RBV, s ustainable competitive advantage requires that resources be valuable (V), rare (R), inimitable (I) and non-substitutable (S)."[16][17] A firm can conduct a cost benefit analysis through a RBV-based lens to determine the optimal and appropriate level of investment in CSR, as it would with any other investments. A firm introducing a CSRbased strategy might only sustain high returns on their investment if their CSR-based strategy were inimitable (I) by their competitors. In competitive markets, a firm introducing a CSR-based strategy might only sustain high returns on their investment and there may only be a short-lived strategic competitive advantage to implementing CSR as their competitors may adopt similar strategies. There is however, a long-term advantage in that competitors may also imitate CSR-based strategies in a socially responsible way. Even if a firm chooses CSR for strategic financial gain, the firm is also acting responsibly. [3] Attention to CSR as an element in corporate strategy led to examining CSR activities through the lens of the resourcebased-view (RBV) of the firm. The RBV, as introduced by Wernerfelt (1984) and refined by Barney (1991), presumes that firms are bundles of heterogeneous resources and capabilities that are imperfectly mobile across firms. Accordingly, the imperfect mobility of heterogeneous resources can result in competitive advantages for firms that have superior resources or capabilities. McWilliams and Siegel (2001) used a model based on RBV to address optimal investment in CSR. In their model, CSR activities and attributes may be used in a differentiation strategy. They conclude that managers can determine the appropriate level of investment in CSR by conducting cost benefit analysis in the same way that they analyze other investments. Applying the RBV to CSR naturally leads to the question of whether firms can use CSR to achieve a sustainable competitive advantage. Reinhardt (1998) addressed this issue and found that a firm engaging in a CSR-based strategy could only sustain an abnormal return if it could prevent competitors from imitating its strategy.[18] Incidents like the 2013 Savar building collapse with more than 1,100 victims have led to a shift from company-individual thinking towards supply-chain thinking in order to increase social responsibility. Thus, best practices from supply chain management are increasingly applied to the CSR context. Wieland and Handfield (2013) suggest that companies need to audit products and suppliers and that supplier auditing needs to go beyond direct relationships with first-tier suppliers. They also demonstrate that visibility needs to be improved if supply cannot be directly controlled and that smart and electronic technologies play a key role to improve visibility across the supply chain. Finally, they highlight that collaboration with local partners, across the industry and with universities is crucial to successfully managing social responsibility in supply chains.[19] Social accounting, auditing, and reporting For a business to take responsibility for its actions, that business must be fully accountable. Social accounting, a concept describing the communication of social and environmental effects of a company's

economic actions to particular interest groups within society and to society at large, is thus an important element of CSR.[20] Social accounting emphasizes the notion of corporate accountability. D. Crowther defines social accounting in this sense as "an approach to reporting a firm’s activities which stresses the need fo r the identification of socially relevant behavior, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques. Social license “Social license” generally refers to a local community’s acceptance or approval of a company’s project or ongoing presence in an area. It is increasingly recognized by various stakeholders and communities as a prerequisite to development. The development of social license occurs outside of formal permitting or regulatory processes, and requires sustained investment by proponents to acquire and maintain social capital within the context of trust-based relationships. Often intangible and informal, social license can nevertheless be realized through a robust suite of actions centered on timely and effective communication, meaningful dialogue, and ethical and responsible behavior. Local conditions, needs, and customs vary considerably and are often opaque, but have a significant impact on the likely success of various approaches to building social capital and trust. These regional and cultural differences demand a flexible and responsive approach and must be understood early in order to enable the development and implementation of an effective strategy to earn and maintain social license. Governments could facilitate the necessary stakeholder mapping in regions for which they are responsible and provide a regulatory framework that sets companies on the right path for engagement with communities and stakeholders. Social media tools empower stakeholders and communities to access and share information on company behaviors, technologies, and projects as they are implemented around the world. Understanding and managing this reality will be important for companies seeking social license. Voluntary measures integral to corporate-responsibility frameworks contribute to achieving social license, particularly through enhancing a company’s reputation and strengthening its capacity for effective communication, engagement, and collaboration. However, such measures do not obviate the need for project-specific action to earn and maintain social license. The growing reliance on social media tools by stakeholders and proponents alike, and the risks associated with disclosure through them, may lead to an increase.[33] More in Pacific Energy Summit.[34] Potential business benefits The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones (e.g., Deming's Fourteen Points, balanced scorecards). Orlitzky, Schmidt, and Rynes[35]found a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy. Intel employs a 5-year CSR planning cycle.[36] The definition of CSR used within an organization can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or public relations departments of an organisation,[37] or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some companies may implement CSR-type values without a clearly defined team or programme. The business case for CSR[38] within a company will likely rest on one or more of these arguments: Triple bottom line People planet profit, also known as the triple bottom line, are words that should be used and practiced in every move an organization makes. People relates to fair and beneficial business practices toward labour, the community and region where corporation conducts its business. Planet refers to sustainable environmental practices. A triple bottom line company does not produce harmful or destructive products

such as weapons, toxic chemicals or batteries containing dangerous heavy metals for example. Profit is the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit. [39][40] Despite the fact that adopting this triple measure has helped some companies be more conscious of their social[41] and moral responsibilities,[42] the triple bottom line has its critics. The first criticism is that the reporting of environmental and social/moral responsibilities is selective and ignores some real moral demands, thus substituting the adopted list for a company or its members paying attention to its myriad moral obligations. The second criticism is that there is no guaranteed-upon way to carry out the environmental and social/moral audits comparable to the way that companies carry out their financial audits-much of which is governed by government requirements. An inherent difficulty with any social reporting is that it is not quantifiable in the way that a financial report is. There is no quantitative method that captures what is significantly at issue and no agreed-upon way to represent qualitative measures.[43] Human resources A CSR program can be an aid to recruitment and retention,[44] particularly within the competitive graduate student market. Potential recruits often ask about a firm's CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. CSR has been found to encourage customer orientation among frontline employees.[45] Risk management Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. [46] These can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of 'doing the right thing' within a corporation can offset these risks. [47] Brand differentiation In crowded marketplaces, companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values.[48] Several major brands, such as The Co-operative Group, The Body Shop and American Apparel[49] are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice. Engagement plan An engagement plan will assist in reaching a desired audience. A corporate social responsibility team, or individual is needed to effectively plan the goals and objectivesof the organization. Determining a budget should be of high priority. The function of corporate social responsibility planning: 1. To add discussion and analysis of a new set of risks into corporate decision-making. 2. To represent issues within the corporation that watchdogs, NGOs and advocates represent within society. 3. To assess the future. An organizations long term and short term future needs to be thought of. 4. To help prioritize consideration of socially and environmentally friendly projects that might otherwise lack a corporate advocate. 5. To keep corporations aware of potential major societal impacts even when a negative impact may not be immediate, and thus lessen liability. 6. To positively influence decision making where societal impacts are maximized, whilst ensuring efforts are within a given budget. Developing an engagement plan Commit to coming up with and improving on your companies goals. CSR commitments communicate the nature and direction of the firm's social and environmental activities and, will help others understand how the organization is likely to behave in a particular situation 1. Do a scan of CSR commitments 2. Hold discussions with major stakeholders

Consultants are recommended when planning for CSR activities involving small. competitiveness. 5. Create a working group to develop the commitments Prepare a preliminary draft Consult with affected stakeholders Revise and publish the commitments Consider what is feasible within the budget To ensure employee buy-in. 10. 8. whether a company decides to develop one area of CSR. encouraging employees and their representatives to put some thought into their submissions. include employees in the process of developing the vision and values. Toyota and Nestle. creating 'greener' supply chains. researching their existing supply chain. 1. Corporations excelling in supply relations include Wal-Mart. companies are able to push for continuous quality improvements. General Motors.[50] The following is a list of common ways corporate social responsibility is implemented by organizations. developing buildings according to Leadership in Energy and Environmental Design(LEED)® standards. etc. 6. 4. All companies listed above have gained tangible results through the practice of ensuring sound supply chains. water management. and greater profits are created. or multiple. All levels of management should be on board. and the support of high ranking corporate officials should be given.Review the CSR priorities to determine which codes of ethics or conduct fit best with the firm's goals. medium and large sized corporations. Supplier relations Businesses are constantly relying on suppliers to reduce overall costs. The highest ranked sustainability consulting firm is Ernst & Young [53] . Host a visioning session and ask participants to think about what the firm could look like in the future as a CSR leader. As a result. By taking substantive voluntary steps.[51][52] There is a business sector dedicated to specifically to environmental sustainability consulting for businesses of any size to utilize. waste management. To spark the process. and price reductions. Many North American companies have downgraded the volume of suppliers they do business with. Emphasizing the importance of practicing CSR to suppliers. diversity. while improving the quality of their goods or services.3. Common Types of Corporate Social Responsibility Actions There are many aspects of corporate social responsibility. and sourcing materials from ethical sources. the end result is a more profitable company experiencing a higher level of employee engagement. and sending out CSR check-sheets to existing suppliers is important to staying on-track of a company’s implemented CSR activity. Environmental Sustainability: Areas include recycling. Some multi-national companies like General Motors can shift suppliers. using digital technology instead of hard copies. The long-term benefits of the listed above create a better value for stakeholders. License to operate Corporations are keen to avoid interference in their business through taxation or regulations. Ford. they can persuade governments and the wider public that they are taking issues such as health and safety. By establishing a strong supply chain. or the environment seriously as good corporate citizens with respect to labour standards and impacts on the environment. if a lower offer is made by the competition. in order to lower operating costs. 7. in turn contributing to a stronger market The strategic use of supplier relations can benefit single. utilizing reusable resources. create a CSR working group or hold a contest for the best suggestions. double and triple bottom-lines. using renewable energy sources. and award contracts to a select few. 9.

Although they accept that corporations should obey the laws of the countries within which they work. so all economic entities have an obligation to society (see for example Economic Justice for All). supporting community volunteerism. This is important for companies that want to be viewed as ethical. etc. Lord Justices Pill. and thus their citizens are at a higher risk of exploitation by multinational corporations. since these programs began the company has seen higher profits and greater employee engagement. More recently. and indeed a hindrance to free trade. including concerns about insincerity and hypocrisy. May and Keane ruled that it was fair comment to say that McDonald's . Some people perceive CSR as incongruent with the very nature and purpose of business. environmental and other practices[62]All the same. since the 1970s. in McDonald's Restaurants v Morris & Steel.[54] Starbucks is an example of a company that focuses on community involvement and engagement. They do not try to manipulate or falsely advertise to potential consumers.2. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism.[60] the petroleum giant BP (well known for its high-profile advertising campaigns on environmental aspects of its operations).[55] 3.[58] Many religious and cultural traditions hold that the economy exists to serve human beings. For example. and that since only people can have social responsibilities. noting that these countries usually have fewer labour protections. the McDonald's Corporation's association with Ronald McDonald House has been viewed as CSR and relationship marketing. employing people from a community. Criticisms and concerns Critics of CSR as well as proponents debate a number of concerns related to it. engaging in fair trade practices. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole. These include CSR's relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR. andMcDonald's (see below) to distract the public from ethical questions posed by their core operations. many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement. [57] A wide variety of individuals and organizations operate in between these poles. as CSR has become mainstream. Motives Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT). corporations are only responsible to their shareholders and not to society as a whole. longevity and/or infant mortality have been created by economic growth attributed to free enterprise. Community Involvement: This can include raising money for local charities. Ethical Marketing Practices: Companies that ethically market to consumers are placing a higher value on their customers and respecting them as people who are ends in themselves. sponsoring local events. Moreover. the company has beefed up its CSR programs related to its labor. Those who assert that CSR is contrasting with capitalism and are in favor of the free market argue that improvements in health. Nature of business Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. the REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better. they assert that corporations have no other obligation to society. For example. supporting a community's economic growth.[56] Critics of this argument perceive the free market as opposed to the well-being of society and a hindrance to human freedom.[61] Another concern is that sometimes companies claim to promote CSR and be committed to sustainable development but simultaneously engage in harmful business practices. as discussed above.

