Shiv's Third Eye

Food Prices - From Crisis to Stability

2011-10-16T10:59:00.000-07:00

On the occasion of World Food Day, I gave a talk at an event hosted by National Institute of Nutrition earlier today. The event was co-organised by the Hyderabad Chapter of the Association of Food Scientists & Technologists of India and Oil Technologists Association of India Southern Zone.

The subject of my talk is the theme of this year's World Food Day, "Food Prices - From Crisis to Stability".

Here is a summary of what I spoke:

What is this crisis all about?

For five years now, the food prices have been at quite high levels and very volatile too. This unprecedented price hike started in 2007-08 and is still going strong, barring a dip last year...

Contrast this with the generally stable prices, with a secular downward trend in real prices for decades - helped by improving efficiencies in farm productivity and food value chain!

My today's talk has two parts:

What caused this crisis? And, what are its implications?

What are the building blocks of a solution towards stability? And, what role can Food Scientists and Technologists play in building some of those blocks?

What caused this crisis in prices?

Everyone knows that price is an outcome of Demand & Supply dynamics. And, that subject to some elasticity numbers, prices in turn influence demand and supply.

So, let's examine those demand and supply conditions that triggered this crisis...

Firstly, consumption rose faster than usual in recent times, as more people started consuming more food per capita - as most of the population rise, as well as income growth happened in developing countries where the per capita food consumption was very low compared to developed country numbers.

On the other hand, supply didn't rise as much, as agricultural productivity dropped during this period. This was because investments in agriculture fell. Probably, due to complacency on part of the Governments around the world, based on the experience of the past decades. Share of agriculture in the Official Development Assistance in the last thirty years dropped from over 10% to under 5%.

A substantial portion of the earlier growth in agricultural production also came from area expansion. In recent times, large amount of land and some crops (eg corn) got diverted to non-food usage (eg fuel, factories and urbanisation)

In addition to these supply and demand aspects, there is another factor that aggravated the problem. Having identified the wide gap between demand and supply, institutional financial investors put very large amounts of funds into commodity markets. This caused further surge in prices. At another level, though, there is an argument that such amplification of weak signals by the derivative markets alerts production system to respond earlier than otherwise.

People who suffer the most from this price surge are obviously the poor consumers, but even te small farmers struggle. On the face of it, when the prices go up, farmers should gain; but, their decisions become risky when the prices are volatile. In any case, large part of the price rise goes to intermediaries, and part of the higher income goes into buying food not produced by themselves...

Let me now turn to the second part of my talk. That is, how to deal with this crisis?

There are some short term solutions... Regulate hoarding through measures like Essential Commodities Act, raising interest rates etc. Also, Governments stock more food as a buffer to distribute it to the poor with subsidies.

Both of these are good solutions that bring immediate relief, but have a negative impact in the long run as these measures distort the market, causing Private Sector to withdraw their investments in agriculture.

There is a third short term solution that can have better impact, but unfortunately isn't used much! Governments must act in anticipation and open up imports or alter tariffs, instead of acting much after the crisis hits! This, of course, requires high quality market intelligence and entrepreneurial governance systems.

The real long term solution is raising supply ie. more agricultural production...

Before we see how to raise agri production, let's look at the order of magnitude of the challenge. By 2050, the world population will touch 9 billion (up a third from the current 7 billion); more people will live in urban areas (70% vs today's 49%) and incomes will grow significantly (in today's world GDP, developing nations' share is just about 20%, that will go up to 50%). To feed this larger, more urban and richer population, the world needs to produce 3 billion tons of cereals (vs today's 2 billion tons) and a half billion tons of meat (vs today's 270 million tons)

As we attempt to raise production to such levels, whether by bringing more forest land into cultivation or intensifying agricultural input usage, there is a huge concern about its impact on ecology that is already fragile.

And then, there is a third dimension. Inequity in food consumption. A billion people at the top end are exposing themselves to huge health risks by eating overly rich diets, while the billion people at the bottom, who don't have enough to eat, suffer from acute malnutrition.

Many people try to solve these problems, but one at a time based on their domain. This may, in fact, be the reason for the real problem! The need is to find a long term solution that deals with all these challenges "together".

"Feeding nine billion people in a sustainable and equitable way will probably be one of the greatest challenges our civilisation has ever faced" says Dr Foley of University of Minnesota, in a recent paper.

To raise production, we need large investments in Agriculture. An FAO committee estimates that the investments by developing countries need to go up by 50% from the current $140 billion p.a.

Investments are required in hard infrastructure like irrigation and power, as well as soft infrastructure like agri extension services, to raise productivity in underproductive regions that have potential. Simultaneously, input usage intensity needs to reduce in over-exploited regions.

More than 80% of the future increase in production needs to come from productivity improvement, as only 20% can come from area expansion - the conversion of forests and grasslands to agricultural use has to stop forthwith, as the environmental damage far exceeds the increased food production. In fact, scope for area expansion in India is negligible... This calls for investments in R&D to reverse the trend of stagnating yields.

Then there are some medium term solutions (actually these cut across short & long terms; in that sense, medium may be a wrong label)

More food that the world produces must reach people's plates than it is today. If developing countries must reduce losses in the post-harvest stage, the developed countries must educate their consumers to cut the wastage of food.

This food must also reach people's plates at lower cost. Transaction costs must be cut through infrastructure investments and by eliminating non-value adding intermediation.

And, the food must be right too! For example, more efficient chicken compared to the less efficient beef. Or, more importantly, low-cost nutrition for the poor; and more healthy food for the rich.

It is in the context of this set of medium term solutions, that I wanted to bring up the role of food scientists and technologists, who make up most of the audience here today.

Your goal must be, "to deliver healthy food to the consumer safely, by preserving the quality and to ensure year round availability". To do that, you need to work at the intersection of several science disciplines, as you have always done...

Fortify foods with vitamins and minerals, and build functional foods that cater to specific consumer segments beyond nutrition. Leverage your understanding of Nutrition for that. Dal Analogue from Soybeans has been one of my favourite projects to deliver low cost nutrition to the poor in India.

Extend the shelf life of food through your knowledge of chemistry; and, leverage biology to deal with post harvest plant physiology.

Raise the efficiency in food manufacturing processes to preserve the food attributes using Physics discipline.

Deliver the taste, texture, flavour etc to meet the demands of different consumers, by using your competence in Sensory Science and Material Science.

Through all these suggestions, about which you know more than I do, all I want to say is that Food Scientists and Technologists have to play a vital role in transforming the food economy to stability from its current crisis. I am sure, you are game for that :)

Role of Agriculture in India's Double Digit Economic Growth

2011-04-10T03:27:00.000-07:00

A couple of weeks back, I spoke on the subject at a CII Conference. This is a high level summary of my talk.

On the face of it, Agriculture has a very limited role in India's economic growth... Since agriculture forms less than 15% of India's GDP, even a 4% growth in agriculture - this itself is nearly twice as much as the growth rate of the last ten years - will barely add a half percent to the overall GDP growth number!

However, growth in agriculture is vital for Indian economy from three angles:

in providing food & nutrition security to a growing population. Today child malnutrition is prevalent in 7 percent of children under the age of 5 in China and 28 percent in sub-Saharan African compared to a whopping 43 percent in India.

in India's inclusive growth agenda. 50% of India's workforce still relies on agriculture as the primary source of their livelihoods - in other words per capita GDP of a farmer is one fifth of that of the rest of Indians.

in dealing with the challenge of climate change. Remember, agriculture is a major cause and a victim, as well as a potential solution to this problem.

Interestingly, if Western Indo-Gangetic Plains and Godavari contributed to India's first Green Revolution, Eastern Indo-Gangetic Plains and Brahmaputra can deliver the second Green Revolution. Eastern region, especially the Indo-Gangetic Plains are well endowed with basic natural resources viz. fertile land, abundant water and lots of sunshine. But, the route needs to be different, as the context is different...

Firstly, the per farmer land holding in Eastern region is just about a half of the national average and is not even a fourth of the Western Gangetic Plains. So, the ecosystem needs to factor this in, in terms of crops grown or technology inducted or the enabling institutional framework.

Secondly, the market for food in India in late 50s and early 60s was founded on a ship to mouth supply chain. The institutions created by the Government at that time, viz. Public Research System, Government Agri Extension System, Food Corporation of India, Public Distribution System, APMC Market Yards were relevant for that context. Today, with rising incomes and growing urbanisation, the consumer is seeking quality, variety, convenience, safety etc. Such market is better served by the Private Sector. The Government has to play the role of a Reformer and Regulator, rather than being a Player as before.

To co-opt private sector, reforms in agricultural marketing are key - Agricultural Produce Marketing Act, Essential Commodities Act and Forward Contracts Act.

To empower small farmers, producer company type institutions need to be built, which facilitate crop diversification as well as growth of livestock & fisheries.

To raise productivity, deal with climate change, and use natural resources like water more efficiently, development of new technologies is key.

Dairy Coops: What next?

2011-03-13T11:05:00.000-07:00

Dairy cooperatives formed under the successful Amul Pattern, operate in a three-tier vertically integrated structure owned by the milk producers. The Dairy Cooperative Society at the village level collects the milk, the Union at the district level does processing, while the Federation at the state level is responsible for milk & milk products marketing. Aggregation of milk at right levels in these three tiers brought the vital economic scale to the micro milk producers of India, and linked them to the national and global markets effectively. This helped transfer a fairer share of the consumer price to the producer, rather than to the chain of intermediaries. The milk business is strengthened through research, knowledge transfer, feed production and marketing, disaggregated in the reverse direction.

Meanwhile, a 2002 amendment to the Indian Companies Act, defined a new institution called "Producer Company", and offered significant flexibility to the producers in managing their affairs vis-a-vis the constraints imposed by the Cooperative Societies Acts of various states.

In this backdrop, I spoke on "what the dairy coops could do next", at a workshop on 'the design and formation of milk producers' companies" organised by NDDB Dairy Services recently. This is what I said:

In the several decades since Amul has been formed, the world has changed. Today's marketplace throws several challenges and offers many new opportunities.

Rapidly evolving consumers seeking variety, quality, safety, convenience etc on one hand, and heightened competition with deep pockets and strong capabilities in consumer understanding, product development, marketing etc on the other hand, throw a challenge! Compared to the past, cooperatives need significantly larger financial - and far superior human - resource to compete and win in this new marketplace.

Let me also hasten to add that several new developments in information technology and better understanding of the dynamic of collaboration in the same period, offer a new opportunity to the milk producers to actualise the benefits of vertical integration without the associated costs. In other words, I am recommending a "virtual vertical integration" through appropriate collaborations.

The economic objective of milk producers can be achieved through a value chain that delivers them a higher net income (a combination of higher productivity, better quality, lower costs) at lower risk. Micro producers at one end and micro consumers at the other end are connected through different business models that aggregate and disaggregate milk at different points of the value chain. Different points also need different levels of labour intensive care, special technology and financial capital as per the business model specifics. Not all of these resources may be present in any one organisation. That's where collaboration comes in.

In the ever changing and hyper competitive marketplace, multiple organisations could come together to leverage their complementary resources & capabilities to create and capture value that is greater than what any one of them individually could.

Of course, every collaborating organisation may need to give up some control, or may not capture all the value they otherwise could, compared to a solo operation by themselves. If the collaborating organisations were to part at some stage, there would also be a risk of creating competition by virtue of shared trade secrets etc.

The trick is in retaining the lever of control in one's hand through key assets such as brands or technology, and make the partners fungible... Or, by recognising and respecting the mutuality of interest with the partners, one could structure a relationship that is built on reciprocal dependency, that all the partners have a vested interest in strengthening...

Any which way, every dairy cooperative must start with a clarity in terms of what they have and what they lack, so that collaboration with partners having complementary capabilities can be forged. For some, it may be expanding distribution into new markets, for others it may be attaining a larger scale to lower costs, and for some it may be new technology to create special products. In addition to these economic frames, given the unique context of cooperatives, it is important to look for organisations with shared vision and cultural fit too. Fortunately, such collaborations are now possible with the new institutional form of "producers' companies", unlike the limitations that the cooperatives face!

I illustrate two specific ways in which collaborations with private sector can add value to milk producers.

Instead of producers' companies trying to build marketing capabilities themselves, they could partner with organisations that possess such capabilities, and focus their efforts on reorganising milk production systems. Given that incremental value generated by improvement in productivity and quality is far greater than value captured through controlling marketing activity, this can multiply producer incomes manifold. In any case, demand for milk and milk products in India is rising rapidly, and the milk production needs to double in less than fifteen years

One such production reorganisation possibility is to move from 'Family Owned Micro Livestock Operations' to 'Collective Dairy Farming Units'. Every village can have a few such units depending on the potential. This can help in rearing animals in a controlled environment to implement best practices more easily. Producers can share work at the farm by "livestock units" or by "legs of operations". This will also facilitate collective decisions on land use, in turn protecting ecology and conserving bio-mass. Well managed dairy farming units can capture ecological credits through controlled release of methane gas. Apex institutions of the Producers Companies can co-opt knowledge & input providers, processors and marketers into the ecosystem and take on the role of a Network Orchestrator to achieve the "virtual vertical integration".

One of the workshop participants mentioned that such collective dairy farming units are already operating in Gujarat, as "Animal Hostels". In this early phase of evolution, it is important that many such experiments are carried out to craft models that suit different contexts. In recent times, other ecosystems in India such as road construction and telecom have grown through such innovative partnerships.

