IGADD

It has been very difficult for the largest IT and Telco corporations to see the effort to close the Digital Divide as a core business issue and not merely a matter for their philanthropy departments. But some altered their R&D and marketing to allow them to differentiate their products and pricing for low-income consumers. Nonetheless, the multinational corporations mostly serve the poor indirectly by helping schools and health care agencies do a better job of serving the poor. Meanwhile, regional wireless carriers in Asia are aggressively are slashing prices to extend their networks into the countryside. And a new class of IT entrepreneurs are leading the effort to find profit among the poor.

Stage One: Philanthropy
Stage Two: The Prahalad Thesis
Stage Three: Quasi-business initiatives
Stage Four: Not serving the poor, but the governments and businesses that do
Stage One: Philanthropy

In the mid-1990s, as the Digital Divide was being debated by activists and regulators in Washington DC, CEOs were silent on the subject. In his 1995 book, The Road Ahead, Bill Gates claimed the Divide will evaporate without government help, as pragmatic decision-makers relocate jobs to lower cost locations, eliminating the advantages of rich countries. But by 1999 most CEOs in IT and telecom industries, including Bill Gates himself, publicly expressed their concern about the Digital Divide and they instructed their corporate foundations to devise programs that put this concern into action.

Stage Two: The Prahalad Thesis

The most articulate person who argued against a merely philanthropic response to the Digital Divide by multinational corporations, was a University of Michigan management theorist, C.K. Prahalad. He said the IT revolution gave companies the means to substitute for failed government development programs: “The public sector has neither the expertise nor the resources to provide goods and services on a scale sufficient to reach the four billion people who currently earn less than $2,000. The private sector has both. Why not put them to use addressing the real needs – and real opportunities – at the bottom of the pyramid…The fact is that the private sector is better suited to serve as a catalyst for development than government.”

(Prahalad wasn’t the first to bring corporate populism into the computer age. One of the early leaders of the IT industry, Control Data Corporation’s CEO William Norris, challenged the IT industry to join forces to “turn America’s most unmet needs into business opportunities” by hiring and training inner city workers. At the apex of the dot-com boom, a well-placed consultant, Peter Schwartz, in many speeches and articles, argued that the wealth effect of the digital age could naturally spill into the developing world where it would “solve seemingly intractable problems like poverty” and get rid of corrupt officials and usurious middle men.)

Prahalad may have intended his remarks particularly to the South Asians in his audiences. Nonresident Indians had risen to the highest ranks of corporate power in the US, especially in the IT, finance and consulting industries. After the dot-com bust, many of them were shifting their center of gravity back to India and many concocted business models that allowed them to use India’s low-cost labor factor to skillful advantage in world markets. Now Prahalad was asking them to go further. Though he spoke of technical subjects – iris recognition software to make ATMs secure for use by the poor, new franchising schemes for selling jeans in village shops – his concepts called for an historic meeting point between India and its Diaspora. The aim of this convergence would be overcoming the failure of the Nehru revolution in a business-led effort to wipe out poverty. “It’s our turn now,” he said.

Stage Three: Quasi-business initiatives

But it was not an Indian company but America’s venerable IT flagship, Hewlett-Packard, that embraced Prahalad’s vision. CEO Carly Fiorina announced in late 2000 a global initiative to devise HP’s products, services and expertise to be applied to the “bottom of the economic pyramid.” Her announcement referred to a billion-dollar commitment “on the part of HP and its partners” to conduct “tests of the new approach soon in 1,000 of the world’s poorest villages.” But as the dot-com bust took its toll, she scaled back the effort and extended its time table. By 2002, she centered the effort in India, where HP Lab’s new facility put “appropriate technology for the poor” on its agenda. Soon, its laboratory researchers went to work finding partners and helping it create wireless devices for the poor.

In contrast to HP, most other multinationals aat the time were less ambitious in their own response to the Digital Divide. The major trend that was revealed in a research project Craig Warren Smith conducted among sixty of the largest high-tech and telecommunications corporations from 1999-20011. During that time period, managers emerged in each of these companies to champion internal projects, called “signature initiatives.” These defined their corporate response to the Digital Divide, annually budgeted at up to US$200 million each. Most of these were hybrid initiatives – partly philanthropic and partly expressions of business. But most of them were not directly tied to sales activity. Rather they were designed to benefit the company indirectly by building important relationships needed by the companies’ government affairs, marketing, and human resources and R&D strategists. Many of the initiatives were “cross-functional,” drawing funding and expertise from a mix of these functions.