Principles The main principles involving corporate social responsibility involve economic. [66] However. Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement. ethical and discretionary aspects. through socially responsible investing are exerting pressure on corporations to behave responsibly. The corporation also needs to be ethical. Industrialization. but this did not prevent the 2004 scandal concerning its misreporting of oil reserves. such as Patricia Werhane. whereby CSR can also be driven by employees' personal values. The main issue . so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005.employees worldwide 'do badly in terms of pay and conditions'[63] and true that 'if one eats enough McDonald's food. Keim. Some view ethical issues as simply a costly hindrance. All terms are useful in issues management. Shareholders and investors themselves. is booming as a result of both technology and globalization. rather than voluntary measures. Ethical consumerism The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. they have encountered new challenges that impose limits to their growth and potential profits. this practice is far from consistent or universal. The extension of SRI bodies driving corporations to include an element of ‘ethical investment’ into their corporate agenda’s generates socially embedded issues. Globalization and market forces As corporations pursue growth through globalization. Selecting when and how to act can make a difference in the outcome of the action taken. which seriously damaged its reputation and led to charges of hypocrisy. legal. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are therefore beginning to make purchasing decisions related to their environmental and ethical concerns. Government regulations. 147). but has the right to be discretional about the decisions it makes. are necessary to ensure that companies behave in a socially responsible manner. one's diet may well become high in fat etc.'[64] Royal Dutch Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting. with the very real risk of heart disease. from a CSR perspective. (Fry. environmental restrictions and varying standards of what constitutes "labor exploitation" are problems that can cost organizations millions of dollars. A major area of necessary international regulation is the reduction of the capacity of corporations to sue states under investor state dispute settlement provisions in trade or investment treaties if otherwise necessary public health or environment protection legislation has impeded corporate investments. Levels of corporate social responsiveness to an issue include being reactive. For a commonly overlooked motive for CSR. and limit the reach of CSR by focusing more on direct impacts of the organization as viewed through a systems perspective to identify stakeholders. in many developing countries. but those of their entire supply chain.[65] Others. Social awareness and education The role among corporate stakeholders is to work collectively to pressure corporations that are changing. argue that CSR should be considered more as a corporate moral responsibility. Since then. A corporation needs to generate profits. the Shell Foundation has become involved in many projects across the world. see also Corporate Social Entrepreneurship. including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa. defensive. in addition to the more obvious economic and governmental drivers. responsive and interactive. tariffs. that all government is controlling. while some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets.. 105) Global competition places a particular pressure on multinational corporations to examine not only their own labor practices. Meiners 1986. helping them sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising. while operating within the laws of the state. As global population increases.

companies are becoming interested in processes that can add visibility to their CSR policies and activities.[citation needed] Caterpillar and Best Buy are examples of organizations that have taken such steps. takes a CMR perspective in order to do what is moral and he begins to shift his company's focus towards the biosphere by utilizing carpets in sections so that they will sustain for longer periods. some religious investors in the US have withdrawn investment from companies that fail to fulfill their ethical expectations.[when?] the traditional conception of CSR is being challenged by the more community-conscious Creating Shared Value concept (CSV). Ethics training The rise of ethics training inside corporations. Tullberg believes that humans are built with the capacity to cheat and manipulate. hence the need for learning normative values and rules in human behavior. cultural. Through education and dialogue. CSR is fundamentally an intangible populist idea without a conclusive definition. For example. a concept that is constructed as a general social perspective. political. fines and damaged reputations for breaching laws or moral norms. 1985). Public policies CSR has inspired national governments to include CSR issues into their national public policy agendas.[citation needed] One relevant documentary is The Corporation. versus corporate moral responsibility (CMR).[67] The problem becomes defining what is classified as ‘ethical investing’. are both important topics to consider when looking at ethics in CSR. The increased importance driven by CSR. and business simulations can play a part in this. some of it required by government regulation.[67] The Non-governmental organizations are also taking an increasing role. The heightened role of government in CSR has facilitated the development of numerous CSR programs and policies.[70] Increasingly.[69] The most direct benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005).correlates to the development and overall idea of ‘ethical investing’ or SRI. The ethics or values of one SRI body will likely different from the next since ethical opinions are inherently paradoxical. and several companies are refining their collaboration with stakeholders accordingly. a view taken from Trivers (1971. what a company does in trying to benefit society. where CSR is a major issue. Actors engaged in CSR: . is another driver credited with changing the behavior and culture of corporations. the development of community awareness in holding businesses responsible for their actions is growing.[73] Over the past decade governments have considered CSR as a public issue that requires national governmental involvement to address the very issues relevant to CSR. One method that is gaining increasing popularity is the use of well-grounded training programs. [72] The immense geographical separations feasibly contribute to the loosely defined concept of CSR and difficulty for corporate regulation." where if people do not pay attention to the private ways in which we use public resources. The aim of such training is to help employees make ethical decisions when the answers are unclear. has prompted governments to promote socially and environmentally responsible corporate practices. Ray Anderson. and economic structures within individual countries.[74] CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly. people will eventually lose those public resources. For example. This is Anderson thinking in terms of Garret Hardin's "The Tragedy of the Commons.[73] Specifically.[68] In recent years. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. what a company should morally do. leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. various European governments have implemented public policies on CSR enhancing their competence to develop sustainable corporate practices. the history of organizations and their growth in power is discussed. Corporate social responsibility. Geography[ In a geographical context.[72] The issue of CSR diversity is produced through the perpetual differences embedded in the social.[71] Corporations who employ CSR behaviors are empirically dissimilar in various parts of the world. in The Corporation.

corporations’. The European Union has recently[when?] done extensive work to try and find the best form of regulation. pg 436). Prime Minister Kevin Rudd signed the ratification immediately after assuming office on 3 December 2007. the CSR efforts and policies are vastly different amongst countries resultant to the complexity and diversity of governments’. However in 1819. The company continues to argue via the legal process on assignment of liability. attempts at CSR policy development and implementation may be unattainable. The Australian government took the position that signing the Kyoto Pact would have caused more significant economic losses for Australia than for any other OECD nation (Bulkeley 2001. As a result. (Sullivan & Schiafo 2005).[75] The method of developing and implementing CSR policies was achieved through government-company consultation and government stakeholder cooperation. parliamentary. who cites the Australian federal government's actions to avoid compliance with the Kyoto Protocol in 1997. A key debate in CSR is determining what actors are responsible to ensure that corporation’s are behaving in a socio-economic and environmentally sustainable manner. For example. Critics of CSR also point out that organizations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.[74] Recognizably. The government of Canada has adopted a national position that expects Canadian corporations to practice behaviors parallel to CSR. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). just before the meeting of the UN Framework Convention on Climate Change. may advocate that cooperation amongst constituencies is the most imperative element to CSR regulation. On the change of government following the election in November 2007. Scholars have analyzed each body that promotes CSR based policies and programs concluding that the role and effectiveness of these actors are case-specific.This was due to corporations being viewed as "creatures of the state" under the law. Prime Minister Harper was aware of Canada’s abundant investment into the resource/mineral extractive sector and encouraged the Canadian mining companies to meet Canada’s newly developed CSR standards and expectations. regulation in itself is unable to cover every aspect in detail of a corporation's operations. The United States Supreme Court in the Dartmouth College vs. For example.[73] Global issues so broadly defined such as CSR generate numerous relationships between the different socio-geographic players.   governments corporations civil societies Recently.[75] The successful relationship between the CSR actors wit hin Canada’s government and country. Some critics argue that the creation of a CSR organization with a democratically appointed minister focused solely on monitoring and enforcing socially responsible behaviour will be extremely effective. on the concerns of economic loss and national interest.This new ruling not only allowed . Regulation The issues surrounding corporate regulation pose several problems. and civil societies’ roles. The concept of regulation is inherently difficult to address because of the numerous corporations that exist are vastly dissimilar in terms of corporate behavior and nature. while the cleanup remains stagnant. presidential – issues of governmental ineffectiveness may transpire. Government regulation or public institutional regulation is difficult to achieve.[when?] 15 European Union countries have actively engaged in CSR regulation and public policy development. This view shared by Bulkeley. Woodward case established a corporation as an fictitious being. General Electricfailed to clean up the Hudson River after contaminating it with organic pollutants. The second issue is the financial burden that regulation can place on a nation's economy. Thus. [74] Laws In the 1800s.the government in the primary establishment of corporate legislation could take away a firm's license if it acted socially irresponsible. In 2007. Depending on the political regime and form of government – democracy.

Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i.corporations to be protected under the Constitution but also limited states from enforcing restrictions on firms that did not act in the public good. Other examples include the lead poisoning paint used by toy giant Mattel. and information on what results have been obtained so far and managements expectations for the future with regard to CSR/SRI.[76] The laws legally binding the corporation’s behavior and activity are quite insignificant in relation to the global consequences. and the company's stock price dropping 34% due to several cases of E. and the media. Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the inclusion of all groups or constituents (rather than just shareholders) in managerial decision making related to the organization’s portfolio of socially responsible activities. political. Odwalla also experienced a crisis with sales dropping 90%.[74] Common types of countries who have implemented legislation and CSR laws generally consist of socio-economic and politically sophisticated countries. and social dynamics of society correlate to the recent studies by the UN Commission on Human Rights. coli spread through Odwalla apple juice. consumers. More on the Danish law can be found at CSRgov. Stakeholder priorities Increasingly. Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. Key external stakeholders include customers. The stakeholder perspective suffers from a wheel and spoke network metaphor that does not acknowledge the complexity . corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. communities in the areas where the corporation operates its facilities. improved recruitment. The level of political stability and effectiveness is inextricably linked to a countries capacity to ensure national CSR policies. higher productivity. increased retention. The company ordered a recall of all apple or carrot juice products and introduced a new process called "flash pasteurization" as well as maintaining lines of communication constantly open with customers. regulators. but if a company has no policy on this it must state its positioning on CSR in their annual financial report.e. investors and state-owned companies to include information on corporate social responsibility (CSR) in their annual financial reports. academics. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup. which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. The reporting requirements became effective on 1 January 2009. more loyalty. On 16 December 2008. investors (particularly institutional investors).[78] Denmark has a law on CSR. the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies.[80] This normative model implies that the CSR collaborations are positively accepted when they are in the interests of stakeholders and may have no effect or be detrimental to the organization if they are not directly related to stakeholder interests. Only recently have countries included CSR policies in government agendas legislature. and so on).dk[dead link] Crises and their consequences Often it takes a crisis to precipitate attention to CSR. The increasing ability and influence corporations have on the economic.[79] The required information includes:    information on the companies’ policies for CSR or socially responsible investments (SRI) information on how such policies are implemented in practice. In another example. CSR/SRI is still voluntary in Denmark. One of the most active stands against environmental mismanagement is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006).[77] More research and international political instruments are being explored to protect and prevent corporations from violating human rights.

Shareholders are key internal stakeholders.    External stakeholders . RESPONSIBILITY TO VARIOUS STAKEHOLDER GROUPS. As investors. To encourage this. they take a financial stake in the company by purchasing shares. attract new customers and retain existing ones.  Authors who provide the journal articles for Elsevier’s scientific publications are also internal stakeholders. By the end of 2012. They will look for the best return on investment which is usually made in the form of a share of the profits. Reed Elsevier steadily increases the dividends paid to its shareholders. This helps the business to provide the highest levels of customer service. for example:  All employees are offered training on the Reed Elsevier Code of Ethics and Business Conduct to ensure best practice.[81] Industries considered void of CSR Several industries are often absent from CSR research. They have the opportunity to put the final version of their work on their own institution’s website as well as having it published through Elsevier. 100% had completed the course by the end of 2012. By reducing costs and therefore improving revenues and efficiency. It also relegates communication to a maintenance function. Employees Employees at all levels are an important internal stakeholder group. 100% of employees had completed anti-bribery training. The absence is due to the presumption that these particular industries fail to achieve ethical considerations of their consumers. ‘Boundarylessness’ – the company’s different divisions act as one organisation – providing opportunities for staff to take advantage of internal transfers and promotions to develop. Reed Elsevier needs to retain its diverse and talented employees who bring professionalism and energy to their roles. This enables them to make a contribution to the whole of Reed Elsevier.  CR strategies benefit shareholders by making the business attractive to investors and improving its share value. (Case study) Internal stakeholders Reed Elsevier’s internal stakeholders have a range of interests in the different parts of the company and its activities. similar to the exchange perspective. as well as defense firms[82] INTERNAL AND EXTERNAL STAKEHOLDERS. enhances performance and productivity and reduces employee stress. Reed Elsevier has set up various initiatives internally.of network interactions that can occur in cross sector partnerships. Flexible or home working across the business supports the work-life balance of employees. Typical industries include tobacco and alcohol producers ("sin industry" manufacturers).