Another interesting collaboration possibility is in the Private Sector building the capacity of producer companies. When cooperatives are thinking in terms of transforming into companies, there is a need for them to create and sustain process driven institutions. Corporates run on SOPs (Standard Operating Procedures) with strong in-built internal controls. Self-correcting systems are part of their culture and ethos. Innovative use of IT systems strengthens these processes further. All these systems promote transparency and accountability, which are critical for the long term sustainability of the newly formed producer companies.

All in all, I think, the Indian dairy sector is ripe for another institutional change.

Agricultural & Environmental Concerns: Role of Education

2011-02-05T09:54:00.000-08:00

Yesterday, I spoke at a seminar on the subject theme organised by Knowledge Xchange in Chennai. This is a summary of what I said...

You must've heard several speakers on the subject since morning, and now you must be wondering what a corporate has to do with this topic. Let me deal with that first.

Purpose of education = Know How. Know How has two components. Firstly, Know What. Training typically focuses on Know What, while education is expected to build the other component of the capacity i.e. Know Why.

Purpose of Know How = Do How.

And, purpose of Do How is to actually "do" things that "deliver" the intended outcomes.

What are those outcomes, in relation to the Seminar theme?

Raise incomes for the farmers (Per Capita GDP of Indian farmers is just about a third of the rest of Indians)
Achieve Food & Nutrition Security for our all our people (a third of all our children are malnourished)
Do this in an environmentally sensitive manner (so that we leave a habitable world behind for our children and their children)

The theme of my talk is "What can Corporates do, to enable these outcomes?"

Basically, I have three messages to share:

For the Know How to be effective, the medium (of education) must be tailored to the context.
For the Know How to be translated to Do How, the education must be an integral part of a "meta-process"
To execute the idea of a meta-process in the real world on a large scale, you must leverage the power of innovative business models

To substantiate these arguments, I will walk you through the nature of challenges in Indian agriculture and the corresponding solution themes. And then illustrate those through the creative solutions successfully deployed by ITC on the ground.

1. The context of Indian agriculture and the farmer is quite complex, with multiple dimensions and each dimension with multiple degrees of challenges. The "media strategy" of "education", if I may call that, must be tailored to this context. Let me outline four of those dimensions, relevant to our theme today.

a. Any context must first be seen from the perspective of "outcome for the consumer", in our case the "farmer". Each of our famer is so very different from the other. Starting with variations in farm size, to the heterogeneity in agro-climatic conditions, to the far more individualised resource availability and risk taking ability. In other words, one message is not relevant to all farmers. That means, many messages need to be personalised, some can be mass-customised, while a few can be generic.

b. The second dimension of the context, is the "nature of message" itself. That varies according to the action that the message should trigger to achieve the objective. In some cases, it could be simple awareness about a market or a weather condition; while in another case, it may need to alter an existing farm practice such as seed rate or row spacing; in yet another case, it could create a conflict between short term effort or cost with long term benefit (such as investment in micro irrigation for soil conservation). Again, obviously, one tool doesn't trigger action in all cases. In one case it could be SMS on mobile phone, in the other it is an on-farm demo, and may be an audio-visual in another case.

c. The third dimension is "time" that enables action. In agriculture, as you will all know, most activities are very time sensitive. Therefore, a piece of information or a knowledge component has to be delivered absolutely on time. Especially when some of the actions are linked to random events like rain fall or pest attack.

d. The last dimension is "cost". Notwithstanding different levels of message and types of tools, obviously the cost can't be out of whack with the benefit being delivered or the risk being managed.

In ITC eChoupal, multiple media are used in a 360⁰ approach tailored to the need. For example, improved practice or a new input through the eChoupal website, followed by an on-farm demonstration through Choupal Pradarshan Khet for better conviction; then the adoption is facilitated through SMS reminders & telecalling to clarify suitability for specific farm condition, and obtaining feedback on practice / product performance through tele-helpline.

2. The second message is about translating all this Know How to Do How. The farmer may know what to do, but many times timely & affordable access to other inputs is a problem. Be it, credit or seed or some crop protection chemical. In the mind of the farmer, all of these elements are part of one process. Call it the "meta-process", because it is in the mind of the farmer. Deciding which crop to grow, managing it through the crop season, and then realising cash from the crop. But, these needs are served by different industry verticals such as agri extension, banks, seed companies and so on... Unlike in evolved markets, the delivery of these inputs is not synchronised with knowledge. Therefore, the action doesn't happen often. Consider an evolved market like buying a car in Chennai. You can acquire the knowledge about a car suitable to your needs through several magazines, a loan through a bank, actual vehicle from a dealer, insurance from an agent, and the service arrangement through a dealer seamlessly. But, for many farmers in rural India, such seamless process is still a dream. Fragmented farm sizes, dispersed villages, heterogeneous conditions compounded by weak infrastructure make synchronised delivery a challenge.

ITC eChoupal factors these challenges while orchestrating an ecosystem that delivers the desired end-to-end solution to farmers. It is achieved through a new digital, physical and human infrastructure organised in a hub & spoke configuration. Today some four million farmers access services through the ITC eChoupal network, offered by 160 organisations cutting across Government, Private and Social Sectors.

3. To roll out an infrastructure like eChoupal on ground, it costs a lot of money. How ITC designed a business model so that the cost of such a system is not a burden on the farmer, but recovered through innovative revenue models, is the third message.

For example, by eliminating non value adding costs of a village to mandi to our warehouse chain through a village to our warehouse chain by discovering price in the village is one such model.

In another model, we embed traceability along the chain (having sourced directly from the farmers) into our products, we deliver greater value to consumers and capture some of that value for ourselves and the farmers.

Yet another model is charging a toll on these 160 organisations for bringing them cost-effective access to the rural markets.

Allow me to repeat my three messages, before I close:

For the Know How to be effective, the medium (of education) must be tailored to the context.
For the Know How to be translated to Do How, the education must be an integral part of a "meta-process"
To execute the idea of a meta-process in the real world on a large scale, you must leverage the power of innovative business models

Thank you.

Bringing about enterprise accountability and the concept of triple bottom line

2011-01-28T09:14:00.000-08:00

Some of you may remember my tweets and Fb updates on the subject a couple of months ago, when I participated in a panel discussion at National Geographic's Green Conclave. I got busy soon after, and couldn't post a blog. Yesterday a friend asked for some material on triple bottom line, and I decided to write it now...

There are two arguments on what a good Corporate Citizenship is. One argument views business enterprises as pure economic citizens. The other, a position taken by ITC, sees them as Socio-economic Citizens.

Pure Economic Citizen argument says enterprise accountability starts with earning profits and ends with paying taxes; that the responsibility towards social and environmental aspects is best left to other organs of society viz Government and Civil Society Organisations. Further that the focus of Business Enterprises should be on satisfying the shareholder desire for a return on their financial investment to the exclusion of non-financial stakeholders.

Essentially, the argument is that the Corporates, as artificial entities, should have no social responsibility; people or real individuals must have social responsibilities. Generating profit by servicing consumers in a competitive environment is considered the most socially responsible act of an economic enterprise.

On the other hand, ITC views enterprises as socio-economic citizens and therefore as accountable to today's & tomorrow's society and environment from which it is drawing resources, besides to its financial shareholders. The expectation from socio-economic citizens is that the core business activities must be implemented with broader responsibility towards ALL the stakeholders. In other words, enterprises must demonstrate positive economic, social and environmental performance over long term. This is called Triple Bottom Line approach.

Of course, the trade-offs in the value created for multiple stakeholders make Triple Bottom Line approach a difficult path to follow. ITC has creatively enmeshed the interests of shareholders, the poor, and environment to build business models that overcome the trade-off challenge. ITC eChoupal initiative, Social Farm Forestry programme in Bhadrachalam area and Agarbatti business linked to women self help groups are some examples of Triple Bottom Line approach by ITC.

Other panelists argued that such enmeshing isn't easy and the trade-offs are inevitable, pushing companies to be profit focused or compromise on profits. I proposed that Government could do four things and create a market mechanism to deal with such a trade-off challenge.

‎Make TBL reporting mandatory. Peer group and market pressure will then automatically broaden accountability of enterprises
Define TBL accountability metrics clearly along outcomes lines. For example, Water Positive and Carbon Positive Corporates...
Create tradeable instruments from such metrics. TBL then becomes a source of economic advantage
‎Deepen the market for these social credits by mandating threshold TBL for bidding in Govt projects. Non TBL enterprises can buy credits to be able to bid

The Promise of UID - What to do, to get it right?

2010-12-31T06:46:00.000-08:00

As part of the annual ISIS Conference on 18th Dec 2010 at ISB Hyderabad, there was a Panel Discussion on UID. Besides myself, Dr KC Chakrabarty of RBI, Mr Sanjay Swamy of UIDAI and Mr Abhishek Sinha of Eko Financial were the other Panelists. The Panel was moderated by Prof Arun Sundara Rajan.

Before the Panel Discussion, a specially recorded video (will be linked once the Conference Organisers upload the video) of Mr Nandan Nilekani, Chairman of UIDAI was played.

As you would see in the video, Nandan outlined SA, PA & DA of the SA-PA-DA-PPA template, I used my time on the Panel to do a PPA of three of those areas. This is what I said:

Acknowledged existence: Many Indians, especially the poor, cannot prove their identity with legally valid documents. Out of a billion Indians, only 60 million hold passports; there are just about 70 million IT PAN Card holders. It is not difficult for fraudulent third persons to misrepresent the poor in certain transactions. As a result, for example, many of the poor people cannot access social support programmes of the Central and State Governments. Substantial part of the social subsidies meant for the poor get diverted and misappropriated. The proposed UID number helps in accurately establishing the identity of a person and in authenticating any transaction. This will help in reducing misappropriation and lowering leakage from subsidy funds.

But, vested interests won't be happy with lower corruption in the subsidy system. Powerful among those interests won't let UID scale! Besides the technological challenges in scaling (mind you, the enrolment system must be fool-proof to eliminate any fake identities, must be robust enough to eliminate duplicates and must be easy & cost effective to verify & authenticate; all these for some 600 million people) that UIDAI is well geared to take on, the execution plan must cognise for the potential challenges arising out of the hurdles created by these vested interests.

I see these hurdles as marketing and social sciences challenges. Instead of clinically enrolling the citizens, the benefits of UID must be widely communicated to the citizens so that they get "enrolled" into seeing UID as a practical solution for their real problems. The people will then collectively find a way to deal with the hurdles created by the vested interests, as they did when ITC eChoupal faced similar resistance years ago. Similarly, it will help if the relevant agencies (eg District Administration) can co-opt the poor in design and execution of the social subsidy schemes. For example, the poor themselves know exactly how they get excluded from many schemes, and what process changes can help include them.

Business Opportunities: To start with, there is a mega business opportunity in the very process of enrolment of citizens into the UID system. Appropriate hardware is required at some 100,000 enrolment centres, along with necessary software to capture the finger prints, iris shots and demographic data. Someone aptly said that India can become the Bio-metric Capital of the world. There will also be similar opportunities in building transaction authentication hardware for different types of establishments using one or more of the UID features.

In the long term, the real value business application of UID is actually in improving effectiveness of financial transactions, consumer loyalty programmes, personalised crop management advisory, health cards for citizens etc. through shared transaction data of every UID across organisations. But, public access to such data raises serious concerns on privacy of individuals and competitive intelligence for businesses.

One way this conflict could be resolved is by limiting the seam-less sharing of such transaction data among a syndicate of organisations or certain type of businesses approved by the individuals for an appropriate value-exchange.

Innovation Ecosystem: Once the data sharing conflict is resolved, a powerful innovation ecosystem will be catalysed by the UID platform. Pretty much like a Development Apps Store! Some of the potential innovations would obviously be yet un-visualised. But, I can surely see ideas that make up for the missing institutions such as credit rating system and dispute resolution mechanisms. Many by many experience rating using the same identity can lead to interesting B2C and C2C applications.

The yet unvisualised innovations could also be mega threats to society. Dutch Census anecdote I recently heard is an example of such a threat. In an early 20th Century Census, Dutch collected the religious affiliation data of their citizens (for building places of worship in their neighbourhoods). A few years later, that data was very handy to Germans in exterminating some 75% of all the Jews listed.

On balance, I say, we must push forward with the UID.

But, raising public awareness of pros & cons of any new system with potential transformational impact, such as UID, is key, rather than selling it as a panacea to all problems...

Role of Corporate Sector in Inclusive Growth: Importance of Business Model Innovation

2010-12-17T21:34:00.000-08:00

Earlier today, I spoke at the SMF-IIMA Conference on "Challenges to Inclusive Growth in the Emerging Economies".

My talk posed and answered four questions.

Q1: Who is "excluded" from the current growth process, that we now want to include?

Two sets of people are excluded, may be are even short changed, from the exciting growth story of the emerging economies in general, and India in particular, in recent times.

Some sections of our population, because they suffer from certain inherent disadvantages, are excluded from the new economic opportunities and growth (e.g. farmers, rural crafts persons, people with physical disabilities etc)
Some other people are excluded from the economic equations, because they don't have a say today! I am talking about our grand children and their grand children. The decisions taken by our generation have a bearing on the availability of natural resources (e.g. water) and the quality of ecology (green house gases) when they are around on this planet.

