Session Title:
Measuring Success at the Base of the Pyramid
Measuring Success at the Base of the Pyramid
Date of talk or publication:
2005
2005
Speaker Name / Title:
Carlos Rufín & Luis Fernando Arboleda
Carlos Rufín & Luis Fernando Arboleda
Organization:
Babson College
Babson College
Description:
The injection of private capital and competitive market mechanisms into the supply of utility services such as potable water and electricity holds the promise of helping the poor by facilitating cheaper access to some of the essentials of life. But private ownership of utilities confronts negative past experiences, conventional wisdom, and hostile ideology. The apparent conundrum between private ownership and serving the poor can be addressed by applying the ideas of the emerging “base of the pyramid” (BOP) framework, with some important caveats. Indeed, for private network utilities operating in developing countries, serving the BOP is not merely an opportunity, but a strategic imperative due to the need to legitimize private ownership and prevent indirect expropriation through social and political backlash.
The experience of AAA, a water and sanitation utility in Colombia’s Atlantic Coast region in operation since 1996, confirms to a large extent the lessons of the BOP framework. AAA reaches the poor through a combination of newly developed approaches. First, it established informal partnerships with local and non-traditional actors, namely, poor communities, and with the government to decrease the cost of doing business and make serving the poor a viable option. Second, AAA’s outreach initiatives were matched by innovative measures conceived to meet customer needs and provide superior service. The company asked poor customers to pay for service, offering in exchange a better quality of service than any alternatives, subsidies to make service more affordable, and commercial policies designed to address the particular needs of the poor. Increased collections, lower losses, and a variety of subsidies enabled AAA to generate adequate profits. The poor also benefited from significant expansion of service coverage and improvements in service quality, especially the quality of water. AAA’s story also shows the importance of BOP strategies for legitimizing multinational companies’ operations in developing countries. AAA’s success in serving the poor prompted successive expansions of its service area as other municipalities requested service.
Yet AAA’s successes and legitimacy are fragile and require constant reinforcement. Most troubling is a dependence on subsidies in a political environment characterized by rampant clientelism and corruption, which are inconsistent with BOP recommendations. Whether network utilities can provide service to the urban poor without subsidies remains a key issue for private ownership in developing countries, and a potential limitation for the usefulness of the BOP framework in these settings.
The injection of private capital and competitive market mechanisms into the supply of utility services such as potable water and electricity holds the promise of helping the poor by facilitating cheaper access to some of the essentials of life. But private ownership of utilities confronts negative past experiences, conventional wisdom, and hostile ideology. The apparent conundrum between private ownership and serving the poor can be addressed by applying the ideas of the emerging “base of the pyramid” (BOP) framework, with some important caveats. Indeed, for private network utilities operating in developing countries, serving the BOP is not merely an opportunity, but a strategic imperative due to the need to legitimize private ownership and prevent indirect expropriation through social and political backlash.
The experience of AAA, a water and sanitation utility in Colombia’s Atlantic Coast region in operation since 1996, confirms to a large extent the lessons of the BOP framework. AAA reaches the poor through a combination of newly developed approaches. First, it established informal partnerships with local and non-traditional actors, namely, poor communities, and with the government to decrease the cost of doing business and make serving the poor a viable option. Second, AAA’s outreach initiatives were matched by innovative measures conceived to meet customer needs and provide superior service. The company asked poor customers to pay for service, offering in exchange a better quality of service than any alternatives, subsidies to make service more affordable, and commercial policies designed to address the particular needs of the poor. Increased collections, lower losses, and a variety of subsidies enabled AAA to generate adequate profits. The poor also benefited from significant expansion of service coverage and improvements in service quality, especially the quality of water. AAA’s story also shows the importance of BOP strategies for legitimizing multinational companies’ operations in developing countries. AAA’s success in serving the poor prompted successive expansions of its service area as other municipalities requested service.
Yet AAA’s successes and legitimacy are fragile and require constant reinforcement. Most troubling is a dependence on subsidies in a political environment characterized by rampant clientelism and corruption, which are inconsistent with BOP recommendations. Whether network utilities can provide service to the urban poor without subsidies remains a key issue for private ownership in developing countries, and a potential limitation for the usefulness of the BOP framework in these settings.