They have enormous social value and may affect lives across the world. lower turnover of staff and greater employee loyalty. For example:  As part of the company’s Socially Responsible Supplier programme. The division’s online medical data provides vital information to doctors in hospitals. This results in longer-term relationships where customers feel they have an input into the services offered. It conducts widespread surveys of customer opinion. Partners Reed Elsevier has established partnerships across its different divisions. Customers Customers expect good value. This sets out the standards which it expects its suppliers to meet. For example:  Elsevier promotes science.  Suppliers Suppliers also hold a stake in the company to which they provide materials and services. the printer found that improved conditions led to better quality output. for example:  Elsevier’s scientific publications provide critical research information to support innovation and development. LexisNexis provides online solutions to help professional users to access a wealth of information quickly to support their jobs on a daily basis. These identify the value customers place on its services and products and highlight potential improvements. technology and medicine. such as using sustainable sources for paper or dealing responsibly with waste products. suppliers are asked to sign the Reed Elsevier Supplier Code of Conduct. The Elsevier Foundation promotes the work of libraries and scholars in science. For example. In this way. high-quality products and great service. To differentiate the company from other information providers. Reed Exhibitions has given free space at the London Book Fair to Book Aid International which annually provides over 500.000 books – including those donated from across Reed Elsevier – to readers in the developing world. Partners in the supply chain. text and animation of medical procedures help doctors and students learn. Suppliers must follow all relevant laws. which is reflected in the spread of its business divisions. It builds loyalty and creates the potential for increased business.   . from many professions and geographic regions.External stakeholders are those individuals or groups outside a business. Reed Elsevier achieves this through close relationships and consultation with customers. Reed Elsevier customers come from the public. commercial and academic sectors. such as one of Reed Elsevier’s printers in China. also benefit from its responsible approach to production. Over the last nine years. Reed Elsevier focuses on CR performance. Video. technology and medical information programmes. customers have a real role in helping the business to develop and grow. promote best practice and respect environmental conditions. By applying the Supplier Code of Conduct. This enables the charity to engage with a wide range of potential book and financial donors. a lawyer may prepare for a legal trial using earlier case law.

It has a network of Environmental Champions and employee-led Green Teams to promote greater recycling and reduced energy use throughout the business. In 2012.    Society Reed Elsevier’s CR approach impacts on society in several ways:  In line with its Code of Ethics.000 to more than 50 charities in 2012. working to improve environmental performance at its shows through implementation of the BS 8901 standard. which became an internationally recognised ISO 20121. Reed Elsevier has a formal policy of donating unwanted book stock to institutions to provide more access to information. This programme encourages staff to work together to make a difference in local communities. water and paper in its publishing processes and using sustainable materials wherever possible. Reed Exhibitions drives forward sustainable practice in the global meetings and events industry. It has seen a 33% reduction in paper between 2008 and 2012. In 2012. Initiatives range from reading support to charity fundraising. meaning they are the best performing locations in the business.Community Reed Elsevier’s initiatives make a difference to communities around the world.    INTEREST AND INFLUENCE OF VARIOUS STAKEHOLDER GROUPS WHAT DO WE MEAN BY STAKEHOLDERS AND THEIR INTERESTS? . RE Cares Champions awarded nearly $400. The RE Cares programme is supported both centrally and in all business divisions. More than 30% of employees volunteered through RE Cares in 2012:  It supports education for disadvantaged young people. Reed Elsevier announced the winners of the second RE Cares ‘Recognising Those Who Care’ Awards to highlight the outstanding contributions to RE Cares of eight colleagues and four staff teams. 69 office locations gained green status by achieving five environmental standards as part of the Reed Elsevier Standards programme. it promotes responsible advertising and a transparent editorial policy for its publications. Reed Elsevier is committed to reducing use of energy. 13 locations achieved seven or more standards and were designated as green+. The company uses video conferences and webseminars to save on travel costs and reduce its carbon emissions. sourced 33% of its electricity from renewable sources and prevented an increase in water consumption despite growing business revenue by nearly 15%.

Both of these groups would be secondary stakeholders. are those who can have a positive or negative effect on an effort. A few of the more common:  Economics. An effort to improve racial harmony could alter the social climate for members of both the racial or ethnic minority and the majority. or organization.  Primary stakeholders are the people or groups that stand to be directly affected. Social change. Involving workers in decision-making can enhance work life and make people more satisfied with their jobs. there are primary stakeholders on both sides of the equation: a regulation that benefits one group may have a negative effect on another. academically. or clergy and other community figures who wield a significant amount of influence. parental leave. and associates are not directly affected by it. institution. Work. Secondary stakeholders are people or groups that are indirectly affected. philosophical. heads of businesses. could have a positive effect on emergency room personnel by reducing the number of cases they see. by an effort or the actions of an agency. but may hurt landlords. Time. A rent control policy. Zoning regulations may also have economic consequences for various groups. for example. the stronger their interest as well. relief programs for caregivers. even though they and their families. and other efforts that provide people with time for leisure or taking care of the business of life can relieve stress and increase productivity. friends. The director of an organization might be an obvious key stakeholder. the stronger their interest is likely to be. Flexible work hours. agency. for instance. or politically motivated attention – stakeholders are generally said to have an interest in an effort or organization based on whether they can affect or be affected by it. who might belong to either or neither of the first two groups. philosophically. benefits tenants.   While an interest in an effort or organization could be just that – intellectually. it might as well not have begun. but so might the line staff – those who work directly with participants – who carry out the work of the effort. or who are important within or to an organization. In some cases. It might require more training for police to help them handle domestic violence calls in a different way. An employment training program might improve economic prospects for low-income people.    . If they don’t believe in what they’re doing or don’t do it well. Key stakeholders. One way to characterize stakeholders is by their relationship to the effort in question. The more they stand to benefit or lose by it. or political reasons. Other examples of key stakeholders might be funders. The more heavily involved they are in the effort or organization. elected or appointed government officials.Stakeholders are those who may be affected by or have an effect on an effort. or organization. either positively or negatively. by an effort or the actions of an agency. institution. A program to reduce domestic violence. or institution engaged in an effort. Stakeholders’ interests can be many and varied. They may also include people who have a strong interest in the effort for academic. for example. either positively or negatively.

Mental health. Protection of open space. All stakeholders can have a say in the development of an effort that may seriously affect them. and other environmental efforts can add to everyday life. obligations. It’s fair to everyone. It gains buy-in and support for the effort from all stakeholders by making them an integral part of its development. which creates connections among diverse groups that might not otherwise interact. attention to climate change. Bridging social capital.    As we’ll discuss in more depth further on. It becomes their effort. It strengthens your position if there’s opposition. Physical health. in most cases. Community mental health centers and adult day care can be extremely important not only to people with mental health issues. Having all stakeholders on board makes a huge difference in terms of political and moral clout. The Community Tool Box believes that. a participatory effort that involves representation of as many stakeholders as possible has a number of important advantages:  It puts more ideas on the table than would be the case if the development and implementation of the effort were confined to a single organization or to a small group of like-minded people. and evaluation. If everyone has a seat at the table. Free or sliding-scale medical facilities and other similar programs provide a clear benefit for low-income people and can improve community health. favors. Environment. Neighborhood watch or patrol programs. where people from all walks of life       . they won’t come as surprises that derail the effort just when you thought everything was going well. WHY IDENTIFY AND ANALYZE STAKEHOLDERS AND THEIR INTERESTS? The most important reason for identifying and understanding stakeholders is that it allows you to recruit them as part of the effort. and they’ll do their best to make it work. friendships. concerns can be aired and resolved before they become stumbling blocks. family ties. thus giving a clearer picture of the community context and potential pitfalls and assets. conservation of resources. It saves you from being blindsided by concerns you didn’t know about. planning. Safety and security. It includes varied perspectives from all sectors and elements of the community affected. implementation. Even if they can’t be resolved. work safety initiatives – all of these and many other efforts can improve safety for specific populations or for the community as a whole. It makes possible a community without barriers of class or economics. both the nature and the intensity of stakeholder interests are important to understand. It creates bridging social capital for the community. is perhaps the most valuable kind. These can also be seen as harmful to business and private ownership. but also to their families and to the community as a whole. and other social currency that can be used to cement relationships and strengthen community. better policing in high-crime neighborhoods. Social capital is the web of acquaintances.

people who engage in unsafe sex. people who don’t exercise. unemployment. skills. People involved or participants in a particular organization or institution – students at a school. siblings. and transparent. money. etc. children. youth involved in the justice system. PRIMARY STAKEHOLDERS Beneficiaries or targets of the effort Beneficiaries are those who stand to gain something – services. People experiencing or at risk for a particular problem or condition – homelessness. a town. . residents of a housing project. welfare recipients. friends. social connection. goods. or care for the people in question. are close to.can know and value one another. as well as key stakeholders who may or may not fall into one of the other two categories. etc. – as a direct result of the effort. Let’s examine possible stakeholders using that framework. identifying stakeholders and responding to their concerns makes it far more likely that your effort will have both the community support it needs and the appropriate focus to be effective. other family members. ethical. For all of the above reasons. smokers. can help to create just this sort of situation. A participatory process. Targets are those who may or may not stand to gain personally.      SECONDARY STAKEHOLDERS Those directly involved with or responsible for beneficiaries or targets of the effort These might include individuals and organizations that live with. significant others. or whose actions represent a benefit to a particular (usually disadvantaged) population or to the community as a whole.  WHO ARE POTENTIAL STAKEHOLDERS? As we discussed. spouses. and makes it more likely that others will work with you in other circumstances. a rural area. Involving and attending to the concerns of all stakeholders establishes your organization as fair. often including everyone from welfare recipients to bank officers and physicians.  It increases the credibility of your organization. It increases the chances for the success of your effort. and those that offer services directly to them. Policy makers and agencies that are the targets of advocacy efforts. Among these you might find:  Parents. diabetes. People whose behavior the effort aims to change – delinquent youth. a socio-economic group. there are primary and secondary stakeholders. Residents of a particular geographic area – a neighborhood. lack of basic skills. Some examples are:  A particular population – a racial or ethnic group.

health insurance requirements.  Police and other law or regulation enforcement agencies. teachers. dealing with drug abuse or domestic violence. . Landlords. such as the location of a homeless shelter in the neighborhood or changes in zoning regulations. or routines might be affected by an effort or policy change. may affect how. as well as incentives. counselors. zoning regulations. who introduce and pass laws and generally control public budgets at the federal and state or provincial levels. Those that hire and make a commitment to workers from at-risk populations may also have to institute worker assistance programs (personal and drug/alcohol counseling. pass. or other similar changes may require training and the practice of new skills on the part of members of these agencies. Health and human service organizations and their line staff – youth workers. Contractors and developers. Open-space laws. for example.      KEY STAKEHOLDERS Government officials and policy makers These are the people who can devise. and other mandates may affect employers’ costs. etc. New approaches to violence prevention. Ordinary community members whose lives. Landlords’ legal rights and responsibilities may be altered by laws brought about by campaigns to stop discrimination in housing or to strengthen tenants’ rights. as well as basic skills and other training). aides.  Legislators. where. members of parliament. Employers.  Those whose jobs or lives might be affected by the process or results of the effort Some of these individuals and groups overlap with those in the previous category. Doctors and other medical professionals. Social workers and psychotherapists. etc. etc. Emergency room personnel. jobs. Federal and state or provincial representatives. particularly primary care providers. Community volunteers in various capacities. senators. and other requirements. welfare case workers. A workplace safety initiative or strengthened workplace safety regulations. and what contractors and developers choose to build.    Schools and their employees – teachers. and enforce laws and regulations that may either fulfill the goals of your effort or directly cancel them out. from drivers to volunteer instructors in training programs to those who staff food pantries and soup kitchens. and others who are legally bound to report possible child abuse and neglect or other similar situations.