Q2: What can Corporate Sector do in this context?

Traditionally inclusive growth has been the domain of Government, Civil Society Organisations, Multilateral Institutions. Although there has been some progress over all these decades, none of us can feel satisfied with today's position of either of these excluded segments. For example, per capita GDP of an Indian farmer is just about 1/4th of that of rest of Indians. And, the concerns on climate change are at a level we have never seen before.

Programmes of these agencies miss out on one or the other aspects of three crucial areas.

Sustainability - where the programmes are subsidy based, their long term sustainability is suspect
Outcome effectiveness - for the target segment of people is weak, as the programme focus is typically on outlays
Scalability - is often the most challenging aspect of a successful programme

Call these SOS, if you will, by the first letters of the three areas. That's the message to the world.

On the other hand, by the very nature of enterprises, Corporates survive & thrive by doing these three things right...

Profit, the key metric of financial sustainability is the core objective of any commercial enterprise
Value Proposition to the target group of customers is the essence of market and competitive strategy, and guarantees outcome effectiveness.
Growth, the other metric by which Corporates swear, is what goes into determining market capitalisation of an enterprise

In other words, Corporates have the specific wherewithal to engage in inclusive growth agenda by applying these capabilities and deal with the SOS challenge.

Q3: Why is Business Model Innovation important?

Despite such a case for Corporate involvement in inclusive growth, there is widespread skepticism too!

Many in Government and Civil Society are skeptical about the intentions of Corporates. They simply see such engagement as a lip service, since they believe that 'profit' and 'inclusive growth' are at cross-purposes

Even the Financial Investors see a conflict between a company's profit objective and its social or environmental engagements.

On the other hand, if Corporates stay out, the SOS challenge unlikely to vanish. If the income divides expand and the ecological insensitivity continues we will have a serious problem. No business can succeed in a failed society, or in a world where natural resources are exhausted.

Then, there is also a huge business opportunity in selling products & services to the poor, and in selling eco-friendly products.

How do we reconcile these conflicting realities? The only answer is Business Model Innovation.

If we are able to innovate business models in a way that the profit objective of Corporates is enmeshed with the social or ecological benefits to the community at large, the new goal will be well aligned.

While many Corporates create shareholder value indifferent to society, and some even do at the cost of society, the conflict can be resolved if shareholder value is created "through" serving society. That's where business model innovation comes in!

By calling it business model innovation, I am distinguishing it from product or service innovation that can help inclusive growth. Renewable energy, micro finance, mobile phones, and road infrastructure are some examples of such product & service innovations.

Q4: Is there a special tool kit for business model innovation for inclusive growth?

Based on my experience in building the many phases of ITC eChoupal, and having observed several other inclusive growth initiatives of ITC from ring side, I see three important tools in a kit that will help innovate business models and deliver inclusive growth.

Co-creation together with the Communities: Both design and execution. This makes up for the missing infrastructure (eg individual credit rating, dispute resolution) through infusion of social capital. This also cuts costs. More importantly this co-opts lead consumers and helps accelerate product & service innovation. Two of the new institutions innovated under ITC eChoupal system viz. Sanchalak and Samyojak are vital components of a co-creation platform.
Leveraging Technology: Technology helps in remote delivery of services (eg eLearning, Telemedicine) and overcomes the physical access barriers as well as the knowledge concentration barrier. Technology can multiply productivity. Technology can also personalise solutions to individuals, so important given the heterogeneity of the target segment we are talking about. Technology helps in precision, leading to better resource usage and improve quality of the output.
New Revenue Models: Integrating the micro producers into value chains that connect them to the markets, is one way in which their share of a consumer price can be taken up. The principle of "Third Party Pays", as in Media business, is an important way in which the burden on the low-income producers or consumers can be reduced. This leads to rapid market expansion. Platforms that can carry products & services of several other organisations can create "increasing returns ecosystems" and deliver exponential growth, once the network effect sets in.

Wish you good luck, in co-creating a new world order :)

Microfinance

2010-12-05T11:08:00.000-08:00

Earlier this week, when President of MFIN Vijay Mahajan tipped off that "some MFIs may have to shut shop as early as 1st Jan 2011, as Banks refuse to lend", of all things, Karna from Mahabharata came to my mind...

Bankers may only be proving the stereotypical notion that they are, after all, fair weather friends; or may be right in their judgment in not putting any more good money behind bad. But, much like the Karna's story, many factors beyond the new loans from Banks may have contributed to the death of such MFIs.

Here is my take on what some of those factors are:

1. While the interest rates of MFIs are lower than what a local money lender charges, the fact that the rates hardly came down in so many years of MFI existence implies that the sector hasn't innovated enough. Whoever survived without innovation for long?

2. Actually, at the heart of MFI value proposition are two other complementary services viz. (a) improving income generating capability of the borrowers - beyond their cost of borrowing - through several Business Development Services, including collectives for scales of economy and (b) social mobilisation for improving credit repayment culture and taking up activities that benefit the community as a whole, eg anti-liquor campaigns. Along the way, as MFIs proliferated many of them focused on transaction efficiency, and lost sight of these two pillars that defined the original business logic.

3. That politicians cutting across party lines are egging the borrowers not to repay their loans, likening the MFIs to Loan Sharks, suggests that the industry hasn't built any political capital either, in all these years! A wide range of motivations were attributed though, such as opportunistic political gains and selfish interest of some politicians who are money lenders themselves hence anti-MFI.

4. What's even more surprising is the lack of overt support (in this hour of crisis) from the very beneficiaries themselves - the borrowers - even after knowing fully well that the MFIs would close and they may have to resort to higher cost borrowings again. The absence of social capital in the operations of many MFIs (described in 2 above) meant that the borrowers didn't see the long term benefits of continued engagement with those MFIs, instead were happy extracting the short term transactional benefits (escape from repaying their loans). In contrast, when the middlemen struck work at mandis in 2004 to stop ITC eChoupal from making the agri markets transparent, thousands of farmers came on to the streets spontaneously to support eChoupal.

5. Appropriate regulations did not evolve along with the growth of the MF sector.

6. The MF market got distorted, with Government also acting as a lender through SHGs in many States. In fact, competition with Government (who is also a regulator) in a distorted market, is a big threat for the sustainability of many social enterprises. People at BoP are the common target, by definition.

7. Wrong choices of scaling models by many MFIs is another factor. Any organisation can choose from four scaling models - scaling up, scaling deep, scaling out or scaling through. Up requires standardisation of processes for efficient replication of a demonstrated unit. Prerequisite of deep is a capability to orchestrate an ecosystem to deliver multiple products & services to the same customer group. Out is replication of the same model in a different domain. And, through is a typical franchising approach with the attendant conditions. Some MFIs attempted crossing from one model to the other or even blending different models without building the requisite capabilities, obviously leading to trouble.

8. Large sums of money was pumped in through Private Equity, IPO etc. before the sector geared itself for scaling. These sources of money demanded rapid growth, which in turn meant diluted quality of execution (multiple loans to the same borrower, coercion in recovery etc). Coupled with 7 above, this is a recipe for disaster.

9. Not enough manpower was trained in conjunction with the growth of the sector, unlike what was done in other manpower intensive large scale businesses, such as Software, Green Revolution and Operation Flood. It is estimated that some 100,000 people are employed in MFIs. Again, whoever succeeded without quality manpower.

10. In many places, the group leaders (of borrower groups) started their own bridge loan businesses, thus "ever-greening" the loans, making the ground reality opaque to MFI staff.

11. Many people question the ethics of some MFI promoters for using the growth & profits from the highly leveraged soft loans (originally given for a social cause) for private gain. In businesses at BoP, it is important for the lead players not to lose the strength of morality to be able to push Government towards reform.

What Next?

Notwithstanding all the above factors, the business case for MFIs still exists. By virtue of the crisis wrought by the Ordinance in Andhra Pradesh, good MFIs are suffering as badly as the bad.

Instead of trying in vain to revive the sector after it is dead, all the stakeholders need to kick-off a consultation process to determine the right way forward in each of these and such other factors, with the future of the borrower in mind. Karna did die due to many curses, but mythology tells us that every curse can be lifted too!

India: FDI in Retail

2010-09-29T22:44:00.000-07:00

Here are the notes I had prepared as Aide Memoire for myself, for yesterday's Panel Discussion on FDI in Retail at the India Retail Forum 2010

With AT Kearney's Global Retail Attractiveness Index placing India at the very top since the mid 2000s, many MNCs and the Foreign Governments have been advocating liberalised FDI inflows into the sector for a while now. Their primary argument is that the FDI is a powerful catalyst to spur competition, especially in the retail industry which is characterised by low competition and poor productivity along the whole supply chain...

Some benefits are clear, while some are arguable! And, there are some genuine concerns too... A very calibrated reform process adopted by the Indian Government, to date, made sense. As the pressure mounts to open up the FDI in the hitherto reserved multi-brand retail, what should the Government do? Here is my analysis of the pros & cons. And the recommendations follow!

A. Clear Benefits:

More competition leads to more choice. And, more choice leads to greater value to the consumer.
Interactive engagement between the product and the consumer on the modern retail shelf leads to higher consumption. This means faster GDP growth at macro level, and better quality of life for the people at micro level

B. Arguable Benefits:

Retail sector generates large employment opportunities. Or, are they actually the jobs from the informal sector getting recognised as employment in the formal sector? Is there a metric such as "Relative Employment Intensity per Rupee of Sales" that resolves this argument?
Price paid to the small farmers will increase. Higher share of organised trade, the argument goes, results in higher farm gate prices. Or, will the small farmers actually get squeezed further, to pass the benefits on to the consumer in a hyper competitive market?

C. The Concerns:

Modern Retail will displace small retailers. In a nation of shopkeepers, is this justified? The counter-argument is that the small retailers are very savvy, they will find their own niches and co-exist; it's not as if modern retail will take 100% market share. Empirical studies prove that the small retailers in the vicinity of newly set up modern stores do suffer badly...
Big Box modern retail has adverse side effects on the environment. Huge energy consumption through ACs & lighting, besides large concrete constructions that skew the green ratios.

D. Some Related Issues:

When domestic large companies can invest in modern retail, what's the big deal in allowing FDI? On the other hand, is it not that every firm - however globally spread it is - has a dominant home nation orientation? What are the implications of such orientation on the gross value captured within the boundaries of a "market nation" for its people & economy?
FDI was allowed in cold chains some time ago, but no investment has come into cold chain! What's the reason? Does India really need large investments in cold chain, given that most perishable products are grown within a small vicinity of consumption geographies, taking advantage of its conducive agro-climatic conditions? Are we better-off with investments in information infrastructure and farmer-market linkages that enable rapid response by the production system to demand signals? Isn't that a more viable means to cut wastage than the expensive cold chains? Actually, where the cold chains are required (eg. for exports of perishables, for products that can be grown in some corner of the country), the investments (whether FDI or domestic) are not happening because of regressive Agricultural Laws (eg Essential Commodities Act, Agricultural Produce Marketing Act, Forward Contracts Regulation Act).

So, how do we gain from the positive outcomes listed in these arguments, and neutralise the negative outcomes?

Is a gradual 24, 49, 74% FDI permission the good route, taking stock of the outcomes at each stage? Or should we place some specific conditions? In a world where the flag-bearer of free markets - USA - advocates "Be American & Buy American", I believe, some conditions are apt! Otherwise, the benefits could remain "kehuni-pe-gur"!

E. My Recommendations:

Mandate that a proportion of the investments must be made in the back-end. Say 30% in logistics and another 30% in farm level infrastructure (including agricultural extension services). In today's world of specialisation, instead of insisting that the mandate be executed by the Retailers directly, let them decide which of these legs they would like to execute themselves, or which they would like to outsource to domain specialists.
Impose a special surcharge (say 1%) on the Sales Value of the modern retail that can be built into a "Displaced Small Retailer Rehabilitation Fund". Somewhat along the lines of the Universal Service Obligation Fund in telecom.
Reform Essential Commodities Act, Agricultural Produce Marketing Act, Forward Contracts Regulation Act while permitting FDI in multi-brand retail.
Leave the rest to the market.

Swimming through Blue Ocean - The ITC eChoupal Story

2010-09-23T10:20:00.000-07:00

Over the years, ITC eChoupal story has been told from many perspectives. On the occasion of the launch of India Blue Ocean Strategy Research Centre by TAPMI, I was requested to share the story using the Blue Ocean Strategy framework. Following is a summary of that talk. The ppt I used is here.

If you are unfamiliar with the Blue Ocean Strategy (BOS), or would like to refresh, this presentation by the BOS authors provides a quick overview.

In essence, the aim of BOS is not to out-perform the competition in the existing industry (a bloody battle akin to a red ocean), but to create new market space (a blue ocean), thereby making the competition irrelevant. BOS framework includes 'formulation' & 'execution' principles to minimise risks and maximise opportunities while creating blue oceans. A 'visual strategy canvas' frames the context, and a 'new value curve' with 'four actions framework' offers the tool kit to craft the strategy. 'Six paths' to BOS pull you out of a mindset of "competing within" to "creating across" the dimensions of industry, offering, orientation, time etc

The eChoupal story is written in normal font and the references to BOS framework are in italics.

