In Conversation with Stuart L. Hart

In Conversation with Stuart L. Hart

Stuart L. Hart, a leading authority on the implications of environment and poverty for business strategy, speaks with Wilfried Aulbur about the concept of sustainable value, challenges of scalability of base of the pyramid innovations, and the ‘Make In India’ campaign.

Sustainable entrepreneurs need to think big. They need to be thinking in terms of launching a venture for scale from the beginning, as then there is a better chance that they could attract the kind of investment capital they are looking for.”

 “Technology plays an important role, but the big innovation will come from how it’s applied, what the business model is, how inclusive it is, and the creativity around it.”

What are the changes in India you see regarding sustainability and the kind of opportunities at the bottom of the pyramid?

India, just like the whole world, has come a long way in 20 years.  If I think about 20 years ago, there were a few pioneering companies. Local businesses that nobody ever heard of that were doing pioneering things and multinationals like the Hindustan Levers’ of the world but probably not much beyond that.  We had some of the important long-standing companies like the TATA’s that had always had a very strong community focus.

Over the last 20 years, things have changed in a very substantial and exciting way. First, the amount of bottom-up entrepreneurship that is happening is impressive and important. India, I think has become a kind of a breeding ground for social and sustainable entrepreneurs in just about every domain that one can think. There are dozens and in some cases hundreds of ventures in distributed energy, water, sanitation, disruptive education and healthcare. Bottom-up venturing is probably the best way to get to innovative new models. We also have the top tier companies like the TATA and the Mahindra stepping up in a substantial way. It’s not that just a question of India; it’s a question of the leading edge of the world.  I think, they will be disrupters and will push US, European and Japanese companies on the innovation front in sustainability and in serving the base of the pyramid.

Quite a lot of the corporate environment in India seems stuck, looking at sustainability as a cost, as an impediment to doing business. How long do you think it will take for this to change?

One of the hot button issues is the new Corporate Social Responsibility (CSR) law. The new CSR law in many respects could be a major incentive, an accelerator and a piece of public policy that could draw the mid-tier Indian corporates into this space. But it depends on how the law is implemented. If it were primarily for philanthropy or not for profit and runs like a business, then we would have no returns on the capital. I wonder whether it would cause a change in mentality or further the separation between sustainability and businesses. I think it’s basically about corporate social value rather than responsibility.  How do I create a business case? The Shakti Amma program of HUL is an example that is working extremely well but the challenge is how to do it on a larger scale.

We have seen large companies and their programs, and entrepreneurs who are driving innovation. What is your view on the scalability of innovation coming from the bottom of the pyramid?

We reached the point with the evolution of business in the base of the pyramid idea that scaling probably is one of the fundamental next challenges. So, for the better part of the decade the primary focus was getting pilots established and establishing a business model that had attraction and looked as though it had any kind of commercial potential. I think we have achieved that.  So, now we are at a point where the disease that I would call ‘pilot-itis’ where all of these pilots get stuck in the pilot stage. So, one of the important next steps is thinking about how you scale and part of that I think is designing ventures with the intent to scale from the beginning.

There is a little bit of a Catch-22 in the financing mode. When you end up with ventures where what they are doing is based on what money they think they can get from investors and if all they can get is seed capital or small amounts of social capital, they lower their sights. So the venture then stays small or is framed as more of a small opportunity. One of the challenges is how to break out of that trap.  The sustainable entrepreneurs need to think big; they need to be thinking in terms of launching a venture for scale from the beginning and set their sights high. Then there is a better chance to attract the kind of investment capital that you’d be looking for.

Talking about ‘the Green Leap’, what are the main challenges or hindrances that you believe need to be tackled to drive the country forward in this direction?

I think there are two components to it.  First would be the technology side, and the second would be the kind of the business process i.e. the ability to actually create viable business models around them.  Now, on the technology side, there has been a tendency to think. India doesn’t have the hi-tech that US, Europe or Japan has. There’s plenty of technology to go around including technology that already resides in India sitting on the shelf in companies and universities, but it’s also accessible and available on the world stage.  It’s not that you have to just be restricted to India. Then the second source would be this tremendous ground swell of indigenous technology like the festival of innovations called Honeybee International Innovation Foundation. We have now documented many kinds of local innovations but the challenge has been where are the entrepreneurs to animate them? So, it’s not just about technology – its about sustainable and clean technology- but you also need the entrepreneurs and entrepreneurial teams with the capabilities to get on the ground and actually create viable business models around them.  That I think has been a scarce resource.

The ‘Make In India’ campaign, lays a strong focus on production in India. What would you recommend to the Prime Minister on how do we leverage these kinds of initiatives or are these initiatives adequate to drive the country towards a green and more sustainable future?

To me, India is at a critical cusp and the country is on the edge of investing massive amounts of money in infrastructure. No one would disagree that some form of significant infrastructure investment is needed. But, I think about China having invested massive amounts over the last decade, some in the 21st-century technology but some of the 20th-century technology and it looks like the US regarding roads and cars. India, of course, does need roads. It needs power.  But the real question is, looking forward, would you just build out a conventional 20th-century infrastructure or would you leap frog. So one of the challenges as well as opportunities is, maybe some portion of that investment capital could go towards greasing the skids for the 21st century infrastructure. Yes, we need energy generation but maybe not all central power stations. Yes, we need water treatment but perhaps not all central water treatment.  Yes, we need healthcare but maybe not all hospitals.

There are new models; technology-enabled models that allow distributed approaches that are way more cost effective, much more affordable and probably represent the future. The urbanization rate in India is not as high as in other societies so, we have an opportunity to come up with de-centralized models that would be more sustainable, cheaper and would in some way potentially be even an opportunity to export. It also is a way to create the sort of institutional development that the rural areas need in order to prevent the continued mass migration to already unsustainable cities. People are increasingly realizing that metropolitan areas kind of surpass the point after which they become unlivable. So, I think, increasingly, people are realizing that just these mega cities probably are not the future that it’s the medium sized cities that are the future. There’s a chance to create a new image that would look much more like the distributed sustainable future that we were talking about.

If you compare the Chinese model and the Indian model, where do you see similarities and differences in terms of the investments made?

China just went a lot faster and a lot bigger sooner. India hasn’t yet. A lot of people have pointed to that as a weakness that the Chinese are way ahead and in some ways they are.  But in other ways, they’ve already committed their hand.  I think that some non-trivial portion of those infrastructure investments may turn out to be stranded assets in another decade or so when it becomes very apparent that the distributed model is the much more efficient way to do things and also a lot lesser cost.

The situation in Indian cities is very different. We can’t raise a city and rebuild it.  We have to live in a very different framework, which again would raise the point about the importance of indigenous innovation, not necessarily coming up with new technology but making sure that the application is adequate for an Indian.

Technology will play a significant role, but the big innovation will come from how it’s applied, what the business model is, how inclusive it is, and the creativity around that. How it vents on the ground, how it’s embedded and how well the people accept it and embrace it; that is the difficult thing.  The technology often is the easy part. We have also seen in the past that adaptation maybe a much better way to commercial success.  Not all technology inventors were the ones that actually reaped the benefit.

That’s why we are all holding our breath because depending on what direction it takes is going to have a lot to do with what happens to life on the earth for the next several centuries to come.

I am working towards exactly what we’ve been talking about because I think that’s the only way that you can environmentally and sustainably lift those four billion plus people into a way of life that is reasonable, without destroying underlying natural capital that we all depend on, not only for us but all the life forms on earth. I think the next decade or two will tell the story.

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