State/federal agencies. When widespread community support is needed. Community at large. etc. These people or groups often have no official power – they may be “advisers” to those with real power – but their opinions and ideas are often followed closely. doctors. By the same token. Advocates. Many of them may have a following or a natural constituency – business people. mayors. Community activists. but may nonetheless care enough about it that they are willing to work to influence its outcome. that’s a big plus. Local board members. Governors. Their work may have convinced them of the need for an intervention or initiative. Funders.  Business. the effort won’t be possible. People with academic or research interests related to a targeted issue or population. Advocates may be active on either or both sides of the issue you’re concerned with. or they may simply be sympathetic to the goals of the effort and understand them better than most. it is likely to oppose efforts that it sees as costing it money or imposing regulations on it.  Those with an interest in the outcome of an effort Some individuals and groups may not be affected by or involved in an effort.. The executives that carry out laws. or make it easier and more likely to make a profit. in many cases. Funders and potential funders are obvious key stakeholders. for instance – and may therefore have a fair amount of clout. in that. and can sometimes make or break an effort by how they choose to regulate and how vigorously they enforce their regulations. through their power to issue permits and regulations. The business community usually will recognize its interest in any effort that will provide it with more and better workers. and generally run the show can contribute greatly to the success – or failure – of an effort. etc. Community leaders – people that others listen to. If they’re on your side.      WHEN SHOULD YOU IDENTIFY STAKEHOLDERS AND THEIR INTERESTS? . Policy makers. without their support. and college presidents are all examples of people in this group. administer budgets. Organizations and individuals who have a philosophical or political interest in the issue or population that an effort involves may organize to support the effort or to defeat it.    Those who can influence others   The media People in positions that convey influence. city/town councilors. can be crucial allies and dangerous opponents. planning. the community as a whole may be the key stakeholder. Clergy members. or may be longtime or lifelong residents who have earned the community’s trust over years of integrity and community service. selectmen. Government agencies often devise and issue regulations and reporting requirements. zoning. CEOs. Boards of health. These might be people who are respected because of their position of leadership in a particular population.

The community will only believe in an open process if it’s truly open. A push for new regulations on a particular industry. in most cases. It’s an important part of your job to determine who all your stakeholders are. It’s generally the fairest course you can take. for instance. it’s important that they be involved early so that any concerns or barriers show up early and can be addressed. Stakeholder analysis (also called stakeholder mapping) will help you decide which stakeholders might have the most influence over the success or failure of your effort. stakeholder involvement from the beginning is absolutely necessary. . if not the very first. not surprisingly. involving stakeholders from the beginning is both fair and can help stave off the possibility of lawsuits down the road.  If you want to involve stakeholders in a participatory process. etc. such as the building of a development. Some will have an investment in carrying the effort forward. and which might be your most important opponents. policy makers. which might be your most important supporters. might entail greatly increased paperwork or the purchase of new machinery on the part of that industry’s suppliers. identifying stakeholders and their interests should be among the first. they’ll understand the research process and project much more clearly. of the items on your agenda.Regardless of the purpose of your effort. the earlier in the process stakeholders can be involved. and to try to involve them in a way that advances your goals. but the list is different for each community and each effort. Traffic restrictions to control speeding in residential neighborhoods may affect commuters that use public transportation. If you want your process to be regarded as transparent. secondary stakeholders – are sometimes harder to see. IDENTIFYING STAKEHOLDERS In identifying stakeholders. you can make plans for dealing with stakeholders with different interests and different levels of influence. it’s important to think beyond the obvious. the reasons are obvious. HOW DO YOU IDENTIFY AND ANALYZE STAKEHOLDERS AND THEIR INTERESTS? The first step in identifying and addressing stakeholder interests is. whereas indirect effects – and. We’ve discussed in general terms the categories that stakeholders might fall into. Beneficiaries. and can add to them. are easy to identify. the next task is to understand their interests. If your intent is a participatory action research project. That way. but others may be equally intent on preventing it from happening or making sure it’s unsuccessful. as a result. the better.     In short. so that they can both contribute and take ownership. identifying the stakeholders. Once you’ve identified stakeholders. In situations where there are legal implications. stakeholders should be included in any assessment and pre-planning activities as well as planning and implementation. If your effort involves changes that will affect people in different ways. Their knowledge of the community and understanding of its needs can prove invaluable in helping you to avoid mistakes in your approach and in the people you choose to involve. Once you have that information. and the one that is most likely to keep your effort out of trouble. They should be part of every phase of the work. Try to think of as many ways as possible that your effort might bring benefits or problems to people not directly in its path.

or will end up worse off than they are. the use of more than one will yield the best results. officials. Some of the many ways that stakeholder interests may manifest themselves:  Potential beneficiaries may be wildly supportive of an effort.Given that. They may not understand it. through various community service arrangements – community meetings. others’ by stopping or weakening it.  A classic case is that of the conflict between open space preservation and the opportunity to sell land for development. Some stakeholders may have economic concerns. They may be afraid to try something new. Part of the point of brainstorming is to come out with anything that comes to mind.  Brainstorm. they are legitimate. and/or key stakeholder. Even among stakeholders from the same group. or they may not see the benefit that will come from it. Some stakeholders’ interests may be best served by carrying the effort forward. You can use some combination of the media – often free. there are a number of ways to identify stakeholders. particularly members of a population or residents of a geographic area of concern. Farmers and other rural residents often have almost no other assets but their land. by selling it. stakeholder interests may vary. After 10 or 15 minutes.. stop and discuss each suggestion. secondary. they can become instant millionaires and live comfortably in retirement after working very hard for very little all their lives. on the assumption that they’ll fail. and others already involved in or informed about the effort and start calling out categories and names.g. or that work with the population or in the area of concern. and word of mouth to get the word out. They may be distrustful of any people or organizations engaged in such an effort. You may find people who consider themselves stakeholders whom you haven’t thought about. adult literacy) or may seem burdensome. seeing it as an opportunity or the pathway to a better life… or they may be ambivalent or resentful toward it. social media. announcements by leaders at meetings and religious gatherings. and feel they’re being looked down on. advertise. community and organizational newsletters. The effort or intervention may be embarrassing to them (e. Consult with organizations that either are or have been involved in similar efforts. Get together with people in your organization. Collect categories and names from informants in the community (if they’re not available to be part of a brainstorming session).     DISCOVERING AND UNDERSTANDING STAKEHOLDER INTERESTS As we’ve mentioned several times. targeted emails. so be as far-ranging as you can. why should they be expected to pass up that opportunity in favor of open space preservation? . Sometimes these concerns are merely selfish or greedy – as in the case of a corporation with billions in annual profits unwilling to spend a small part of that money to stop its factories from polluting – but in most cases. If. perhaps identifying each as a primary. Get more ideas from stakeholders as you identify them. the silly ideas can turn out to be among the best. If appropriate. there may be conflicting concerns. On reflection. even if it seems silly. Often.

and local government. Especially for very small business. The jobs of police. it’s important to understand the positions of stakeholders on both sides. Those who believe that government shouldn’t be seen as the source of anything but the most basic services that people obviously can’t provide for themselves – the military. equipment manufacturers.) The jobs of organization staff members engaged in carrying out an effort can be drastically changed by the necessity to learn new methods. Their ability to be funded for conducting activities related to the effort may mean the difference between laying off and keeping staff members. An initiative to build one or more community clinics can provide construction jobs.S. jobs for medical professionals and paraprofessionals. and institutions may have a financial stake in an effort because of funding concerns. Depending on the situation. this is a big issue. therapists. orders for medical equipment. such as abortion and gay marriage. or even between survival and closing the doors. agencies. While these may be good for the larger society. Organizations.       Mandates that don’t directly affect various professionals may affect them indirectly. or one that will return more than is being spent. no matter how many owners it goes through – sometimes are negotiated on the same basis. and others can be changed by changes in laws. Violence prevention might bode well for businesses in areas that people are hesitant to frequent because of the threat of violence. teachers. Legislators and policy makers may be concerned with public perceptions that they’re wasting public money by funding a particular effort. medical personnel.  Economic concerns may also work in favor of an effort. Ideological as well as cultural differences may also drive stakeholder interests. Business people may have concerns about such things as universal health care or regulation. Businesses may have economic concerns in the opposite direction as well. police. regulations. therefore. they can be convinced to spend the money by the perception that an effort is one the public is greatly in favor of. where a slight change in profits may mean not a drop in share price. or provide other services that others deem necessary for the well-being of the community. and it might also reduce the risk of losses and physical harm to the business owners themselves. (On the other hand. or may resent and dislike them. increases in paperwork.In some U. farmland has been preserved by the state’s paying farmers the development value of their land (or something close) in return for a legal agreement to always keep the land in cultivation or open space. by unions. professional associations. or any number of other requirements. largely for economic reasons. or . but the inability to sustain one’s livelihood. Efforts that concern issues that are controversial for cultural reasons. and economic advantages for the community. may be enthusiastically supported by some segments of the community and fiercely opposed by others. It might be backed. maintain public health. Conservation easements – agreements never to develop the land. Thus their positive interest in an effective violence prevention effort. While such hot-button issues may not be resolvable. they may be more than willing to take on these responsibilities. states. may have ideas about how they can be made less burdensome. public education – might oppose government-funded programs to help the poor. they may actually hurt some businesses. roads.

and that you understand each of their concerns. domestic violence. and other types of crimes may affect the work of teachers. Ask them what’s important to them. You don’t have to – and in fact shouldn’t – guess what stakeholder interests are. Most methods of stakeholder analysis or mapping divide stakeholders into one of four groups. therapists. and others. Stakeholder analysis (stakeholder mapping) is a way of determining who among stakeholders can have the most positive or negative influence on an effort. STAKEHOLDER ANALYSIS/STAKEHOLDER MAPPING Let’s suppose. If that isn’t possible. Reporting requirements for child abuse and neglect. that you’ve identified all the stakeholders.  Family concerns may enter into stakeholder interests as well. and how you should work with stakeholders with different levels of interest and influence. Now what? They all have to understand what you want to do. and what needs to be done or to change to address those concerns. even if they haven’t been involved in deciding on the changes. Without discussing the rights or wrongs of the issue. doctors. Most stakeholders will be more than willing to tell you how they feel about a potential or ongoing effort. each occupying one space in a four-space grid: . try to talk to them anyway.policy. whether you can satisfy them or not – and you have to find a way to move forward with as much support from stakeholders as you can muster. then. nurses. who is likely to be most affected by the effort. Increased or decreased emphasis on enforcement or treatment for drug-related offenses can place new obligations on police and others. it’s important to understand that some people will see this as protecting children and others as interfering with parental rights. what their concerns are. try to find out their concerns from others who are likely to know. Parents in many places can now be reported for child abuse for applying punishments like spankings with a brush or belt that their own parents may have used as a matter of course. If there are stakeholders that aren’t willing to be involved. you have to respond to their concerns in some way – at least by acknowledging them.

has a greater interest in the effort than someone who simply thinks the program is a good idea. low to high influence over the effort runs along a line from the bottom to the top of the grid. That knowledge in turn can help you decide how to manage stakeholders – how to marshal the help of those that support you. there will be people in both camps in each quadrant. In many cases. and how to convert – or at least neutralize – those who may start out feeling negative. meaning that people can have any degree of interest from none to as high as possible.As you can see. but has no intention of being involved in it in any way. or group is interested intellectually or philosophically in the effort. in this second sense. organization. assuming that those in the upper right will promote the effort. The level of interest. couches it in generally positive terms. The people we’ve described as “key stakeholders” would generally appear in the upper right quadrant. but have the power to influence it greatly if they become interested.  Promoters have both great interest in the effort and the power to help make it successful (or to derail it). Defenders have a vested interest and can voice their support in the community. The lines describing them are continuous. and/or (2) she or it is affected by it. including any of the points in between. they could be either promoters or staunch opponents. . and to move as many current and potential supporters as possible closer to the top right of the chart. child care. Apathetics have little interest and little power. and employment training from a back-to-work program. for example. which is responsible for this characterization. and the same – with different degrees of power and interest – goes for the other three sections of the grid. An assumption that most proponents of this analysis technique seem to make is that the stakeholders most important to the success of your effort are in the upper right section of the grid. and those least important are in the lower left. Both influence and interest can be either positive or negative. Latents have no particular interest or involvement in the effort. and may not even know the effort exists. and among the tasks of the organization(s) conducting the effort are to turn negative influential stakeholders to positive. how to involve those who could be helpful. depending on the perspectives of the stakeholders in question. A welfare recipient who stands to receive increased benefits. The names in parentheses are another way to define the same stakeholder characteristics in terms of how they relate to the effort. Interest here means one or both of two things: (1) that the individual. and low to high interest in the effort runs along a line from left to right. for example. In fact.    The World Bank. Influence can be interpreted in several ways:  An individual or group can wield official power in some way – as a government official or agency. corresponds to how great the effect is. The purpose of this kind of diagram is to help you understand what kind of influence each stakeholder has on your organization and/or the process and potential success of the effort. but have little actual power to influence the effort in any way.