Am using rural marketing as the scene of my story today. Feature stripped products at low prices, or single serve packs at unit prices, are the most common strategies adopted by companies, while targeting rural consumers in India. These efforts did succeed to some extent, but growth & profitability are limited, because everyone is competing for a larger share of the same small wallet. The outcome is a bloody red ocean! Many companies, in fact, started wondering if there indeed is a fortune at the bottom of the pyramid, or just some small change...

Comes along ITC eChoupal, and says "why not raise the incomes of rural people and then get a larger share of their expanding wallets?" "And if we can raise their incomes profitably, that becomes a unique business opportunity in itself, and will also create a virtuous cycle; more profits to ITC --> higher incomes to rural producers --> more spends by the rural consumers --> more profits to ITC -->" In other words, fortune "for" the bottom of the pyramid as a route to discover fortune "at" the bottom of the pyramid!

Thus, instead of following the conventional logic of outpacing the competition on the same counts by offering a better solution (lower prices) to the given problem (low incomes), ITC eChoupal redefined the problem itself and offered a blue ocean solution that made the competition irrelevant. This 'reconstructed' the market boundaries and eliminated the 'search risk'.

BOS recommends a sequence in which the strategy must be created to ensure a win-win in the new market terrain, viz. 'utility' of the offering to the customer, 'price' that is relevant to the customer, a target 'cost' that leaves sufficient profit for the company at the relevant price, and finally make certain that the customer 'adopts' the offering... In fact, ITC eChoupal can be called a "deep blue ocean strategy" because this sequence itself was made redundant by "raising incomes, at no charge to the customer; the questions on pricing and adoption didn't even arise"!

In the language we use internally, "raising incomes" was only an "opportunity insight". We still needed a "solution insight" that could actually seize that opportunity...

In fact, our solution insight actually killed five birds with one stroke, much like the Hungarian Bus Company (NABI) example cited in the BOS book. So, I fancied the title "Five Birds with One Stroke" for my next section :)

Before coming to that, let me describe another red ocean in the context of rural producers. I illustrate this by using the example of farmers. Most of you know that farmers receive only a small share of the consumer price; this is because of an institution called "mandi" (an auction centre) in the value chain between a farmer and a consumer. Farmers take their produce to a "mandi", typically some thirty kilometres away from their village, to sell. Representatives of Agri Business Companies or their agents look at the produce to assess the quality and bid a price. At the end of such a bidding, the farmer is under pressure to sell the produce even if he is not happy with the price because of the sunk cost of transportation. Taking the produce back and bringing it again would mean twice the cost, with no guarantee of a better price the next time around. The total transaction costs also multiply because the produce is first taken from the village to the mandi from where it is brought to the Buyer's warehouse. Since mandis became monopolies, cartelisation to bid lower prices, higher commission charges and malpractices (eg under-weighment of the produce) etc became common. But there was no better option than a mandi, because the farmers were small, the quality of their produce was heterogeneous and they lived in dispersed geographies.

If we figured a way to "discover the price in the village" despite these constraints, we could eliminate substantial part of these non-value-adding transaction costs and split that saving between the farmer and ITC. That was our "solution insight" to raise farmers' incomes. We did this by using the Internet for disseminating the generic price, and a lead farmer (Choupal Sanchalak) to assess the quality in the village itself. Once the price was discovered, the farmer could decide - with no pressure of sunk cost on him - when and where to sell his produce for best price realisation. If he decided to sell his produce to ITC, he brought it to ITC's factory or warehouse (typically at a similar distance as a mandi) to realise a higher net revenue, because he paid no commissions nor incurred any labour charges. Electronic weighing ensured correct weighment. Since the material is delivered at ITC's warehouse, ITC saved on transport costs. The savings are different for different commodities and geographies, depending on the levels of non-value-adding costs in those chains.

This is the first bird, and in a sense, is like "Eliminate", one of the four actions to design a new value curve under BOS; eliminate some of the factors that the industry takes for granted!

But, 'inefficiency elimination' as a source of value becomes obsolescent with the passage of time, as the market efficiency improves once many competitors imitate the model. So we needed to discover more sources of value. And, we did not need to go far! The same price discovery solution became the source of another value, the second bird :)

The case study of ITC's Aashirvaad Atta is the best illustration of this idea. Indian consumer living in different parts of the country seeks different traits in Atta (wheat flour) based on the cooking habits in those geographies, viz. colour, texture, water absorption capacity etc. But the traditional mandi system did not allow this value to be offered to the consumer! The different varieties of wheat that could deliver these traits got mixed up at the mandi before moving to the wheat mill. As a result, the consumer did not see value in buying packaged atta and preferred buying select wheat and getting it ground in a neighbourhood chakki, however inconvenient it was. With farmers bringing their produce to ITC eChoupal hubs themselves without any comingling of varieties as happened at mandis, ITC could preserve the identity of the varieties & grades through its supply chain and produce discrete blends of atta for different markets of India based on consumer demand. And, Aashirvaad became a market leader with over 50% share in under two years of its launch. And the market itself has doubled since then, as the consumer is now finding the traits she wanted in atta itself! The farmer now received a larger share of a higher value delivered to the consumer; and ITC built a premium brand...

This is another idea described in the four action framework, as "raising" a factor of the value curve well above the industry standard!

The third bird was a revelation for us when we went to the farmers for feedback during our first season. The higher price and the lower costs were only second and third benefits on the farmers list. To our surprise, the first was the restoration of their pride through dignity of choice! Many farmers said that they felt humiliated by the system of "auctioning" their produce at mandis, as they had no way to set their own price for their months of toil & risk as any other business person did. Nilaami of someone's property was a disgrace in villages, as this happened only to the insolvent... But, in farm produce there was no other choice.

It occurred to us that the traditional functional orientation of the industry (a strictly price based transaction), suddenly got transformed into an emotional orientation. This is one of the six conventional boundaries of competition described in the book, when broken through would lay a new path to Blue Ocean Strategy. And this revelation also reinforced our tagline "Kisanon ke Hith mein, Kisanon ka Apna". A simple and compelling tagline is a key attribute of a sound BOS, along with two other complementing characteristics viz. must have an undiffused focus on some key competitive factors, and the shape of the value curve must diverge from that of other players in the industry.

This re-orientation of the relationship helped with the fourth bird! The trust reposed by the farmers in the ITC eChoupal brand enabled us to create a rural marketing platform that could endorse products & services on offer to rural consumers helping deeper penetration. In turn these products & services filtered by ITC through its knowledge and bargaining power raised the quality of life in rural India finding better destination for the higher incomes. The same digital (access to Internet), human (Sanchalaks & Samyojaks - more on this later) and physical infrastructure of eChoupal was leveraged for the reverse flow, reducing the effective cost of reach into rural India. Today more than 160 organisations ride on this platform creating an "increasing returns model". More partner companies bring more customers, and more customers attract more partner companies!

This fourth bird is like another method of the four actions framework i.e. "create" some factors that the industry has never offered before, to craft a new value curve.

Using this rural marketing platform to deliver agri inputs together with agri extension, raised farm productivity and quality of the farm produce. This was the one more way of raising the farm incomes, while creating another new business opportunity for ITC!

The shot not only delivered the fifth bird, but also broke another of the conventional boundaries of the competition by expanding the scope of offering through a complementary service (extension bundled with input) to chart another BOS!

Before I close, let me illustrate a couple of "execution principles" of BOS by sharing what I consider the real breakthrough innovations of ITC eChoupal. Both of these are similar to having your cake and eating it too, the hallmark of value innovation under BOS!

First of these is the co-option of the traditional middlemen into the eChoupal model as Samyojaks. These middlemen added value to the agri chains by making up for the lack of infrastructure; especially in the areas of physical transmission of goods, handling cash and managing counterparty risk. But they spun exploitative cycles of dependency around farmers and extracted value for themselves, by blocking information flow and market signals. ITC eChoupal co-opted them as service providers to handle physical jobs, yet bypassed them in the information chain by using Internet. In this manner, who could have been potential detractors of the new strategy were converted into friends. The devil is silenced, per BOS language!

Even more interesting is the creation of a new institution called Sanchalaks, lead farmers from within the village. Through a "fair process" of selection and work practices, the Sanchalaks were evolved into nano-enterprises who are equi-distant from the farmers as well as the companies riding on the platform at the same time. Both of them considered a Sanchalak a reliable trustee of their interests. The angel is leveraged, per BOS language!

With these execution risks managed effectively, ITC eChoupal initiative is now scaled to serve 5 million farmers (or 20 million consumers) spread across 50,000 villages of rural India.

Thank you...

PS: ITC eChoupal story is narrated using the BOS framework with a hope to trigger more innovation for the benefit of society, but the initiative itself precedes the BOS book by five years!

Corporate Social Responsibility (CSR) - A socially responsible investment?

2010-09-02T06:09:00.000-07:00

Yesterday, the Net Impact Club of ISB hosted a Panel discussion on "Corporate Social Responsibility (CSR) - A socially responsible investment?" PS Narayan (Wipro), Janet Geddes (KPMG), Unmesh Brahme (formerly with HSBC), Mudit Kapoor (ISB) were my co-panelists.

I was the first speaker; this is what I said in my opening remarks. Highlights from what other panelists said in their remarks, as well as the questions & comments by the audience are mentioned in italics, integrated into the text of my remarks for the sake of seamless reading thematically...

Is CSR good, bad or ugly? Actually, it is not one CSR and therefore there can't be one view. I see four steps in the CSR ladder. Pick your step and stick your label :)

Step 1 in the CSR Ladder: Earn Profits. Pay Taxes. Leave the rest to Governments.

Traditionalists argue that the focus of business enterprises should be strictly on satisfying the shareholder desire for a return on their financial investment to the exclusion of other non-financial stakeholders.

Are Corporates economic citizens? Or socio-economic citizens?

Corporates as artificial entities should have no social responsibility, real individual people must have a social responsibility.

Generating profit by servicing consumers in a competitive environment is the most socially responsible act of a Corporate.

Is CSR a way circumvent the society's perception that profits are bad?

Step 2 in the CSR Ladder: Implementation of Core business activities with broader responsibility towards all the stakeholders.

Demonstrate positive economic, environmental and social performance over long term. Triple Bottom Line Reporting along these lines. Since these activities are cost / investment intensive in the short run, these are typically supported by the market mechanisms such as Green Taxes, Emission Trading etc. Many times there also conflicts in trading-off interests of one stakeholder vs another. At a threshold level, typically such responsibility is driven by statutes too. Many companies go beyond those threshold voluntarily and adopt higher standards.

Are the three bottom lines mutually exclusive or reinforcing?

Most ethical companies are also the most profitable, per a global survey...

Corporates must look at all their spheres of influence viz. workplace, local communities, environment and supply chain & marketplace

Step 3 in the CSR Ladder: Poverty and environment focused social investment and philanthropy programmes.

Approaches vary from a simple Write-a-Cheque, to Venture Philanthropy, to Strategic Philanthropy. While write-a-cheque simply brings financial resources from Corporates, Venture & Strategic Philanthropy approaches bring other corporate resources such as management & entrepreneurial skills multiplying the impact. Any which way, scale & sustainability of charity is limited. Most typically

How do you decide how much money you put into CSR programmes?

What are the metrics of success of a CSR programme?

CSR is a social license to operate in backward districts, especially if you are in industries that extract from community resources, such as mining.

Is CSR a license to kill? As in extractive industries harming the environment!

Corporates have an ability to do good. They should see this as a responsibility to do good, because society is in dire need of good deeds.

Trying to solve world's problems, just because we have capability is arrogance! Patronising!

Isn't the best way to deploy CSR funds through supporting Social Entrepreneurs?

How many CSR initiatives are really scaled? To make any meaningful impact?

Doesn't a lot of employee volunteer work end up as a picnic, without any real work on the ground?

Even a picnic is good; better than not doing any good at all...

CSR funds are no more than a "tax" by Corporates on the market - by raising consumer price, paying lower salaries to employees, lower dividends to the shareholders or lower prices to vendors. This is more true in non-competitive markets, where corporate have such pricing freedom.

Focus of my talk today is to share ITC's experiences in adding the Fourth Step to this CSR Ladder: I refer to ITC's innovative business models, wherein our need for creating shareholder value is enmeshed with that of local communities in a mutually supportive, interlocking and interdependent partnership… ITC's eChoupal, Farm Forestry are in this league. Agarbattis is another business on similar lines!

Emerging economies, in particular, offer a low hanging opportunities to create such enmeshed models. Typically small producers have constrained access to markets, whether for information or knowledge, for inputs or output. As a result issues like low productivity, low share of consumer price, high transaction costs limit the incomes of these producers. Demand signals also aren't transmitted to these producers effectively, for them to be able to respond to changing consumer needs. On the other hand, corporates who source from these small producers suffer too, from high transaction costs, poor quality and delivery schedules, lack of traceability to product source point and so on... Corporates can invest in R&D, appropriate infrastructure and integrate these producers into their value chains to improve coordination, cut transaction costs, enhance quality, increase productivity to create win more - win more relationships. Higher the Corporate efforts to increase incomes of the poor, more the profits for Corporates themselves from such relationships. As a result scalability ans sustainability of such models is never a strategic challenge. Value chain integration can effectively deal with several environmental aspects too.

In ITC's eChoupal and farm forestry examples, the social impact is through better livelihoods to small farmers and poor tribals. Conservation Agriculture and Carbon Sequestration deliver environmental benefits, while competitive sourcing of high quality farm / forest produce bring the economic benefits to ITC.