In her own study of this pattern of initiatives, one of Harvard Business School’s most influential professors, Rosabeth Moss Kanter, claimed that some of these digital-divide projects represent the cutting-edge of innovation. Praising IBM’s Reinventing Education initiative, which sought ICT-based reform in inner-city school districts, she called the project a cost-effective way to boost the success of the company’s educational services division. “By conducting its educational research in the community, IBM was able to understand the end user better. For example, the researchers found they had to adapt their voice recognition software to the varied voice of school kids at different age levels. IBM got several patents out of that process.”

Stage Four: Not serving the poor, but the governments and businesses that do

Based on the interviews conducted for Digital Corporate Citizenship, here are the market segments in which corporations concentrate their response to the digital divide:

1. e-government: (for government bureaus that serve-low income populations)

2. e-learning (for k-12 public schools as well as home schooling)

3. e-health (for health institutions in rural areas)

4. small/medium-size business development (within emerging markets)

5. retail and consumers products (in emerging markets)

6. agribusiness (and other vertical markets in industries tied to rural areas of emerging markets)

7. banking (experimental efforts, often funded by governments, to extend credit to low-income consumers)

What is common to all these areas is that multinationals are, for the most part, not engaging the poorest consumers directly, but helping to build positive ties with the businesses and government agencies they do work with. In each of these areas, the emphasis is on shaping “solutions” so that traditional ways of doing business are reinvented through the introduction of disruptive technologies which offer efficiencies, lower costs and lower risks. For example, Harvard Business School professor David Upton, recently completed a case study of ITC Limited, a larger diversified agribusiness that employs thousands of small farmers in Indian villages. ITC installed internet kiosks that are accessed by the employee farmers who learn methods of farming they can apply directly to their small plots of land. The kiosks also allowed farmers to eliminate unnecessary parts of the supply chain. “The result,” says Upton, “is that farmers were able to get a higher price for their crops while profits rose in ITC.”

Outsourcing is another theme of this class of commercial projects. Vinod Khosla, considered by Fortune to be Silicon Valley’s most influential and successful venture capitalist, remarked, “I suspect that in 2010 we will be talking about remote services as the fastest growing part of the world economy, with many trillions of dollars of new markets created.” Thanks to the dot-com bust and the emergence of new global enterprise networks, the pace of outsourcing has already picked up. The trend for outsourcing, says digital guru Don Tapscott, is away from the big one billion dollar projects for call centers, in favor of other approaches that are tightly integrated into the corporate structure. “As companies take advantage of their global networks, they will be able to seamlessly lower prices by taking advantage of low-cost labor pool far away,” he said. A good example is Spryance, a Boston-based company that transcribes doctors’ medical records in US hospitals. Rather than scribble prescriptions on bits of paper in the conventional way, doctors speak into tape recorders and the audio is transferred digitally overnight to English speaking women in their homes in India. Having been trained in this way, Spryance gives the Indian women further training to upgrade their skills. Some emerge as franchisees in their own right, running their own home-based businesses by employing a low-income level of women workers.

A sales category called “e-Government” is another market segment that links multinationals to the digital-divide issue. Many major multinationals and entrepreneurs in the IT and telecom sector sell products, services and “solutions” to government agencies. Microsoft, for its part, conducts “e-Government Summits” where it invites IT ministers from as many as 60 developing countries a session. Besides learning strategies for digitalization of bureaus, Microsoft negotiates with governments and contributes to alliances that bridge the Digital Divide.

Oracle also emphasizes sales to government. During the 1990s, the company hired experts on welfare reform and school-to-work employment programs in an effort to achieve productivity gains in such programs. “Our work in e-government in the US helped us to understand that to serve governments we have to help them do a better job of working with the poor,” said an Oracle manager at its California headquarters. As Oracle strengthened its operations in Asia, it found that the same sort of expertise could be used to help governments in the region introduce transparent systems, fight corruption and find solutions to poverty. In 2003, Oracle partnered with HP to set up an E-government Competency Center to test software-based solutions to problem of poverty. Oracle hopes that the India-based experimentation will lead to software products that the company can roll out across the developing world.

A consideration of the multinational role cannot be mentioned without emphasizing that many of them have relied on their ties with non-governmental organizations (NGOs) to join them in experimentation. The corporate-nonprofit tie-ins have been particularly strong in India, where the government has encouraged corporate R&D facilities to work with NGOs to build the business case for Internet diffusion into rural areas. Like the United States, India has created favorable tax and regulatory conditions for the emergence of multitudes of NGOs working for the reducing of poverty.