hospital CEO. The largest employer in a community can exert considerable control over its workforce. using a combination of threats and rewards. or even over the community as a whole. A big question here is whether the whole concept of stakeholder management is in fact directly opposed to the idea of participatory process. and are often a necessary part of making a participatory process work. and therefore over its effectiveness. etc. In practice. membership in many clubs and organizations. and is largely meant to help people make sure to get the power on their side for any project they attempt. negotiation. bank president. Stakeholder management is where analysis and practice meet. and thus can both reach and sway many community members. from attempting to convince a skeptical three-year-old that broccoli tastes good to motivating students and employees to do their best. Most of the descriptions above pertain to external influence and interest. or funder. officer of one or more corporate or non-profit boards. As an administrator. Although. Organizations and institutions as well as communities have official and unofficial leaders. etc. These people are often listened to as a result of their positions in the community. Persuasion. and objectivity. Another possibility is influence as a “community leader” – a college president. but they could be internal as well. Someone that has both a major interest in and considerable power over the organization and/or the effort . an individual or group has some power over the organization conducting the effort. we all try to manage people constantly. people in positions that confer power or influence. and may hold one or more actual or honorary positions that give them even more influence: chair of the United Way campaign. without any respect for the other person or organization involved. for example. Great influence can be exercised by people (or. clergy member. as we’ll see. Some people and organizations exercise influence through economics. The first step in stakeholder management is to understand clearly where each stakeholder lies in the grid. organizations) that are simply respected in the community for their intelligence. Community-based and community-focused organizations and institutions may be more likely to have other purposes in mind when the issue of stakeholder management arises. family. etc. where everyone has a voice.     Influence and interest can be either internal or external to the organization or the community. concern for others and the common good. Such connections can be through work. however. If management turns into manipulation. it’s definitely not in the spirit of participation. STAKEHOLDER MANAGEMENT Stakeholder analysis is only useful if it’s used. do not violate that spirit. or former official status. board member. integrity. education. occasionally. and other methods of managing stakeholders that acknowledge their concerns. those who actually carry out the effort – usually staff people in an organization – can have a great deal of control over whether an effort is conducted as intended. Key stakeholders are often connected to large networks. it can be quite helpful in health and community work. people with large networks. In addition. It allows you to use the analysis to help gain support and buy-in for your effort. long generations or years of residency. the stakeholder analysis model we’re using comes out of business.

You have to approach and inform them. and accede to them where it’s appropriate. at least before the effort begins. so they can feel responsible for part of what’s going on. Those with a reasonable amount of power and interest would go in the middle of the upper-right quadrant. there’s the possibility that these folks could be negative and oppositional. Once again. the business people who use this model would say that you should expend most of your energy on the people who can be most helpful. etc. If they’re not particularly affected by or concerned about th e effort. If your purpose is to marshal support for the effort or policy change. then each group – each quadrant of the grid – calls for one kind of attention. make sure they know why. Another way to look at stakeholder management – and remember that all the people and groups we’re talking about here are stakeholders. the grid will be filled in with the names of stakeholders occupying various places in each of the quadrants. for example. and their concerns should be addressed to the extent possible without compromising the effort. If you can’t. In general. those who can affect and are affected by the effort in question – is that the most important stakeholders are those most dramatically affected. and demonstrate to them how the effort will have a positive effect on issues and populations they’re concerned with. the major task is to convert them. If that’s the case. or a leader of a population of concern – would go in the upper right-hand corner of the upper right quadrant. they become the most powerful opponents of your effort. the chances are that they’ll simply leave it and you alone. As much as possible. Offer them opportunities to weigh in on issues relating to the effort. and could make it impossible to succeed.– a funder.. The next step is to decide who needs the most attention. If they’re positive. with those with low interest and low power coming last. If you can shift them over to the promoter cat egory. These are people and organizations largely unaffected by the effort that could potentially be extremely helpful. less power – come next. Stakeholders with neither power nor interest would go in the lower left-hand corner of the lower left quadrant. They may be too involved in trying to survive – either financially or physically – from day to day to think about an effort to change their situation. i. and that contribute substantively to the effort. if they could be convinced that the effort is important either to their own self-interest or to the greater good. may be in the lower left quadrant of the grid. and why an alternative seems like the better course.  The latents – high influence/low interest. If your purpose is primarily participatory. Some of those. and to keep contact with them over time. Those in the lower right quadrant – high interest. Find jobs for them (not just tasks) that they’ll enjoy. especially for advocacy or policy change:  The promoters – the high influence/high interest folks – are the most important here. corresponding to their levels of power and interest. and it might . Thus. Stakeholder management for marshaling support for the effort. they need to be cultivated and involved. it might be best not to stir a sleeping dragon. and they care about and are invested in the issue. you’ve gained valuable allies. Powerful people with the highest interest are most important. If their ideas aren’t acted on. even if they disapprove of it. Pay attention to their opinions. they need to be treated as potential allies. When people who could be promoters are negative. So…your stakeholder management depends on what your purpose is in involving stakeholders. then each quadrant calls for another kind of attention. those with the most power. followed by those with power and less interest. make them integral parts of the team.e. They’re the ones who can really make the effort go. Eventually.

the effort may in fact have little or no impact on them. since these people and organizations can’t help you much. In the business model.  The defenders – low influence/high interest. As a result. as well as of advocacy. If your purpose is primarily to create a participatory process. mentoring. and they might need training. Keep them sporadically informed by newsletter or some similar device. They might also serve as mentors or partners to those who are not used to having seats at the table. These are often the foot soldiers who stuff envelopes. Here. They’ll definitely need information about what they’re being invited to do. they need little or no management. then you might have to fight. Stakeholder management in that situation means trying to attract representatives of all stakeholders. since those with little power often have less experience in such areas as meeting and planning. or lacking in educational and organizational skills. and treating them all as equals and colleagues. Stakeholder management for developing a participatory process or including marginalized populations: The model of stakeholder management described above isn’t applicable only to business. and less confidence in their ability to engage in them. unused to managing things.be best that way. The four-cell grid is still useful here. If they begin to voice opposition. They are also often among those most affected by an effort. it has the advantage of giving a label to each quadrant. make phone calls. but the attention given to those in each quadrant will be different from that in the other model. and evaluating the effort. hashes out differences. however. rather than battle. . and/or other support in doing it. If that doesn’t work. implementing. Some simply don’t see th emselves as much affected by the effort. Organizations must cultivate supporters in support of any effort. depending on how it affects them. not all stakeholders in the lower two quadrants are low-income.  While this formulation is no more compelling than other similar ones. That means working with the promoters to explain the concept of participation fully and to convince them that pulling all stakeholders in is the best way to accomplish your – and their – goals. then your first attempt might be at conversion or neutralization. and they won’t bother you or get in the way. These people and organizations simply don’t care about your effort one way or the other. They can then help to bring stakeholders in the other positions on board. The apathetics – those with low interest and low influence. They may be stakeholders only through their membership in a group or their position in the community. Obviously. though they may have a great deal in other circumstances. Others may have no influence in this particular situation. and otherwise make an initiative possible. In health and community building. the largest amount of attention may go to the people in the two lower quadrants. and thus have good reason to work hard for or against it. and don’t offend them. however. you can simply keep them informed and not worry too much about involving them further. Deciding whom to cultivate by analyzing how much they can help is a standard part of health and community service work. you’ll try to create an effort that takes all perspectives into consideration. A successful participatory process may require that the people in the upper right quadrant – the promoters – understand and buy into the process fully. and makes participants its owners. and to encourage them to participate in planning. while at the same time leveling the field as much as possible by providing training and support to those who need it. they can often provide the volunteer time and skills that an effort – particularly an advocacy initiative – needs to survive. We’ll use these labels in the rest of the section for convenience.

critical thinking. and political skills      EVALUATION OF THE STAKEHOLDER PROCESS As with anything else you do. implementation. and that the effort will benefit them either directly or indirectly. Such stories are particularly powerful if the listeners know the people involved. and organizations with influence that are involved. but don’t have a strong investment in the effort. Bringing people and organizations into the process and moving them toward the upper right quadrant of the stakeholder grid generally demands that you keep them involved and informed by:   Treating them with respect Providing whatever information. If the latents become involved. or creating a mo re just community by eliminating discrimination. however. mentoring. and/or other support they need to stay involved Finding tasks or jobs for them to do that catch their interest and use their talents Maintaining their enthusiasm with praise. but never suspected the difficulties they face. and evaluation of the effort from its beginning In the case of those who start with little power or influence. Here are some evaluation questions you might consider: . institutions. and involved in the course of your effort. celebrations. The more people. helping them learn how to gain and exercise influence by working together and developing their personal. their influence can help to greatly strengthen the effort. the stories of those who have or will benefit from the effort can be effective motivators for people who might otherwise be indifferent. When that’s the case. as does the need to create interest among the latents – those stakeholders who could be helpful. understood. and continual reminders of the effort’s accomplishments Engaging them in decision-making Employing them in the conception. It’s obviously best to involve stakeholders from the very beginning. The task with latents is to convince them that they are true stakeholders. Often. If it’s not direct. They can best tell you what did and didn’t work to pull them in and keep them engaged. training. Evaluation of the stakeholder process should be an integral part of the overall evaluation of the effort. and stakeholders themselves should be involved in developing that evaluation. The tasks of converting the negative or skeptical still exist in this situation. planning. the greater the chances are for success. they may need training and other support in order to participate fully. the benefit in question may be as removed from them as increasing the community’s tax base by making more people employable. That may be one aspect of stakeholder management. those who do lack skills and experience find themselves in those two lower quadrants. it’s important to monitor and evaluate how well stakeholders have been identified. and it may help to move them into positions of more influence and teach them how to exercise it. groups.Very often. small tokens of appreciation. but it’s never too late to learn from what you’ve done so that y ou can improve your work.

You have to maintain stakeholders’ and supporters’ motivation. and Latin America. Although this . as well as China. With the end of the Cold War. work with stakeholders has to continue for the long term in order to attain the level of participation and support you need for a successful effort. As with any other community building activity. India. With that understanding. but only if it results in their ownership of it and long-term commitment to it. you may either focus on those with the most interest and influence. In order to gain stakeholder participation and support. you can then decide on the appropriate approach for each individual and group. BOTTOM OF THE PYRAMID OPPORTUNITIES: ISSUES AND OPPORTUNITIES FOR BUSINESS IN SOCIALLY AND ENVIRONMENTALLY SENSITIVE WORLD. you’ll be able to invite their involvement. New stakeholders may need to be brought in as time goes on. keep them informed. either as those who develop and conduct it. the former Soviet Union and its allies. Old ones may cease to be actual stakeholders. effectiveness. and/or continue to find meaningful work for them to do if you want to keep them involved and active. but the nature of their interest in the effort. address their concerns. Once you have that information. As with any community building activity. it’s important to understand not only who potential stakeholders are. or on those who are most affected by the effort. Managing stakeholders – keeping them involved and supportive – can be made easier by stakeholder analysis. but may retain an interest in the effort and may therefore continue to be included. and/or political and community support of the effort? The answers to these and similar questions could both help you improve the current effort and make a big difference the next time – and there will be a next time – you involve stakeholders. and demonstrate how the effort will benefit them. Depending on your goals for the effort. KEEPING AT IT TO KEEP STAKEHOLDERS INVOLVED That brings us to the final piece of working with stakeholders. or at least as long as the effort goes on. Understanding and engaging stakeholders can be tremendously helpful to your effort. IN SUMMARY Stakeholders of an effort are those who have a vested interest in it. And that depends on your continuing attention. a method of determining their levels of interest in and influence over the effort. or as those whom it affects directly or indirectly. Identifying and involving stakeholders can be a large part of ensuring the effort’s success. opened their closed markets to foreign investment in a cascading fashion.      What could you have done to better identify stakeholders? Which strategies worked best to involve different populations and groups? How successful were you in keeping people involved? Did you provide any training or other support? Was it helpful? How could it have been improved? Did your stakeholder analysis and management efforts have the desired effect? Were they helpful? Did stakeholder involvement improve the work. you have to keep at it indefinitely.