While executing such initiatives, it is very important that the communities themselves are fully co-opted into the design and execution of the business models. This ensures relevance of the solutions as well as lower costs. On the other hand, one has to work closely with Governments to ensure that subsidies do not unduly distort the markets.

Typical drivers of CSR: Enhanced Reputation, Employee Motivation, Economic Advantage, Risk Management, Innovation & Learning, Statutory Compliance

Consultants help in CSR strategy formulation, due diligence, monitoring & evaluation, organisational development

If companies are indeed genuine about CSR, they shouldn't be part of Corporate Communications or Corporate HR...

CSR strategy gets formulated by corporates based on their perspective of themselves; whether they are Pure Capitalists (markets will deal with all issues), Social Contractors (explicit & implicit expectations from society) or Ecologists (we are but one of the species on this planet living at a point of time)

Mobius strip can be seen as a metaphor for the complex global challenges

Push factors for CSR: Environmental Conflict & Climate Change; Pull factors for CSR: Opportunity for inclusive business growth

Is regulation the path go down in India? Or leave to the discretion of Corporates?

How do we rope SMEs in to CSR mindset? Even workplace fairness, to start with...

Is India ready to buy green products at higher prices?

How to bring CSR & sustainability thinking into B-schools?

Is bringing affordable consumer goods to BoP CSR?

Isn't dealing with Naxalism a business agenda? How many CEOs want to have a serious action plan for this?

General bias of the hall, as sensed by me, at the end of the panel discussion was " Corporate Philanthropy is bad CSR. Making profits is good CSR. Models that enmesh business & community interests is the best CSR! "

Building Leaders

2010-08-27T08:54:00.000-07:00

Earlier this evening, I made a presentation at the TAAS - NAARM National Dialogue on "Building Leadership in Agricultural Research Management"

Idea of my presentation is to share ITC's experiences in leadership development, to cross-fertilise practices from the Corporate Sector into the National Research System. The dialogue included similar experience sharing presentations from the Not-for-Profit Sector, Government, Defence, besides the various Units of the National Research System itself.

You can access my presentation at this link

Rainbow Revolution in Indian Agriculture through innovative Agri Extension

2010-08-21T04:17:00.000-07:00

Earlier today, I chaired a session on "Agri Business Extension" at the NAARM - IFPRI Workshop on "Redesigning Agricultural Extension in India". Since that was the last technical session of the Workshop, I had an opportunity to include "my take-aways" from the deliberations in all the four previous sessions in my opening remarks. My closing remarks were based on the presentations made in that session and the discussions that followed.

My Opening Remarks:

After the Green Revolution for Grains, White for Milk, Yellow for Oilseeds and Blue for Aquaculture, the phrase 'Rainbow Revolution' has been used in Indian agriculture to describe the growth of the horticulture sector. Today I would like to use that label to signify the revolution we can bring about through innovative agri extension services. For a reason... At the beginning of this workshop, we had a white canvas on which we could paint the future of agri extension. While reflecting on the deliberations of the earlier sessions in my own mind, I visualised seven distinct colours on such a painting, if we were to achieve the revolution we all want. Hence my choice of expression, "Rainbow Revolution"!

The first colour I visualised suggested that our focus must be on the farmer. Not just as a passive recipient of Knowledge, as in the traditional paradigm of 'Last Mile in the Technology Transfer", but as an active Co-creator of Knowledge in a multi-way knowledge exchange paradigm. This would ensure access to personalised solutions to the farmer, besides setting a reality oriented agenda for agri research itself...

The second colour depicted synchronised delivery of information, knowledge and inputs. This takes us beyond just transfer of knowledge to actually applying it on the ground. Inputs here mean credit, seeds, nutrients, crop protection chemicals, access to farm equipment, risk management solutions etc.

The third colour called for an alignment with the Government's flagship agriculture programme RKVY, to be able to create a force multiplier. This in turn means building the capacity for village and district level planning. At the same time, there is also a need for redesigning Government programmes to ensure that they don't unduly distort markets; because at the end of the day, we are relying on a market economy.

The fourth colour sought integration of agri extension into the full value chain of that produce. This approach will figure a way to create value by serving the changing needs of an evolving consumer. This also will consciously extend the role of agri extension into the vital post-harvest arena.

The fifth colour I had visualised demanded accountability of the system to all its stakeholders. An outcome oriented system instead of input or output as the only metrics. Today, by making the extension service free, we may have taken away the farmers' right to demand quality. Even a token payment will work wonders in ensuring accountability!

The sixth colour appealed that we be sensitive to the non-renewable natural resources. Agri Extension must promote Conservation Agriculture as much as possible. All of us know the three dimensions of agriculture vis-à-vis climate change (1) that agriculture is a part of the problem, causing climate change through Green House Gas emissions (methane from flooded paddy fields & ruminants like cows, nitrous oxide from the soils, CO2 from fossil fuels used in farm equipment etc), (2) that agriculture is also one of the most vulnerable sectors impacted by climate change (fall in productivity due to changing weather patterns), and (3) that agriculture can be an important part of the solution to climate change (through emission reductions, carbon sequestration, increasing soil organic matter etc)

Finally, the seventh colour stressed the need for a proactive agenda on gender issues in agri extension. Analyse gender roles in farming systems, enable gender sensitive agri extension methodologies...

To paint these seven colours, the speakers in this session have access to several new brushes.

For example, the leapfrogging developments in communication media, information processing and presentation. The medium must be relevant to the message and the context.

Power of partnerships is another good brush! Define complementary roles, varied resources of different partners, and the shared aspirations. Deal with the challenge of mistrust, as one of the earlier speakers pointed out.

Co-opting social capital resident in the communities for relationship building and group mobilisation.

Then, there are several innovations in aggregation methods, business models and conflict resolution approaches.

Our artistes, the business people that they are, have certain unique capabilities.

Consumer centrality is the essence of business. Understanding, designing and delivering consumer-relevant solutions is how businesses thrive.

These businesses are accountable through "choices". Consumers simply vote with their wallets and feet, when they have choices. Businesses become unsustainable if their solutions are redundant.

Governance processes and the management capacity of businesses need not be reminded to this audience.

Before I pass the floor on to our first speaker, let me also share the specific brush strokes I want to see from each of these artistes...

What's the role of agri-business in extension? What are the risks of businesses engaging in extension activity? What are the contours of a new regulation that can mitigate such risks?

Should the role of Government be restricted only to those areas businesses won't go? That is, poor farmers, backward regions, long term challenges, subsistence crops etc. How do we ensure that subsidies do not unduly distort the evolving agri services market?

My Closing Remarks:

So, we now have a colourful painting and a beautiful frame.

The painting portrays a "co-creation platform", if I can call it so. The platform provider could be Government, or a Co-operative or an Agri-Business. The platform operates globally, but enables seam-less local participation of multiple stakeholders who can simply plug & play. Such an orchestrated yet open platform has the ability to produce a rainbow at will...

The frame I see has the character of regulating by fostering competition, rather than by restricting. The subsidies are delivered through coupons, so farmers can exercise choice across multiple platforms!

eAgriculture: Perspective to Practice

2010-08-05T09:51:00.000-07:00

Earlier today, I chaired a Panel Discussion on "eAgriculture: Perspective to Practice" at eIndia 2010. The Panel was quite diverse, consisting of the Knowledge & Information Management Officer of FAO Rome, the Director of Kerala IT Mission, the Dean of Bombay Veterinary College, Dean of Raichur Agri University, a Project Manager of C-DAC who is implementing the e-Village project in Arunachal Pradesh and a Director of a Farmers Organisation from Uttarakhand.

I opened the discussion, by saying that the role of 'e' across the whole agricultural value chain has been well visualised. Several models also have been successfully demonstrated. For over a decade now. 'e' played central a role in information generation, information processing and information exchange in those idea. 'e' filled the gaps in the crucial linkages across the value chain starting with research, and moving on to education, extension, crop management, supply chain management and post harvest management in those models. 'e' increased productivity, improved efficiency, reduced risk and delivered value through traceability in the pilot projects. Yet large scale operationalisation of these ideas is far from satisfactory, in the sense that the intended benefits haven't reached even a fraction of the needy farmers. So, the question to the Panel was "What does it take to translate the Perspective to Practice in eAgriculture?"

At the end of the session, I synthesised the experiences and case studies shared by the Panel into a model that I called "Pentagon", named after the five dimensions of what it takes to translate the perspective to practice in eAgri... The acronym of this model turned out to be C-ROSE, taking the first letter of each of the dimensions!

Collaborative Ecosystem of several stakeholders, that can stitch an integrated end-to-end solution for the farmer instead of each player targeting a sliver and increasing the costs of friction. An ecosystem that institutionalises a Knowledge sharing network for collaborative learning to hasten evolution of the practice.

Relevant Technology that is easy to use, in local language; may be a speech interface in addition to the text. A technology that is robust to withstand the challenging physical conditions and make up for the infrastructural deficiencies.

Orientation that doesn't view outreach to the farmer just as a last mile challenge, but more importantly, sees it as a first mile challenge to appreciate the individual needs of all the farmers. This can help in delivering personalised solutions. Given the heterogeneity of farmers' circumstances, such an approach is vital.

Sustainable business models that can be scaled to reach out to "all" the farmers, not just a prototype here or a pilot there. Scale doesn't necessarily mean that one initiative needs to reach "all" the farmers; multiple local enterprises can replicate a proven model and scale out to saturation.

Enabling Environment, most critically the Policy environment that fosters competition and that does not distort markets. The reversal of reforms in APMC Act, Essential Commodities Act or Forward Markets Regulation halted the roll out of 'e' solutions more than, possibly, any other dimension mentioned in the model.

Happy to incorporate any other dimension that any of you would like to add, and change the shape of this model. A Hexagon or even a Septagon? The end goal is to be Bang-on :)

Connecting Small Producers to Global Supply Chains: Importance of Local level Logistics - ITC eChoupal Case

2010-05-06T05:19:00.000-07:00

A summary of the presentation made at World Bank, Washington DC on 6 May 2010

Customers served by the global supply chains look for consistent quality products that are cost competitive and delivered on time.

To meet these expectations while connecting small producers to global supply chains, four components of the local level logistics need to be managed. I will use agriculture to illustrate my arguments, but the same logic applies to several other non-farm outputs of small producers e.g. handicrafts.

The Local Components of Global Supply Chains:

Two of these are targeted at improving efficiency

Logistics Costs
Farm Productivity

And, the other two enhance effectiveness

Produce quality aligned to market demand
Safety in production and supply chain

Default characteristics of each of these components, in the emerging economies, constrain the small producers from achieving the desired objectives:

When farmers sell their output to agribusinesses, avoidable additional logistics costs are incurred because the price is discovered only after quality check is done at produce consolidation points i.e. mandis (auction centers) that are some 25 km away from the farm gate. From mandis, the produce then moves to the warehouses of the processing units. This system is in vogue for nearly half a century, as there was no other go when the farmers are small, they live in widely dispersed villages and each one’s quality is different given the heterogeneity of farming conditions.
For the same reasons of fragmentation, dispersion and heterogeneity, the delivery of agri extension (crop management knowledge) and other farm inputs viz. information, credit, seed, nutrients, crop protection chemicals, insurance etc., are uncoordinated. And, typically, this delivery is seen as a “last mile challenge”; hence there is no focus on building solutions for individual farmers keeping their unique contexts in mind. As a result, farm productivity tends to be much lower than the potential.
On the quality front, these supply chains are great illustrations of “lemons problem”, where the real quality of the produce is not objectively factored into pricing at the mandi, eventually driving out the quality consciousness among the producers. The intermediaries, who make up for the missing infrastructure, act as Principals to transactions further aggravate the problem by blocking market signals & information flow along the chain.
The product loses identity along the chain, due to indiscrete aggregation of the produce (of multiple producers) done by the intermediaries to maximize value for themselves. Varieties and grades get mixed up, giving no opportunity for the processors to determine blending ratios based on consumer preferences.

ITC eChoupal factors all these challenges and connects small producers to global supply chains efficiently and effectively:

Quality factored price discovery in the village itself, by leveraging the power of Information & Communication Technologies and by co-opting a local farmer as Choupal Sanchalak to facilitate quality assessment.
Bypasses the traditional intermediaries in the flow of information and market signals, yet leverages their physical handling capability in a weak infrastructure context, to manage the flow of goods & cash more efficiently, by co-opting them as Samyojaks.
Using the same ICT platform to gather the crop management problems of individual farmers, builds “first mile solutions” in collaboration with experts at the back end
Preserves product identity through the supply chain by defining the stack specifications, having already eliminated the vested interest of the intermediate principals by converting them into service providers.

Impact of ITC eChoupal on the four components of local logistics:

Since the price is discovered within the village, the produce is now moving directly to ITC’s warehouses bypassing mandis, thereby eliminating non-value-adding handling expenses.
With the context specific farming solutions offered, together with farm inputs, best practice adoption increased, thereby raising farm productivity and / or reducing the costs of farming.
Since the quality is objectively factored into pricing, farmers are incentivised for improving quality. Free-flow of market signals on ICT infrastructure, is enabling production system to respond to consumer demand in terms of variety and quality.
Since the sourcing is now directly from farmers, product identity is preserved along the chain with complete visibility provided to customers to determine their blends based on final consumer demand.