clamoring for products from MNCs. which is in reality much larger than previously thought. Doing business with the world’s 4 billion poorest people — two-thirds of the world’s population — will require radical innovations in technology and business models. This retreat could become even more pronounced in the wake of the terrorist attacks in the United States last September. its promise has yet to be realized. To make matters worse. the targets of MNCs’ past emerging-market strategies. the poorest populations raise a prodigious new managerial challenge for the world’s wealthiest companies: selling to the poor and helping them improve their lives by producing and distributing products and services in culturally sensitive. MNC investment at “the bottom of the pyramid” means lifting billions of people out of poverty and desperation. As a consequence. the Asian and Latin American financial crises have greatly diminished the attractiveness of emerging markets. was wildly oversold. from a “bigger is better” ideal to an ideal of highly distributed small-scale operations married to world-scale capabilities.significant economic and social transformation has offered vast new growth opportunities for multinational corporations (MNCs). It will require MNCs to reevaluate price– performance relationships for products and services. many MNCs worldwide slowed investments and began to rethink risk–reward structures for these markets.and upper-income people in developed countries and the few rich elites from the developing world. Companies will be forced to transform their understanding of scale. the prospect of millions of “middle-class” consumers in developing countries. The real source of market promise is not the wealthy few in the developing world. in Tiers 2 and 3. Countries that still don’t have the modern infrastructure or products to meet basic human needs are an ideal testing ground for developing environmentally sustainable technologies and products for the entire world. The lackluster nature of most MNCs’ emerging-market strategies over the past decade does not change the magnitude of the opportunity. In the middle of the pyramid. and economically profitable ways. averting the social decay. In short. environmentally sustainable. the prospective rewards include growth. Four Consumer Tiers At the very top of the world economic pyramid are 75 to 100 million affluent Tier 1 consumers from around the world. Furthermore. For companies with the resources and persistence to compete at the bottom of the world economic pyramid. This is a time for MNCs to look at globalization strategies through a new lens of inclusive capitalism. It will demand a new level of capital efficiency and new ways of measuring financial success. and incalculable contributions to humankind. are poor customers in developed nations and the rising middle classes in developing countries. and environmental meltdown that is certain to continue if the gap between rich and poor countries continues to widen.) This is a cosmopolitan group composed of middle. terrorism. (See Exhibit 1. First. . political chaos. profits. or even the emerging middle-income consumers: It is the billions of aspiring poor who are joining the market economy for the first time.

g. We have seen how the disenfranchised in Tier 4 can disrupt the way of life and safety of the rich in Tier 1 — poverty breeds discontent and extremism. farms. businesses). Although complete income equality is an ideological pipe dream. the Tier 4 market is wide open for technological innovation.Now consider the 4 billion people in Tier 4. Over the same period. that figure reached 85 percent. In 2000. the minimum considered necessary to sustain a decent life.S. Tier 4 represents a multitrillion-dollar market. the population at the bottom of the pyramid could swell to more than 6 billion people over the next 40 years. the richest 20 percent in the world accounted for about 70 percent of total income in 1960. The perception that the bottom of the pyramid is not a viable market also fails to take into account the growing importance of the informal economy among the poorest of the poor. For well over a billion people — roughly one-sixth of humanity — per capita income is less than $1 per day. According to the United Nations. because the bulk of the world’s population growth occurs there.500.1 percent. dwellings. the use of commercial development to bring people out of poverty and give them the chance for a better life is critical to the stability and health of the global economy and the continued success of Western MNCs. which by some estimates accounts for 40 to 60 percent of all economic activity in developing countries. at the bottom of the pyramid. this massive segment of the global population — along with its massive market opportunities — has remained largely invisible to the corporate sector. The United States’ 270 million people — only about 4 percent of the world’s population — consume more than 25 percent of the planet’s energy resources. and they usually do not hold legal title or deed to their assets (e. Today’s MNCs evolved in an era of abundant natural resources and thus tended to make products and services that were resource-intensive and excessively polluting. They have little or no formal education and are hard to reach via conventional distribution. and communications. This extreme inequity of wealth distribution reinforces the view that the poor cannot participate in the global market economy.3 percent to 1. the fraction of income accruing to the poorest 20 percent in the world fell from 2. much like an iceberg with only its tip in plain view. Most Tier 4 people live in rural villages. Among the many possibilities for innovation. even though they constitute the majority of the population. credit. . To re -create those types of consumption patterns in developing countries would be disastrous. Their annual per capita income — based on purchasing power parity in U. The quality and quantity of products and services available in Tier 4 is generally low. the income gap between rich and poor is growing.. or urban slums and shantytowns. Fortunately. Therefore. dollars — is less than $1. Even more significant. In fact. According to World Bank projections. MNCs can be leaders in leapfrogging to products that don’t repeat the environmental mistakes of developed countries over the last 50 years. given its vast size.

–based Institute for Policy Studies. It is hard to find talented managers who want to work at the bottom of the pyramid. We have identified the following as widely shared orthodoxies that must be reexamined:  Assumption #1 The poor are not our target consumers because with our current cost structures. D. sustainability. (See Exhibit 2. with 82. the overwhelming majority are based in developed countries. Conventional economic wisdom suggests if the bill really existed. . The poor can use the previous generation of technology. Perception of market opportunity is a function of the way many managers are socialized to think and the analytical tools they use.S. with 41. It is like the story of the person who finds a $20 bill on the sidewalk. Assumption #6 Intellectual excitement is in developed markets.) MNCs must recognize that this market poses a major new challenge: how to combine low cost. are second. and profitability. Assumption #5 Managers are not excited by business challenges that have a humanitarian dimension. Assumption #2 The poor cannot afford and have no use for the products and services sold in developed markets. Assumption #3 Only developed markets appreciate and will pay for new technology.The Invisible Opportunity Among the top 200 MNCs in the world. someone would already have picked it up! Like the $20 bill. Most MNCs automatically dismiss the bottom of the pyramid because they judge the market based on income or selections of products and services appropriate for developed countries. good quality. MNCs must come to terms with a set of core assumptions and practices that influence their view of developing countries. we cannot profitably compete for that market. according to a list compiled in December 2000 by the Washington. the bottom of the pyramid defies conventional managerial logic. We can leave Tier 4 to governments and nonprofits. corporations dominate. U. Assumption #4 The bottom of the pyramid is not important to the long-term viability of our business.C. Japanese firms. So it is not surprising that MNCs’ views of business are conditioned by their knowledge of and familiarity with Tier 1 consumers.      Each of these key assumptions obscures the value at the bottom of the pyramid. but that doesn’t mean it isn’t a large and unexplored territory for profitable growth. Consider the drivers of innovation and opportunities for companies in Tier 4. To appreciate the market potential of Tier 4.

) . and distribution of the product to leverage the abundant labor pool in rural India. mostly in rural areas.com. HLL’s new detergent. In fact. a business intelligence and market research service. HLL. HLL could see its local competitor was winning in a market it had disregarded.Furthermore. marketing. Tier 4 Pioneers Hindustan Lever Ltd. began offering detergent products for poor consumers. was formulated to substantially reduce the ratio of oil to water in the product. quickly creating sales channels through the thousands of small outlets where people at the bottom of the pyramid shop. Exhibit 3 suggests some (but by no means all) areas where an entirely new perspective is required to create profitable markets in Tier 4. Nirma Ltd. HLL decentralized the production. the company responded with its own offering for this market. lowcost manufacturing process. responding to the fact that the poor often wash their clothes in rivers and other public water systems. (HLL). as Nirma grew rapidly. Ultimately. with 38 percent market share each. HLL saw its vulnerability and its opportunity: In 1995. initially dismissed Nirma’s strategy. drastically altering its traditional business model. Nirma and HLL are close competitors in the detergent market. However. Today. in typical MNC fashion. called Wheel. has been a pioneer among MNCs exploring markets at the bottom of the pyramid. In the 1990s. HLL has served India’s small elite who could afford to buy MNC products. Nirma created a new business system that included a new product formulation. For more than 50 years.. HLL also changed the cost structure of its detergent business so it could introduce Wheel at a low price point. MNCs cannot exploit these new opportunities without radically rethinking how they go to market. and value pricing. a local firm. according to IndiaInfoline. (See Exhibit 4. Unilever’s own analysis of Nirma and HLL’s competition in the detergent business reveals even more about the profit potential of the marketplace at the bottom of the pyramid. special packaging for daily purchasing. a subsidiary of Great Britain’s Unilever PLC and widely considered the best managed company in India. wide distribution network.

managers who innovate and focus on economic profit will be rewarded. stimulated by its emergent rival and its changed business model. and other companies. contrary to more conventional investment strategies. business models. no firm can do this alone. financial institutions. Even if those living in poverty had access to a bank. and tailoring local solutions — are the keys to a thriving Tier 4 market. To do so effectively. much like the more familiar investments in plants. Nirma has become one of the largest branded detergent makers in the world. Managers first must develop a commercial infrastructure tailored to the needs and challenges of Tier 4. nongovernmental organizations (NGOs). and increasing the earning potential of the poor. Unilever has adopted the bottom of the pyramid as a corporate strategic priority. Over the same period. processes. Meanwhile. but unit sales can be extremely high. without collateral it is hard to get credit from the traditional banking system. the poor can be a very profitable market — especially if MNCs change their business models. Four elements — creating buying power. Managers who focus on gross margins will miss the opportunity at the bottom of the pyramid. empower locals. As Peruvian .Contrary to popular assumptions. Creating such an infrastructure must be seen as an investment. Multiple players must be involved. registered a 20 percent growth in revenues per year and a 25 percent growth in profits per year between 1995 and 2000. profits are driven by volume and capital efficiency. and create new sources of competitive advantage and wealth. And business leaders must be willing to experiment. also has benefited from its subsidiary’s experience in India. communities. The potential of Tier 4 cannot be realized without an entrepreneurial orientation: The real strategic challenge for managers is to visualize an active market where only abject poverty exists today. and management processes. More important. the starting assumption must be that serving Tier 4 involves bringing together the best of technology and a global resource base to address local market conditions. Helping the world’s poor elevate themselves above this desperation line is a business opportunity to do well and do good. It takes tremendous imagination and creativity to engineer a market infrastructure out of a completely unorganized sector. nearly a billion people — roughly one-third of the world’s work force — are either underemployed or have such low-paying jobs that they cannot support themselves or their families. Specifically. collaborate. improving access. HLL. Creating Buying Power According to the International Labor Organization’s World Employment Report 2001. instead. Margins are likely to be low (by current norms). As the Unilever example makes clear. shaping aspirations. Commercial credit historically has been unavailable to the very poor. and R&D. two interventions are crucial — providing access to credit. products. where the Ala brand has been a big success.) Each of these four elements demands innovation in technology. Further. (See Exhibit 5. Serving Tier 4 markets is not the same as serving existing markets better or more efficiently. HLL’s market capitalization grew to $12 billion — a growth rate of 40 percent per year. including local governmental authorities. Tier 4 is not a market that allows for the traditional pursuit of high margins. HLL’s parent company. A few farsighted companies have already begun to blaze this trail with startlingly positive results. Cheap and low-quality products are not the goal. Unilever. Unilever transported HLL’s business principles (not the product or the brand) to create a new detergent market among the poor in Brazil.

and contractual enforcement. As of 1996. their dependence on credit from local moneylenders charging usurious rates makes it impossible to succeed. In this way. with little success. This means that a vegetable vendor who borrows Rs. one of the first in the world to apply a microlending model in commercial banking. The vast majority of the poor in developing countries operate in the “informal” or extralegal economy. getting to know the women who have loans and the projects in which they are supposed to invest. cars.000 villages. Grameen Bank today provides microcredit services in more than 40. Bangladesh.120 ($2. high credit risk. Historically. Grameen Bank pioneered a lending service for the poor that has inspired thousands of microlenders. In addition. highlighting the importance of information technology in the acceleration of the microcredit revolution. including the United States and Great Britain.100 ($2. Access to credit in the U. Very few of those women could have afforded the steep $100 price tag. lending due diligence is accomplished without the mountain of paperwork and arcane language common in the West. Consider how I. in developing countries and wealthy nations. the bank was an entirely manual. but most could afford a payment of $5 per month.08) in the morning must return Rs. higher than any other bank in the Indian subcontinent. Local moneylenders in Mumbai.economist Hernando de Soto demonstrates in his pathbreaking work. The bank’s sales and service people visit the villages frequently. As the bank develops its online business model. the popularity of its services has also spawned more local competitors. then a professor in the Economics Department at Chittagong University. has allowed people of modest means to systematically build their equity and make major purchases.50) in the evening. more than half the total number in Bangladesh. such as houses. Grameen Bank had achieved a 95 percent repayment rate. are better credit risks than men. Consider the experience of the Grameen Bank Ltd. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. commercial credit is central to building a market economy. serving 25 million clients worldwide. a structure that undercut its efficiency. who. as the traditional breadwinners and entrepreneurs in rural communities. Grameen Bank’s rate of return is not easy to assess. Extending credit to the poor so they can elevate themselves economically is not a new idea. which has cut into its portfolio and shrunk its profits over the past few years. With 1. Grameen Bank’s program is designed to addresses the problems of extending credit to lowest-income customers — lack of collateral. The same logic applies on a much larger scale in Tier 4. founded in 1851. spin-offs such as Grameen Telecom (a provider of village phone service) and Grameen Shakti (a developer of renewable energy sources) are helping Grameen Bank build a technology infrastructure to automate its processes. Candidates for loans must have their proposals thoroughly evaluated and supported by five nonfamily members of the community. Ninety-five percent of its 2. Started just over 20 years ago by Muhammad Yunus.170 branches. . Singer & Company.3 million customers are women. Developing countries have tried governmental subsidies to free the poor from the cycle of poverty.S. since the time and cost involved in securing legal title for their assets or incorporation of their microenterprises is prohibitive.M. Today. provided credit as a way for millions of women to purchase sewing machines. field-based operation. in Bangladesh. charge interest rates of up to 20 percent per day. and education. However. India. profitability should increase dramatically. Even if the poor were able to benefit from government support to start small businesses.

An interest-bearing “savings purse” is attached to every account to encourage poor customers to save. Standard does not require a minimum income of customers opening an AutoBank E account. Since there is lower overhead and little paperwork. A small flat fee is charged for each ATM transaction. but also makes it possible to reach many more people — lending money to individuals with no collateral and no formal address. the ShoreBank Corporation. and poor information and communications infrastructures in rural areas. the United Nations. set a goal of making basic credit available to the 100 million poorest families in the world by the year 2005. in conjunction with several major MNCs. but superior to keeping cash in a jar. the success of this undertaking has been slowed by high transaction costs. Standard now has the largest presence in South Africa’s townships and other under -serviced areas of any domestic bank. according to a 2001 World Bank study. People who have never used a bank can open an account with a deposit of as little as $8. . French banker Jacques Attali. has created PlaNet Finance. according to South Africa’sSunday Times. Its Web site. and Monsanto Company. As of April 2001. In 1994. formerly South Shore Bank. Standard served nearly 3 million low-income customers and is adding roughly 60.planetfinance. Ultimately. In the United States.000 ($460) per month. To address these issues and accelerate the development of microlending. Unfortunately. although they must have some regular income. a lack of automation. links thousands of microcredit groups worldwide into a network to help microbanks share solutions and lower costs. www. In South Africa. Project Enterprise. Africa’s leading consumer bank. launched a low -cost.org. called AutoBank E. For example. is aimed at minority entrepreneurs. If processing and transaction costs can be reduced enough. Sunday Times also reported that Standard Bank is considering a loan program for low-income clients. they can then be bundled together and sold in the secondary market to multinational financial institutions like Citigroup. the founding president of the European Bank for Reconstruction and Development and a former chief aide of French President François Mitterand during the 1980s. the development of an automated solution for tracking and processing the millions of small loans associated with microlending should be possible. At the 1999 Microcredit Summit. volume-driven e-banking business.500 automated teller machines (ATMs) and 98 AutoBank E-centres. This would greatly expand the capital available for microlending beyond the current pool from donors and governments. retail banking services for low-income customers are becoming one of the most competitive and fast-growing mass markets. Standard Bank of South Africa Ltd. Interest rates on deposits are low. Computerization of microlending services not only makes the overall operation more efficient. Through the use of 2. AutoBank’s costs are 30 to 40 percent lower than those at traditional branches. has demonstrated the profitability of banking for the poor in Chicago’s troubled South Side. Customers are issued an ATM card and shown how to use it by staff who speak a variety of African dialects. where 73 percent of the population earns less than R5. microlending has also taken root over the past decade in poor urban neighborhoods. to grow revenue by providing banking services to the poor.. a Grameen-like program based in New York City.000 customers per month. such as Citigroup Inc.Perhaps the most pertinent measure of Grameen Bank’s success is the global explosion of institutional interest in microlending it has stimulated around the world.

will not only positively influence the choices of people at the bottom of the pyramid. lead the way in effective rural distribution. For example. SELF’s rural electrification system is based on small-scale on-site power generation using renewable resources. for instance. refrigeration. Nepal. however. In India. but may ultimately reshape the way Americans and others in Tier 1 live. They see the logic in moving into a wide-open market in Tier 4 rather than trying to force their technology prematurely into applications for the developed markets. water. also creating jobs. (microturbines). with 24/7 services for customers with as little as a $25 on deposit. and the existing distribution system reached only a few towns and villages. we may look back to see that Tier 4 provided the early market pull for disruptive technologies that replaced unsustainable technologies in developed countries and advanced the fortunes of MNCs with foresight. Shaping Aspirations Sustainable product innovations initiated in Tier 4. Indonesia.-based NGO. A U.Several multinational banks are beginning to offer microbanking services in developing countries. and many other essential services are all opportunities in developing countries. (fuel cells) and Honeywell Inc. Electricity. South Africa. Few of the large emerging-market countries have distribution systems that reach more than half of the population. low -energy-consuming refrigeration in India. Since its founding in 1990.S. (Hence the continued dependence of the poorest consumers on local products and services and moneylenders. the new system is cheaper to build and use. and promoted through consumer education. few MNCs have designed their distribution systems to cater to the needs of poor rural customers.) As a consequence. and the Solomon Islands. Brazil. has creatively adapted technology and applied microcredit financing to bring electrical service to people in remote villages in Africa and Asia who otherwise would spend money to burn hazardous kerosene. in 20 years. At $40 to $60 a pair. where incumbents and institutions stand in their way. The system allows quantum reductions in electricity use and makes dangerous and polluting refrigerants unnecessary. candles. Kits were distributed through a network of thousands of local tailors. or dung for their light and cooking. wood. HLL’s laboratories developed a radically different approach to refrigeration that allows ice cream to be transported across the country in standard nonrefrigerated trucks. SELF has launched projects in China. Creative local companies. As a bonus. and a patch) priced at about $6. Unilever’s HLL subsidiary has tackled the lack of practical. zipper. investments in such innovations should be well worth it. many in . better distribution systems and communication links are essential to development of the bottom of the pyramid. Citigroup.’s Plug Power Inc. the jeans were not affordable to the masses. Vietnam. So Arvind introduced “Ruf & Tuf” jeans — a ready-to-make kit of jeans components (denim. A revolving loan fund gives villagers the financial means to operate these electrical systems themselves. Tanzania. rivets. India. The success of SELF and other NGOs focused on small-scale distributed energy solutions has begun to attract the attention of Western companies such as the U. for instance. Arvind. India. With several billion potential customers around the world. inexpensive. the world’s fifth -largest denim manufacturer. Improving Access Because Tier 4 communities are often physically and economically isolated. Sri Lanka. Arvind Mills has introduced an entirely new delivery system for blue jeans. Indeed. Initial results are very positive.S. the Solar Electric Light Fund (SELF). is experimenting in Bangalore. Uganda. found Indian domestic denim sales limited.

which preserves songbird habitat. in cooperation with Conservation International.small rural towns and villages.S. Starbucks markets the product to U. and Europe. it is possible to imagine a single. and some are experimenting with low-cost e-mail and Internet access. premium coffee. from most parts of India. New ventures such as CorDECT in India and Celnicos Communications in Latin America are developing information technology and business models suited to the particular requirements of the bottom of the pyramid. Anita Roddick. Information poverty may be the single biggest roadblock to sustainable development. operated by an entrepreneur (usually a woman) who charged a fee for the use of the telephone and kept a percentage as wages for maintaining the telephone. voice and data connectivity typically costs companies $850 to $2. easily surpassing Levi’s and other brands from the U. With the emergence of global broadband connections. demonstrated the power of this strategy in the early 1990s through her company’s “trade not aid” program of sourcing local raw material and products from indigenous people. where telephones and Internet connections do exist. which eliminates intermediaries from the business model.800 per line in the developed world. for the first time in history. More recently.. products. which would bring telecommunications within reach of virtually everyone in the developing world. However. consumers as a high-quality. the Starbucks Corporation. it is possible to call anyone in the world. the Mexican farmers benefit economically from the sourcing arrangement.” His original concept was to have a community telepho ne. Indeed. CorDECT has reduced this cost to less than $400 per line.. The process could transform the “digital divide” into a “digital dividend. giving bottomof-the-pyramid enterprises their first links to international markets. wireless infrastructure. came to India with the idea of “rural telephones. has pioneered a program to source coffee directly from farmers in the Chiapas region of Mexico. using shade.” Ten years ago. products for consumption by Tier 1 customers.” with a focus on providing technology. MNCs can also play a role in distributing the products of Tier 4 enterprises in Tier 1 markets. This direct relationship also improves the local farmers’ understanding and knowledge of the Tier 1 market and its custom er expectations. CEO of The Body Shop International PLC. Other entrepreneurs have introduced fax services. Through shared-access models (e. Today. with a goal of $100 per line. Internet kiosks). companies are dramatically reducing the cost of being connected.g. it is possible through partnerships to leverage traditional knowledge bases to produce more sustainable. whose self-interest motivated them to market the kits extensively. Sam Pitroda. currently chairman and CEO of London-based Worldtel Ltd. and focused technology development. opportunities for information-based business in Tier 4 will expand significantly. These communication links have dramatically altered the way villages function and how they are connected to the rest of the country and the world. For example.S. and services . Ruf & Tuf jeans are now the largest-selling jeans in India. Recognizing an enormous business and development opportunity. More than half of humanity has yet to make a single phone call. a company created by a telecommunications union to fund telecom development in emerging markets. Hewlett-Packard Company has articulated a vision of “world e-inclusion. interconnected market uniting the world’s rich and poor in the quest for truly sustainable economic development. These farms grow coffee beans organically. and in some cases superior.

however.g. Africa. these countries will be the guiding principle. are sold in single-serve packages. They can’t afford to stock up on household items or be highly selective about what they buy. Dow Chemical Company and Cargill Inc.” Tier 4 consumers. But consumers with small means also have the benefit of experimentation. Yet these same corporations employ less than 1 percent of the world’s labor force. microbanking. This project. they look for single-serve packaging. and Central Europe. They must nurture local markets and cultures. 30 percent of personal care products and other consumables. leverage local solutions. but not for much. agricultural extension services. For MNCs. Bringing such technology to villages in Tier 4 makes possible a number of applications. including teleeducation. Consider packaging. Of the world’s 100 largest economies. and environmental monitoring. Most are priced at Rs. To do this. named Lincos. But whether an initiative involves an MNC entering Tier 4 or an entrepreneur from Tier 4. all of which help to spur microenterprise. and access to world markets. If MNCs are to thrive in the 21st century. MNCs must combine their advanced technology with deep local insights. sho p every day. These digital town centers provide modern information technology equipment with a high-speed Internet connection at a price that is affordable. this trend could result in a mountain of solid waste. but it could also revolutionize markets at all four tiers of the world pyramid. are experimenting with an organic plastic that would be totally biodegradable. telemedicine. . 51 are economies internal to corporations. Such packaging clearly has advantages in Tier 4. and cold medicines. Tailoring Local Solutions As we enter the new century. 1 (about 1¢). Unburdened by large quantities of product. not a replication of the Western system. at the village level. they can switch brands every time they buy. Without innovation in packaging. As part of this strategy. They use their spending money to “inventory convenience. They must play a more active role in narrowing the gap between rich and poor. such as shampoo. An effective combination of local and global knowledge is needed. rather than extracting wealth from. This cannot be achieved if these companies produce only so-called global products for consumption primarily by Tier 1 consumers. the development principles remain the same: New business models must not disrupt the cultures and lifestyles of local people. strapped for cash and with limited living space. they must broaden their economic base and share it more widely. is expected to spread from today’s pilot sites in Central America and the Caribbean to Asia. the best approach is to marry local capabilities and market knowledge with global best practices. and generate wealth at the lowest levels on the pyramid. through credit vehicles. 10-pound boxes of detergent from superstores like Sam’s Club) and shop less frequently. Already in India.. Producing in.appropriate to the needs of the world’s poor. Yet scores of Third World countries have suffered absolute economic stagnation or decline. HP has entered into a venture with the MIT Media Lab and the Foundation for Sustainable Development of Costa Rica — led by former President Jose Maria Figueres Olsen — to develop and implement “telecenters” for villages in remote areas. Consumers in Tier 1 countries have the disposable income and the space to buy in bulk (e. the combined sales of the world’s top 200 MNCs equal nearly 30 percent of total world gross domestic product. tea. economic development.