The result is a more efficient & effective connection of small farmers to the global supply chains, increasing their incomes and improving their ability to respond to markets.

CK: Next would've been what?

2010-04-30T09:29:00.000-07:00

Quite unlike many other management gurus, CK was not a one concept wonder. Every five to seven years he would come out with a blockbuster idea that would change the way people looked at business globally. Be it around core competency and strategic intent, value co-creation with customers, business opportunity at the bottom of the pyramid or his latest thoughts on the new age of innovation where he set out the arithmetic that defined the future of business as N=1 & R=G!

What also stood out about CK was that he was a man who would hardly leave his ideas at conceptual level for the management practitioners to follow up. Instead, he would himself aggressively campaign and canvas for them and seek ways of translating concepts into action on the ground.

That said, I must mention that this piece is not so much about CK the man and what he was, but more about what his next blockbuster idea would've been and about which action agenda was engaging his mindspace.

Last year, while writing an update on ITC e-Choupal for the fifth anniversary edition of his book 'Fortune at the Bottom of the Pyramid', I concluded my piece articulating the vision of eChoupal using a metaphor from physics 'black holes for a green world'. CK, as many would know was himself a physics student and was quite intrigued; we had a long conversation on the subject. My idea was to pursue a pull based model (symbolised by black holes) to achieve sustainable development (symbolised by green world) as against the current approach of "pushing" sustainability that's obviously unsustainable. It was then that he shared his thoughts on how the challenge of sustainability was engaging his attention, and how it could be the new frontier of innovation. He was looking at creating a fusion in a manner that there was no conflict between the developed and emerging nations or business, Government and civil society organisations. Further, synthesising this domain with the BoP space, he was also visualising market mechanisms where poor people produced some kind of positive climate change instruments and trading them with rich nations thereby creating new sources of income for the poor. Alas, we have now missed out on the next blockbuster idea from CK!

On a different plane, CK was in the middle of cascading an action plan on India@75 to see India as a developed nation by 2022. If there was one programme to which he was giving his heart and soul in recent times, this was it! Interestingly our paths crossed on this front too! Around this time he was also guiding the field work of a team of Michigan students to write a case on 'the making of ITC eChoupal 3.0'. CK quickly picked up that personalised crop management advisory envisaged under eChoupal 3.0 was aligned with the core theme of 'the new age of innovation' i.e. servicing one farmer at a time (N=1) taking the unique circumstances of each one into consideration, and by leveraging the capabilities of multiple firms and resources (R=G) as against the traditional method of one generic solution serving a mass of farmers. He immediately wanted this approach to be an important component of the agri agenda in 'India@75' programme. He suggested that we develop a detailed working paper together along these lines, whereafter he wanted to meet the Prime Minister to propose this as a solution to rejuvenate Indian agriculture. I was to download his thoughts during one of his forthcoming visits to India before I worked on this. Any which way, India@75 was what he was keenly looking forward to as his pet action project. India would find it hard to replace CK in this journey.

It is at once stimulating and saddening to imagine the next steps of the master of next practices. May his soul rest in peace...

PS:

1. Published in Business Today issue dated May 16 2010 (page 84) with the title "What CK would have done next"

2. I wasn't sure if this piece belonged to Third Eye or Random Reflections! Cross posting in both...

Evolving Landscape of Rural India: Role of Mobile Devices

2010-04-29T05:37:00.000-07:00

Mobility will play a central role and significantly influence the very evolution of rural India hereafter. Therefore, rather than suggesting a plain list of ‘many ways in which mobile devices can be used in rural areas’, I would like to start with a quick look at the underlying drivers of rural India and then propose a framework to visualize the consequent strategic role that mobile devices can play.

My presentation is set in four parts:

Aspirations of rural people
Fundamental characteristics of rural India and how they come in the way of fulfilling those aspirations
Components of value in general, and their relevance to rural India vis-à-vis the aspirations and characteristics
The role mobile devices can play in this backdrop

Over the thirty years I have been working in rural India, the most remarkable facet I observed is the transformation of rural mind-set from one of ‘resignation due to deprivation’ to ‘aspiration arising out of empowerment’!

This transformation occurred as the rural infrastructure improved (especially roads and telecom) and their incomes rose. And the sources of income expanded too - within agriculture diversification helped, while the non-farm activities multiplied (livestock, sales & services in rural markets). Several Government schemes as well as remittances from the kin who migrated to towns brought in more money into rural hands.
The aspiration is primarily for better basic services (education and health), and superior quality of life (access to consumer goods used in urban India, financial services and entertainment). People, naturally, are also looking for opportunities to step up their incomes further (new livelihood sources and appropriate production inputs are the needs here) to be able to afford such products & services.

However, three characteristics of rural India come in the way of realizing these aspirations…

The wide geographic dispersion of our villages constrains access to products & services mentioned earlier, in terms of timeliness, quality and cost - if they access at all. Because villages are a long way away from the centres of action (urban areas) where specialists reside or these products & services originate.
Extreme fragmentation in terms of the size of rural production units reduces their bargaining power when they buy their inputs or sell their output. This is true even for financial services and consumer goods as well, as the ticket size of their purchases is very small. Aggregation can empower them, be it in the form of cooperatives, or self help groups; whether physically or virtually
Wide heterogeneity in circumstances of the people across rural India requires products and solutions that are personalised to their unique needs. Delivering such solutions is expensive as is, and is further unattractive when the unit volumes and paying capacities are small.

Value has three components. Value Creation, Value Delivery and Value Capture

By a logical extension of the three characteristics already described, it is obvious that value can be created in rural India by delivering services remotely (overcoming dispersion), by personalizing solutions (that address heterogeneity) and by democratizing access (neutralizing scale / class disadvantage, eg. for poor people & women).
What is not commonly appreciated is the fact, that the same three characteristics constrain rural people from taking advantage of even the available products & services unless they are delivered as a complete end-to-end solution. For example farm productivity won’t rise unless relevant agri advisory, real-time weather / market information, credit, seed, nutrients, crop protection chemicals etc are all available in a coordinated fashion. So, a well-orchestrated ecosystem is needed for actually delivering the value created by using the ideas mentioned in the first bullet.
For any enterprise to scale and sustain over time, some of the value created & delivered must be captured for its financial investors. All of you know the famous examples of many dotcom companies that created value for their customers, yet went bust as their business models could not capture enough value for themselves! In case of rural markets, plain vanilla business models that try to capture more share of the small wallets find it difficult to sustain. Innovative models leverage aggregate volumes of these markets and get interested third parties to cross-subsidise (much like the media business), besides capturing some value from the rising incomes (having facilitated such rise in the first instance)

Interestingly, with their wide-ranging capabilities, mobile devices can play a central role in all the three components of value in rural India

Remote delivery of certain virtual elements in areas like education, health, entertainment; both information & transactions in income generating areas like agriculture, financial services, governance & citizen services; exchanges for employment and matrimonial; social networking platforms etc are all already happening at some basic level using mobile devices by extending the applications designed for Web.
Additionally, by integrating features like unique identification, crowd sourcing, GPS, GIS, visual mapping, text-to-voice, multi-player collaboration etc., several other value creating applications can be developed which wouldn’t be operationally feasible without mobile devices.
Finally, with targeted delivery of content & advertisements mobile devices will facilitate the value capture process.
Remote delivery at door-step, personalized solutions for relevance, virtual aggregation for economies of scale, collaboration for putting end-to-end solutions together, unconstrained access even for the disadvantaged – all so necessary for development of rural India, are now possible due to mobile devices

Let me now illustrate these propositions with some specific uses of mobile devices along these lines

In education, e-learning will morph into m-learning; further moving to potentially deliver books over mobile devices as the screen sizes expand; with the ability to stay in touch on an ongoing basis, life-long delivery of continuing education is possible
Last mile access in health services, drawing upon experiences from web based tele-medicine services. Mobile device itself as a medical instrument (eg pulse reader) is not a distant dream.
Entertainment applications do not need much elaboration; will have instant demand
Location based information services like Yellow Pages (eg doctors, agri input stores) can morph into mini meta markets
In agriculture and other livelihood activities, starting with elementary services like information provision - delivered as text or voice - (eg. weather forecasts, market prices) to transactions (eg e-procurement through auctions, negotiations) to sophisticated applications like precision farming through personalized crop management advice (with the ability to click and transmit photographs on one hand, and integration with GIS on the other hand)
Banking transactions
m-commerce transactions like railway ticket booking
Calendar integrated notifications and alerts
Remote monitoring and activation of farm automation systems (eg irrigation, fertigation), some of which is already happening as a grassroots innovation
Supply chain management applications in rural marketing (for FMCG, medicines etc) like order taking, promotions, information uploading, remote stock management in rural outlets
Governance applications like voice / text alerts of Government Scheme; or operational activities like uploading of local data by Village Accountants, Anganwadi Workers, Warehouse Keepers etc
Citizen reporters generated news and other local information, or even poll based market research, visually mapped by integrating with GPS for reading patterns & movements and re-casting for local action

In short, a mobile device can become a hand held transaction platform, a personalized bank branch, a retail store, a cinema screen, a teacher, a doctor and many such, besides being the good old communication tool. Thereby, playing the role of a key enabler in taking rural people forward with rest of India; delivering the much desired inclusive growth :)

PS:

This blog is a summary of my talk at the Nokia Strategy Summit in Amby Valley (Lonavala) on 29th April 2010.
I am thankful to so many friends (a record fifty four in all) who shared their thoughts via Twitter, Facebook and LinkedIn as valuable inputs for this talk.

Investment Opportunities in Indian Food & Agri Business Sector

2010-04-14T09:43:00.000-07:00

Here is a summary of my talk at the BRIC-IBSA Business Forum in Rio De Janeiro on 14 April 2010

Investment Opportunity in Indian Food & Agri Business Sector is founded on Four Pillars

Large Sector with further tremendous upside
Indian Consumer is seeking new products
Production system has potential to supply those new products
The Business environment is very conducive

Pillar 1: Large Sector & Further Upside

Size > US$ 200 Billion
50% of household expenditure is on Food
50% of workforce is engaged in agriculture
That rest of the economy is outgrowing agriculture, is a signal for investment opportunities in agriculture

Pillar 2: The Consumer Dimension

More than 1 billion consumers
Rising incomes & rapid urbanisation changing the profile of consumption
Global experience: US$ 1000 per capita is the sweet spot for shift in food consumption patterns, from basic to value added food
Consumer is looking for new value: quality, variety, safety, convenience etc.
Besides this domestic opportunity, there are export prospects too in several products

Pillar 3: The Production System

Large arable area > 150 million ha
Rich & diverse agro climatic zones
Characterised by small farmers
Good scope for productivity enhancement through technology induction

Pillar 4: The Business Environment

Significant private participation after policy reforms in the last decade
Traditional farm labour seeking new jobs
Large infrastructure investments in the recent past: roads, telecom, irrigation etc
Thrust area for Government as a strategy for “inclusive growth”

The Investment Opportunities

Innovation at the consumer end of the chain (Processing, packaging, retail formats)
Effectiveness at the farmer end of the chain (Productivity, quality - pre & post harvest, labour saving technologies)
Efficiency along the whole chain (Integration, coordination, infrastructure)

Cross BRIC-IBSA collaboration imperative (Food Security, Climate Change)

Investment Opportunities in Rural India

2010-03-24T09:25:00.000-07:00

Here is a summary of my talk on "Investment Opportunities in Rural India" at the Credit Suisse Investors' Conference, Hong Kong in the session on "Emergence of Rural Asian Economy" (24 March 2010)

My talk had three parts.

1. What factors helped rural India grow phenomenally in the recent past?

2. Will the growth sustain?

3. What are the investment opportunities!

Six factors helped growth

1. Infrastructure investments (roads by Govt, telecom by private)

2. Higher farm incomes (high commodity prices, more crop diversification)

3. Government programs like Universal Education, Employment Guarantee, Waiver of loan repayment by small farmers

4. Remittances from youth employed in towns

5. Rural non-farm (live stock, new services)

6. Income from sale of land (urbanisation, industrialisation)

While there is no problem to this growth momentum in the short run, there are several (six again!) show-stoppers that need to be dealt with

1. Food Security, due to stagnating farm yields and land use diversification; malnourishment of women & children in particular

2. Climate Change will compound the yields problem. An IFPRI model says Indian wheat yields can decline by 50% by 2050; rice 17%, maize 6%. We need to build the small farmer capacity in yield improvements and in dealing with climate variability

3. Need to create more urban jobs, especially in small towns; ratio of agri workforce to arable land is rising to unsustainable levels

4. Investments in "energy" still woefully inadequate

5. Policy reforms to link farmers to markets have slowed down / reversed

6. Quality of delivery mechanisms for basic services still poor (education, health care, financial services)

These challenges present opportunities in four specific areas of investment!

1. Infrastructure businesses (energy solutions, logistics, micro irrigation). PPP opportunity

2. Provision of Basic Services (education, healthcare, financial services). PPP + innovative business models required

3. New Technologies (labour saving crops, chemicals, equipment; mobile phone apps, rapid testing equipment for crop quality & biometrics)

4. Delivery Channels (Govt Services, Agri Extension, Basic Services as in 2 above, Consumer goods)

Agriculture Practicals at a Primary School

2010-01-24T01:31:00.000-08:00

Friends on my Facebook and Twitter network already know of a school programme I attended today, on bringing agriculture through practical work. This was at Academic Heights Public School’s new campus in Nagole (Hyderabad). This school was set up by a bunch of six professional managers / entrepreneurs who took a franchise for Andhra Pradesh from the SK Group of Bachpan fame (more popular in Delhi). Today I was the Chief Guest at the launch of their new programme called “Continuing Education and Learning Programmes for Students”. The first domain for this programme is titled “Hello Farmer” to enable students experience villages and farmers lives.

Many of you gave me valuable inputs on what I should cover in my talk. I’ve synthesized all of those ideas into my talk, as you can make out from what I reproduce below! I enjoyed the whole experience largely because of this interaction with many of you on Fb & Twitter over the last two days :-) Thanks a ton!

Before I started my talk, I wanted a sense of what the parents and kids present there thought about the whole initiative. Since the numbers were large, I couldn’t ask individual opinions. Instead I gave two options and asked for a raise of hands.

1. Parents: First choice was whether they “agree that practical / project work is great; exposure to agriculture is wonderful”. The second choice was if “all this is a waste of time and distraction from studies in today’s competitive world”. Overwhelming majority went with the first choice. There were a few who raised hands for the second choice too.

2. Kids: One choice was if “all of this was fun and joy” or anyone thought “this was pain, hard work and more burden”. Every single kid raised hand confirming this was fun!

I was therefore talking to the converted. So I focused on underscoring the value of this approach and brought out some nuances.

Here’s a summary of my talk:

I compliment the management and the faculty of the school for conceiving a structured programme that helps “learning by doing”.

In my opinion, ‘learning by doing’ is the second best form of learning, in the sequence of ‘learning by’… 1. ‘listening’ to a teacher / parent / friend, 2. ‘reading’ books, 3. ‘writing’ notes, 4. ‘seeing’ action as it happens or in films, 5. ‘doing’ by oneself, and 6. ‘teaching’ someone else using whatever method, the ultimate method of learning!

I believe, through this programme, the children learn three things:

1. Life Skills: Through any method of “learning by doing’, whether this programme or other such practicals / project work etc., children learn the very critical life skills. By life skills, I mean capabilities like gathering information, determining alternatives, making choices, appreciating future consequences of current actions, time management! These are as important, if not more, as the many subjects the children learn in the class room. Growing plants, watering them, monitoring the progress will develop a disciplined routine in the child.

2. Focus on practical work in agriculture & rural builds the character and value system in the kids: After experiencing the hardwork involved in farming, the unpredictability of survival & growth of plants, the children will value and respect a farmer. They will appreciate the dignity of labour. The children will also realize the value of food after experiencing the hard work involved in growing, and hopefully not waste food any more! Some parents know that this approach is likely to produce better results than any amount of telling and scolding the kids about wasting food :-)

3. This programme is also a great opportunity for the children to gain knowledge in some very important areas: While introducing me, the Principal mentioned ITC’s brands like Bingo Snacks, Aashirvaad Atta and Classmate Notebooks. I know, most kids are already familiar with these brands, now they will also know how agriculture is the starting point for all such products! Most of you heard about 2012 prediction, some of you may have seen the movie too… The end may not happen in 2012, but won’t be that far away if we do not bother about global warming; I am sure many of you are familiar with that phrase. I know some kids who actively farm on Farmville via Facebook are very aware of this phenomenon. It is important that all of us learn and practice various methods of conserving natural resources. Say, reusing kitchen waste water in the garden, composting vegetable waste into manure, using drip irrigation for saving water etc. I am sure the children will come back from school and teach a thing or two to the parents on this front. And, after all, if we are worried about global warming, it is for their future! Through these practicals, children will also learn about different soils, different conditions under which different crops grow, importance of variety localization, problems in growing some alien breeds etc. Most importantly, I think, the children will start loving fruits & vegetables and eat such nutritious food, without the nagging from the parents!

The beauty is that all of these important lessons – be it life skills, or value system, or the much needed knowledge – are all learnt while having a lot of fun by playing with sand and soil:-) Therefore will be internalized better!

In order to realize all of this,

1. a lot of innovation in the classroom is required, say showing films like ‘Bee Movie’ or pictures of ‘Urban farming’ using the multimedia, besides what is covered in the science class

2. supported by outdoor practicals at the school including growing a nursery from where the children can collect saplings for growing at home. Could be simple crops like pudina, coriander or even tomatoes and chillies

3. supplemented by a highly engaging homework like growing plants in pots or small patches at home, monitoring them and bringing results back to the school.

In short, an integrated design of the programme. That’s my recommendation to the school management and the faculty.

Before the launch speech, I planted a sapling. After the launch, the kids performed a skit on village life. That was lovely. At the end, all of us took a green pledge! Included in the pledge that each of us will plant at least one sapling every year and tend to it, knowing that that’s how a whole garden is taken care…

Before closing this blog, I want to again thank many friends on Facebook and Twitter who gave suggestions on what I should cover in my talk. I hope I’ve been able to incorporate all of them.

Agriculture & Climate Change: Aligning Small Farmers

2010-01-18T10:07:00.000-08:00

Last week I spoke on this topic at the Global Forum on Food & Agriculture, Berlin. These were the broad talking points I had jotted down for myself:

A. All of us know the three dimensions of agriculture vis-à-vis climate change

1. That agriculture is a part of the problem, causing climate change through Green House Gas emissions (methane from flooded paddy fields & ruminants like cows, nitrous oxide from the soils, CO2 from fossil fuels used in farm equipment etc)

2. That agriculture is also one of the most vulnerable sectors impacted by climate change (fall in productivity due to changing weather patterns)

3. And, that agriculture can be an important part of the solution to climate change (through emission reductions, carbon sequestration, increasing soil organic matter etc)

B. At a macro level, what needs to be done to produce abundant food that is safe, healthy and climate friendly also seems to be reasonably well known!

But, unlike in other sectors, the key actors that need to implement these solutions are hundreds of millions of small farmers spread around the world.

C. The challenge of aligning the small farmers to climate change issues is four fold!

1. Bringing relevant information to farmers living in dispersed geographies, especially where the supporting infrastructure is weak

2. Personalising the sustainable crop & livestock management practices to individual farmer circumstances, and then transferring that knowledge

3. Coordinating availability of all inputs like credit, water, seeds, risk management instruments etc, so that the new knowledge is actually adopted by everyone

4. And, most importantly, providing a financial incentive to the individual farmer when he has a difficult trade-off between today’s cost and tomorrow’s benefit, or between individual effort and common good

D. There is a solution to this apparently complex challenge. In fact, it is practically demonstrated through our company’s innovative business model named ITC eChoupal; that reaches four million small farmers in India today.

Although Information Technology is the most known face of ITC eChoupal, the model has three equally important components.

1. Firstly, leveraging Internet and increasingly Mobile phones so that real time information and personalized knowledge can reach the small farmers in an audio visual mode

2. Secondly, co-opting social capital through user groups that can help equitable distribution of common resources like water; also helps in accessing indeigenous knowledge and in conducting participative research

3. Thirdly, a collaborative network of organizations working together to bring a complete end-to-end solution to the farmer through a meta-market approach

E. With this approach, I am confident that we can align small farmers in the war against climate change. This alignment will happen faster, if the international community creates a fair reward system for farmers recognizing their contributions to climate change mitigation (eg carbon sequestration activities and bio-based energy services)

Indian Agriculture 2020

2009-12-20T00:20:00.000-08:00

A friend was doing research for his company on rural India. He asked me to gaze into the crystal ball and tell him how Indian Agriculture will look like in 2020. Here is what I had shared with him over breakfast, earlier this morning.

Mega Trend 1: A counter-intuitive aspect of Indian agriculture today is the shortage of semi-skilled and unskilled farm labour. In itself, at a macro economic level this is a good sign; but, when you sound any farmer out, the first complaint is about labour shortage and consequent high wage bill. Over time, this is likely to trigger land consolidation and further fragmentation at once, at the two ends of the spectrum. Larger farmers will accumulate more land to make mechanization feasible. Medium farmers will off-load some land and keep just about the acreage they can cultivate with the labour available within the family. Opportunities for Business: Innovations in Indian specific farm mechanization (beyond the classic approach of tractorisation); innovations in labour saving crops, farm practices and inputs.

Mega Trend 2: Swifter shifts in land usage pattern (across different crops, as well as away from agriculture) triggered by shifting cost v benefit v risk and increasing role of free markets with decreasing information asymmetry. Gone are the days a farmer would cultivate a crop because that’s what he had done last year. Opportunities for Business: Networks for gathering market intelligence from grass roots for consumption by all the stakeholders (commodity businesses, brands with agri raw material, ag input companies, ag infrastructure companies, insurance companies, Governments)

Mega Trend 3: Inroads by Bio-Technology. After the phenomenal success of Bt Cotton, Bt Brinjal is waiting by the door. Once one food crop shows the way, others will follow! Farms will then turn into factories, farming with precision and producing crops with traits desired by the consumers. This will blur the differences between independent industry verticals like farm inputs, food, pharmaceutical and packaging. In turn, this may well create a vibrant “wellness” industry. After all, human beings long for four evergreen As. Ability (Physical & Mental performance), Anti-Ageing (internal organ functions) and Appearance (external). Bio-technology promises to deliver these!

Mega Trend 4: Concerns on Food Security for the poor will be outweighed by the concerns on Food Safety of the rich and middle class… The agri-food supply chains will need to deliver identity preserved products to retail shelves, some of which need tracing all the way to farm practices! This requires a recast of the roles of players along the supply chain. Role of Information Technology will be central.

Mega Trend 5: All of these changes ride on a fundamental shift in the agri-extension service. Today, the service is barely customized to crop and region. Tomorrow this needs to be personalized to individual farmers. More complex to design and deliver! But there lies the mother of all business opportunities… raise farm incomes and take a share of that. Create Fortune for the Bottom of the Pyramid and then look for Fortune for yourself.

I was actually looking for two more trends, shook the crystal ball vigorously; but no, can’t see them!

1. More conservation agriculture to preserve environment while improving productivity.

2. More partnerships among Government, Agri Businesses and Farmers (or their Collectives) to realise everyone’s goals!

May be passive gazing isn’t enough to make these happen. Let’s do something…

Blending Innovation and Social Entrepreneurship, Changing lives

2009-12-13T09:08:00.000-08:00

Here is a summary of my opening remarks during the panel discussion on “Blending Innovation and Social Entrepreneurship, Changing lives” at the Villgro Unconvention on 11th Dec 2009 (http://nxy.in/7rxhn)

1. What is “changing lives”?

To me, “changing lives” has two aspects and one outcome

(a) Align capacity of the people. Am saying “align” rather than the more commonly used term “build”, because I believe everyone has some sort of special capacity innately. Capacity could be social rights, economics knowledge, communication etc

(b) Enable unconstrained access to markets. Markets for information, knowledge, inputs (products and services) into production activity and access to output markets

so that

(c) everyone can fulfill their aspirations whatever they are, including a better quality of life!

2. Why do we still need to talk about “changing lives”, despite so many centuries of civilisation?

I will illustrate my arguments referring primarily to the context of rural Indian people (because that’s Villgro’s canvas, and that’s where my experience lies in any case), but many of these observations are relevant to all poor people.

Because of certain inherent and fundamental characteristics of rural people (especially farmers) and certain other challenges, their access to markets is constrained. Consequently all their hard work, innovation and risk are burnt in sheer survival rather than creation of wealth. Incidentally, in the same panel, Paul Polak described such people as “survival entrepreneurs”

I call some characteristics fundamental, because they are unlikely to change (to any significant effect) in the foreseeable future. They are:

(a) Fragmented Size: Each of the 120 million Indian farmers owns an average of just about a hectare-and-a-half of land. Consequently, they end up with weak bargaining power in any value chains they are part of. They end up buying any thing they buy at a very high retail price at the end of a long chain. CK Prahalad called this “Poverty Premium”. On the other hand, whatever they sell they sell at a whole sale price at the beginning of another long chain; receiving only a small share of the consumer Rupee as a result.

(b) Geographic Dispersion: These 120 million farmers live in some 600,000 villages spread across a large geography. As a result access to real-time information is difficult and cost of reaching goods becomes expensive.

(c) Heterogeneity: Besides the broader variations in soil types and climatic conditions across India, the individual farmers also differ from each other so much (eg. access to finance, cash flow needs, risk appetite, family labour and so on) that any generic solution is not going to be optimal for many. Personalisation of solutions is an imperative, but personalizing isn’t viable for any business when these people are fragmented and dispersed!

The challenges arising out of these fundamental characteristics are further compounded by inadequacies in the infrastructure. Infrastructure of three types. The more commonly known physical infrastructure viz. roads, power, telecom; also irrigation in case of farmers. Then the social infrastructure viz. education for competence building, health – a major reason for indebtedness in rural India. Finally, and most importantly, the still evolving institutional infrastructure viz. credit ratings, dispute resolution, commodity price risk management, farm yield risk management etc.

As a result of these fundamental characteristics and the infrastructure inadequacies, when the farmers access markets such as banks for loans, agri extension officers for farm management knowledge, mandis for selling agri produce etc their transaction costs are high; that is when they are actually able to access.
Otherwise they have to rely on middlemen in the villages who provide them all these services at one shop conveniently, but extract their pound of flesh by spinning a cycle of dependency and exploit it to their advantage!