The development of India’s milk industry has many lessons for MNCs. The uniqueness of the Amul cooperative is its blending of decentralized origination with the efficiencies of a modern processing and distribution infrastructure. • Leverage. local organizations. They are paid every day for the milk they deliver. According to India’s National Dairy Development Board. Putting It All Together Creating buying power.7 percent per year since 1974. and others have demonstrated. Unilever. MNCs can transfer knowledge from one market to another — from China to Brazil or India — as Avon. The entire value chain is carefully managed. As a result. with their unique global knowledge base.7 million individual farmer member–owners. Milk production has increased 4. butter. in India. improving access. previously marginal village farmers are earning steady incomes and being transformed into active market participants. Yet someone must take the lead to make this revolution happen. Although practices and products have to be customized to serve local needs. and tailoring local solutions — the four elements of the commercial infrastructure for the bottom of the pyramid are intertwined. The per capita availability of milk in India has grown from 107 grams to 213 grams per day in 20 years. it is not obvious that large corporations have real advantages over small. The Khira District cooperative provides such services to the farmers as veterinary care and cattle feed. milk was in short supply in India. empowering local entrepreneurs and enterprises is key to developing Tier 4 markets. where it is pasteurized. Citigroup. based on fat content and volume. set up its own processing plant under the leadership of Verghese Kurien and created the brand Amul. Still. local and state governments. Developing environmentally sustainable products and services requires significant research. The transformation began around 1946. MNCs. MNCs may never be able to beat the cost or responsiveness of village entrepreneurs. and other products. The cooperative also manages the distribution of pasteurized milk. Today. . and communities. located in the state of Gujarat. cheese. the country’s dairy cooperative network now claims 10. from the village-based milk production to the world-scale processing facilities. Villagers may own only two to three buffaloes or cows each and bring their milk twice a day to the village collection center. Railroad cars then transport the milk to major urban centers. today one of the most recognized in the country. baby food. Corporations are only one of the actors. and operates in more than 285 districts. shaping aspirations. milk originates in many small villages. Refrigerated vans transport the milk to central processing plants.000 village-level societies. there are several compelling reasons for MNCs to embark on this course: • Resources. The question is. Distribution channels and communication networks are expensive to develop and sustain. Few local entrepreneurs have the managerial or technological resources to create this infrastructure. have an advantage that is not easily accessible to local entrepreneurs. Unlike the large industrial dairy farms of the West. covers 96. milk powder. Why should it be MNCs? Even if multinational managers are emotionally persuaded. India is the world’s largest producer of milk. when the Khira District Milk Cooperative. Indeed. MNCs must work together with NGOs. Building a complex commercial infrastructure for the bottom of the pyramid is a resourceand management-intensive task. includes 170 milk-producer unions. Twenty years ago. Innovation in one leverages innovation in the others.

Significant discussion. It is imperative. These five organizational elements are clearly interrelated and mutually reinforcing. Empowering the poor threatens the existing power structure. Many of the innovations for the bottom can be adapted for use in the resource. that managers recognize the nature of business leadership required in the Tier 4 arena. farmers have significantly improved their productivity per acre of land. Today.• Bridging. the delineation of benefits to each constituency. by region and by country. As we have seen. entrepreneurs. Forming such a coalition can be a very slow process. • Transfer. the establishment of a coalition of NGOs. found in its sunflower-seed business in India. or province. managers must have the interpersonal and intercultural skills to work with a wide range of organizations and people. empathy. imagination.” First Quarter 2002. Local opposition can emerge very quickly. • Conduct R&D focused on the poor. well-intentioned NGOs. communities. and the local politicians accused the firm of destroying locally based seed businesses. and financial resources.and energy-intensive markets of the developed world. intelligence. and sensitivity to local debates is necessary. the bottom of the pyramid offers a vast untapped market for such products as water and nutritionals. such as Coca-Cola Company. research on ways to provide safe water for drinking. managerial imagination. MNCs must build a local base of political support. information sharing. stamina. a daily dosage of vitamins can be added to a wide variety of food and beverage products. Through Cargill’s investments in farmer education. MNCs can be nodes for building the commercial infrastructure. MNCs have to understand these agendas and create shared aspirations. • Build a local base of support. community leaders. MNCs are best positioned to unite the range of actors required to develop the Tier 4 market. washing. For corporations that have distribution and brand presence throughout the developing world. this problem is less onerous: The local bureaucrats are also the local entrepreneurs. and North Africa. tolerance for ambiguity. (See “Profits and Perils in China. Without MNCs as catalysts. and knowledge. and supply of farm inputs. passion. increasing employment intensity. and even multilateral development agencies will continue to flounder in their attempts to bring development to the bottom. Political opposition has vanished. training. Research must also seek to adapt foreign solutions to local needs. cooking. providing access to knowledge. MNCs must build an organizational infrastructure to address opportunity at the bottom of the pyramid. In China. . but they also have the capacity to transfer innovations up-market all the way to Tier 1. so they can easily see the benefits to their enterprise and their village. Each player has a different agenda. forming new alliances. for example. Tier 4 is a testing ground for sustainable living. To overcome comparable problems. and cleaning is a high priority. As Monsanto and General Electric Company can attest. For example. and reinventing cost structures.) In countries such as India and Brazil. town. Leaders need a deep understanding of the complexities and subtleties of sustainable development in the context of Tier 4. and local authorities that can counter entrenched interests is essential. local governments. But Cargill persisted. reorienting R&D to focus on the needs of the poor. It is necessary to conduct R&D and market research focused on the unique requirements of the poor. Inc. Creativity. In India. however.. China. Cargill’s offices were twice burned. Finally. Cargill is seen as the friend of the farmer. and courage may be as important as analytical skill. Not only can MNCs leverage learning from the bottom of the pyramid. as Cargill Inc. such alignment does not exist. This means building a local base of support.

now they need to broaden their alliance strategies. They may also secure preferred or exclusive access to a market or raw material. MNCs gain insight into developing countries’ culture and local knowledge. and at their homes. although few have made a big effort so far. To create products and services the poor can afford.m. research showed active ingredients in pineapple that cleared away dead skin cells better than chemical formulations. India.m. and service providers. MNCs need not employ large numbers of people directly on their payroll. but the organizational model in Tier 4 must increase employment intensity (and incomes) among the poor and groom them to become new customers. to 5 p. intellectual. she observed that some African women use slices of pineapple to cleanse their skin. Iris recognition used as a security device could substitute for the tedious personal-identification number and card for identification.” • Form new alliances. significant knowledge is transmitted orally from one generation to the next. Cash-dispensing machines can be placed in safe areas — police stations and post offices.Finally. research must identify useful principles and potential applications from local practices. The entire business process must be rethought with a focus on functionality. MNCs accustomed to Tier 1 markets think in terms of capital intensity and labor productivity. MNCs have conventionally formed alliances solely to break into new markets. built a business predicated on understanding the basis for local rituals and practices. 10 percent of what they are today. the production and distribution approach must provide jobs for many. we envision more alliances at the local and regional level. as in the case of Ruf & Tuf jeans from Arvind Mills: It employed an army of local tailors as stockers. • Increase employment intensity. production. Ms. However. it operates highly regarded research centers in India. We foresee three kinds of important relationships: Alliances with local firms and cooperatives (such as the Khira District Milk Cooperative). . By entering into alliances to expand in Tier 4 markets. Exactly the opposite logic applies in Tier 4. Managers must dramatically reduce cost levels relative to those in Tier 1. For example. distributors. Merck & Company’s recent alliance in Costa Rica to foster rain forest preservation in exchange for bioprospecting rights).m.. Roddick. and alliances with governments (e. employing more than 400 researchers dedicated to the problems of “India-like markets. not on the product itself. racial. Mexico. At the same time. Unilever is an exception. On the surface.g. The Body Shop’s creative CEO. financial services need not be distributed only through branch offices open from 9 a. As Arvind demonstrated. Brazil. and logistics. MNCs must reduce their costs significantly — to. promoters. For example. Such services can be provided at a time and place convenient to the poor consumer — after 8 p. and linguistic.. But this cannot be achieved by fine-tuning the current approaches to product development. To succeed in such alliances. MNCs improve their own credibility. Given the vast number of people at the bottom of the pyramid. say. • Reinvent cost structures. this practice appears to be a meaningless ritual.g. alliances with local and international NGOs (like Starbucks’s alliance with Conservation International in coffee). and Africa. large infrastructure development). even though the cost of the jeans was 80 percent below that of Levi’s. Being respectful of traditions but willing to analyze them scientifically can lead to new knowledge. MNC managers must learn to work with people who may not have the same agenda or the same educational and economic background as they do. MNCs must develop research facilities in emerging markets such as China. Given the difficulty and complexity of constructing business models dependent on relationships with national or central governments (e. In Tier 4. The challenge and payoff is how to manage and learn from diversity — economic.

Only large firms with global reach have the technological. and distribution are critical prerequisites. and civil society to join together in a common cause. and a few MNCs such as Starbucks. Johnson & Johnson. while governments and NGOs will protect the poor and the environment. textiles. villagebased phones are already transforming the pattern of communications throughout the developing world.Lowering cost structures also forces a debate on ways to reduce investment costs. This implicit divide is stronger than most realize. The bottom of the pyramid is waiting for high-tech businesses such as financial services. The Environmental Defense Fund. Dow. But to date. and low-end computers. cellular telecommunications. we have only begun to scratch the surface of what is the biggest potential market opportunity in the history of commerce. In fact. distribution. and NGO activists all suffer from this historical division of roles. Yet the products and services currently offered to Tier 1 consumers are not appropriate for Tier 4. and ABB. and we have a whole new way of communicating and creating economic development in poor.g. A Common Cause The emergence of the 4 billion people who make up the Tier 4 market is a great opportunity for MNCs. satellite-based telecommunications. managerial. the fortune at the bottom of the pyramid represents the loftiest of our global goals. It also represents a chance for business. for many emerging disruptive technologies (e. and credit management. DuPont. public policymakers. This will inevitably lead to greater use of information technology to develop production and distribution systems. three kinds of organizations have led the way: local firms such as Amul and Grameen Bank. As noted. It is tragic that as Western capitalists we have implicitly assumed that the rich will be served by the corporate sector. Unilever. credit. . So far. and environmental and social sustainability on the other. Managers in MNCs. and financial resources to dip into the well of innovations needed to profit from this opportunity. Those in the private sector who commit their companies to a more inclusive capitalism have the opportunity to prosper and share their prosperity with those who are less fortunate. fuel cells. rural areas. A huge opportunity lies in breaking this code — linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development. photovoltaics. NGOs and local businesses with far fewer resources than the MNCs have been more innovative and have made more progress in developing these markets. the bottom of the pyramid may prove to be the most attractive early market. Changes in technology. Citigroup. and global business partnerships such as the World Business Council for Sustainable Business Development. thin-film microelectronics. and nanotechnology). NGOs such as the World Resources Institute. Novartis. The Rainforest Alliance. New commerce in Tier 4 will not be restricted to businesses filling such basic needs as food. Creative use of IT will emerge in these markets as a means to dramatically lower the costs associated with access to products and services. government. biotechnology. Add the Internet. In a very real sense. and accessing this latter market will require approaches fundamentally different from those even in Tiers 2 and 3.. Indeed. cost. and Conservation International. Collectively. SELF. and housing. among others. we believe that pursuing strategies for the bottom of the pyramid dissolves the conflict between proponents of free trade and global capitalism on one hand. Hewlett-Packard.