In other words, these two options are like relying on the Devil or swimming through the Deep Sea to access the markets. What’s the outcome you then expect, except the world still looking for solutions to “change their lives”?

3. In this back drop, I propose that innovation along three vectors can make a difference and possibly hold a light at the end of the tunnel for these people:

(a) Technology: For relevant products (e.g. energy solutions – solar lights, communication solutions – mobile phones) at better value for money price points, and for remote access (information, knowledge, e-learning, health diagnosis & delivery) by side stepping or making up for infrastructure inadequacies

(b) Institutions: Fusing technology, social capital (making up the missing institutions and provide an alternative to the traditional middlemen e.g. Joint Liability Groups making up the missing credit appraisal mechanism; ITC eChoupal Sanchalak for facilitating value added access to Internet) and collaborative networks (that orchestrate an ecosystem to bring end-to-end solutions to the poor like middlemen, yet offer freedom of choice like the unbundled market institutions) to create more equitable markets

(c) New Business Models: Enmesh the interests of people and business (e.g. identity preserved supply chains in eChoupal system that raises the incomes of the farmers and increases ITC’s profits), and third party pays business models (leveraging the volume ala’ media business) for fiancial viability and scalability of the enterprises

Marketing to the Bottom of the Pyramid

2009-12-11T18:16:00.000-08:00

Earlier this week (7 Dec), I spoke to the members of the six winning teams of ISB’s iDiya initiative (http://www.isb.edu/iDiya/). My topic was “Marketing to the Bottom of the Pyramid”. Actually, I conducted the session much like an MBA class. I just asked the questions, got the participants to respond based on their experiences, and I put it all together as a synthesized output. Here it is:

A. Why is marketing to the consumers at the BoP different from marketing to the consumers at the ToP or MoP?

• What is different about these consumers?

1. By definition, income of these consumers is low
a. Incomes are seasonal for farmers. There is also variation in incomes across seasons
b. Most of the money is spent on Food. Purchasing power for discretionary products is low
c. People prefer single serve products. Low unit cost products.

2. Awareness levels of these consumers about most products / services is low (primary focus is on subsistence)

3. Acceptance of new products is low.
a. There was also a counterpoint that acceptance of new products is actually high, if the product is relevant and the value is communicated effectively)
b. New products are accepted when opinion leaders in the community use them and demonstrate value
c. Word of Mouth is a better communication channel among the BoP consumers

4. Urban BoP is more homogenous than their rural counterparts
a. Urban BoP has lower disposal income as their cost of living is higher than that of their rural counterparts
b. A number of urban BoP consumers may not have a permanent address, as they keep migrating for jobs and / or change addresses when they come back to towns seasonally

• What are the challenges in marketing to these consumers?

1. Reaching products to them is a challenge. Supply chain costs are high and unviable, compared to product margins, as they are scattered (especially rural consumers)

2. Communicating with them is also a challenge, due to low media penetration. Difficult to reach consumers other than top socio-economic segment in the village

3. Competition from the local middleman is a problem. Because he lends, he has a grip on the consumers. He pushes high margin products, not necessarily products that are relevant to the consumers. Alternative channels (eg Banks) have the risk of defaults, as they don’t know the consumers as well as the local money lender does. Their documentation processes are rigid, and borrowers prefer easy access from the money lenders.

B. In light of these differences and challenges, how should we approach marketing to these consumers? (Answers largely revolved around rural consumers)

1. We must offer Products relevant to these consumers. These are (a) those that raise their incomes and reduce their risk (b) low cost products
i. Reach R&D to people at grass roots to increase their productivity and improve quality
ii. Reach finance. Actually complete range of financial services credit, savings, remittances, insurance
iii. Bring Crop Insurance, Health Insurance, Commodity futures
iv. Information about new investment & employment opportunities is an important service that can be provided
v. Reduce dependence on agriculture, through allied activities like livestock or even BPO. Facilitate some primary processing activities in the villages.
vi. Build capacity for these other activities

2. We must leverage technology to create such products and also to overcome the infrastructure barriers
i. Technologies include mobile phones, radio, internet
ii. Apply basic & appropriate technology to solve problems, many times learn from the BoP people themselves

3. Organise people at BoP into groups to reduce transaction costs in dealing with them
i. Thereby build scales of economy in farm inputs sourcing
ii. Collective farming or cooperative farming also examples
iii. Reduce role of traditional middlemen, by bringing educated rural youth back to villages
iv. Leverage the discipline characteristic among women to be the new intermediaries, as demonstrated by SHGs

4. Multiple organizations must come together in a collaborative way to deliver complete solution to these consumers
i. PPP is a good way. Government financial support is crucial to many projects, especially in agriculture & employment
ii. Partnerships with Not-for-Profits are useful in establishing relationships with the community, and in communication

C. What are some of the challenges you visualize while executing these strategies?

1. Many execution challenges are cannot be anticipated; so be adaptable

2. Customising products and services to the local needs; understanding the local needs itself is a challenge
i. Delivering after sales services is expensive
ii. Acceptability of new products / technology / ideas will take time to build awareness and educate people about the benefits

3. Competition with middlemen and other local players isn’t easy.
i. If the products / services improve market transparency, there may be resistance too from these people
ii. Competing with counterfeit and look alike products at substantially lower prices will be a challenge too

4. Identification of right leaders within the village will be a challenge in itself

5. Retaining talent is also challenge, as most people would like to work in urban areas
6. We need a pipeline / platform to connect companies with BoP consumers (right from consumer understanding to distribution of products)
i. Such a pipeline could be built in a collaborative mode (Government could pitch in with some subsidy, especially for services like agri extension and other capacity building activities)

Here is a picture of a part of the White Board I scribbled on; this helped in putting this note together :-)

Twinterview on Franchising

2009-12-06T08:37:00.000-08:00

Avishek Gupta, a member of the Dairy Network Enterprises team interviewed me on Twitter about franchising. Here is a transcript

If you would like to comment on the subject, please visit
http://www.facebook.com/topic.php?uid=185594549445&topic=11066

Avishek_Gupta: What if I want to #franchise my business? What would a #franchisee look for?

S_Sivakumar: Actually just three things! RaRoI (to take home), Brand (to pull customers), SOP (to idiot proof execution)...

Avishek_Gupta: Thanks, that's precise!But, what if I don't have a brand? Will ONLY the other two work? My Query specific to small rural enterprises.
(Comment added later by Avishek to this transcript - assumption behind the question was that it will take some time to create a franchisable "brand" across different remote rural locations and hence the "lack" of brand for a relative newcomer like DNE)

S_Sivakumar: If not brand, something else to "pull" customers. Say, a unique product or service. Otherwise it's partnership, not franchising!

Avishek_Gupta: Partnership v/s Franchising!!...Thanks a LOT for the insight! :)

S_Sivakumar: When you franchise, you bring everything to the table except last mile. In partnership, you combine complementary strengths

Avishek_Gupta: How to get a rural entrepreneur set up a franchisee? How does he get to know about it? What can convince him, it works? Local NGO?

S_Sivakumar: As to who can convince your prospect depends on the profile of your prospect. Local NGO, Bank Manager, School Teacher.. Best would be to conduct a village meeting (aided by an AV showing Franchisee at Work) and create "pull" for applications

Avishek_Gupta: Is minimum revenue guarantee for start-up period an intelligent way to go to convince entrepreneur? Or is it absolutely foolish?

S_Sivakumar: Minimum Guarantee is a useful tool. Ideally you should link the guarantee to efforts on part of franchisee, not a free ride!

Avishek_Gupta: So true! And our job would be to be clear about how we would "measure" the efforts of the entrepreneur in initial periods of little revenue.

S_Sivakumar: The inputs that drive the desired outcomes will define the efforts...

S_Sivakumar: Yes, in any case you can't design reliable SOPs before running the business for a while

Avishek_Gupta: So, Franchise Package = SOP + min guarantee (proxy indicator 4 ROI) tied 2 efforts + a great service /product! Awareness thru AV of franchisee at work!

Lessons in Public Private Partnerships

2009-12-04T06:20:00.001-08:00

Over a lunch meeting today, a few representatives of a Global Donor wanted to understand the lessons I learnt in managing Public Private Partnerships. Here are the three lessons I shared with them:

Lesson 1: Design PPP projects in specific areas where Governments have failed to deliver the goods, or where Institutions created at a point of time are not relevant any more. Identify what value Private Sector can add to change the outcome to more desirable ways. Propose an option with clear roles for both partners (Principal to Principal or Principal to Agent etc). Role of Government could be Policy Reform, Bringing Legitimacy, Make Investments, Facilitate Convergence; role of Private Sector could be in bringing Consumer Understanding, Building Market Linkages, Make Investments, Manage Convergence. Lack of clarity in roles, or lac of complementarity in roles, or lack of convergence in the outcome objectives will lead to failures.

Lesson 2: “Public” is not one entity. Understand that there are three layers in Public, viz. Political leadership, Senior Bureaucrats and Operating Level Government Employees. Understand that all three layers have different personal / professional objectives and postures. Need to build an alignment individually with the global outcomes expected from the project

Lesson 3: Need to co-opt an additional P to make the project relevant. People. Or Communities, if you were to use a PPCP instead of a PPPP! This co-option being somewhat social in nature (as opposed to purely economic logic) needs to factor in class and caste dynamics

Panel on “Rethinking Sustainable Growth: New Ideas and Approaches”

2009-12-04T06:01:00.000-08:00

Panel on “Rethinking Sustainable Growth: New Ideas and Approaches”
at the ICC Regional CEO Forum on “Globalisation and Inclusive Growth”
Delhi, 4th December 2009

The Panel was chaired by the well known Professor of IMD Mr Jean-Pierre Lehmann. He set the stage by underscoring “poverty and sustainability’ as two of the greatest challenges identified by ICC as part of its agenda covering five dominant themes in all (which include ethics, values etc). He also suggested that India has to succeed if world has to succeed in 21st Century; and India will succeed if its “inclusive growth” strategy succeeds!

Economist Surjit Bhalla (Oxus) who spoke before me, recounted per capita income statistics over time (from around the world; and India & China in particular) and said he was skeptical of any improvement. He provoked the Panel by saying “Inclusive Growth” is a sequel of the same movie with similar unhappy endings of a rich and a poor world each time! First the world called it “Poverty Alleviation”, then “Bridging Inequalities”, thereafter “Pro-poor Growth”, and now “Inclusive Growth”

I had combined the points made by the two opening speakers, to argue that (1) Great challenges are big opportunities for business, and (2) Because Business is participating in the “inclusive growth” paradigm, there is hope for a different ending this time :-)

In the context, to me “inclusive growth” meant (1) including the poor in the growth process, by bringing them access to basic services viz. education & health, and empowering the producers among them to participate in the value chains to raise their incomes (2) including the people from our next generations in our thinking and actions, in a manner that we don’t aggressively consume non-renewable natural resources that belong to them, while we work on economic growth and superior quality of life of this generation

I highlighted three approaches and several ideas (primarily illustrating ITC’s actions) whereby Business can enmesh its financial objectives with the societal objective of “inclusive growth” defined as above…

Approach A: Product / Service innovations serving either or both dimensions of “inclusion”

Idea 1: Platforms such as ITC eChoupal that leverage ICT and Social Capital to deliver an end-to-end solution to small farmers and empower them by improving information flow, market signals, decision support, reducing transaction costs, raising productivity and improving quality. Extending the same platform to deliver end-to-end solution in non-farm employment space now.

Idea 2: Weather based Crop Insurance Scheme for yield risk reduction

Idea 3: Smoke less, energy efficient “Oorja Choolas” of BP Energy, now transferred to First Energy

Idea 4: Solar lighting and Cooking products developed by several companies

Idea 5: Micro finance with customized repayment cycles

Idea 6: Relevant applications (e.g. Nokia Life Tools) on low cost mobile phones

All these products / services are delivered through ITC eChoupal platform, so we know how appropriate these products are in “inclusion”.

Approach B: Process / Business Model innovations that extend along the whole value chain

Idea 1: Process innovations that reduce negative impact on environment , while improving efficiency or reducing costs of manufacturing (e.g. Wind Energy project of ITC Paperboards business)

Idea 2: Green Supply Chains (e.g. ITC Hotels, Sustainable forests integrated into ITC Paperboard business)

Idea 3: Recycling Waste: (e.g. WOW – Wealth out of Waste – initiative of ITC to recycle paper in urban areas)

Idea 4: Integrating rural people into the sourcing and / or marketing activities (e.g. ITC eChoupal)

Idea 5: Promotion of Conservation Agriculture through ITC eChoupal (viz. practicing minimal mechanical soil disturbance through Zero Till, managing organic soil fertility through mulching, crop rotation to minimize pests & weeds)

Approach C: Improve Corporate Governance & Transparency:

Idea: Publish Audited Sustainability Reports (as ITC has been doing for several years now) using GRI guidelines, to be accountable to all stakeholders beyond financial investors

Bottomline: I am very optimistic that the “inclusive growth” sequel will have a happy ending because businesses are driving this paradigm. More companies have to adopt this approach and do on a larger scale to be able to deal with the magnitude of the challenge. And this can only be done in partnership with Governments and Communities :-)