Creating Cross-sector Partnerships for a Sustainable CSR

This is an outline of my talk at the CSR Conference organized by the Madras Chamber of Commerce and Industries, Chennai on 2 Mar 2018

A partnership becomes meaningful when its accomplishment as a whole is greater than the sum of achievements of its parts! As is self-evident, the word “part” is an integral part of a “partnership” J

Let’s take a step back, look at the parts in the context of today’s conference, understand their roles and achievements todate:

Some five thousand years ago, our society organized itself into three broad parts.

1. For Profit Businesses: Provide goods & services to consumers, create employment, generate wealth, pay taxes 
2. Governments: Foster competition among businesses, tax them, deploy the resources on common physical & social infrastructure for the welfare of people 
3. Not for Profit Non Govt Organisations: Keep a tab on 1 & 2 on behalf of people, for their general well-being

One can granulate further and make more parts, like academia (but they could be made up of any of these parts, as in academic institutions for profit or set up by Government or not for profit), or media (again could be any of these three parts). There are also For Profit Social Enterprises and Not for Profit Businesses. Keeping those nuances aside, for the sake of ease, let’s recognise these three parts for our narrative and move on.

What has this socio-economic structure achieved in terms of wealth, welfare and well-being in these five thousand years? 

1. As of this evening, we have lived through 17% of this year 2018. That's two out of twelve months. But, do you know that we have exhausted 29% of the natural resources our earth can regenerate in the same twelve months? Which means, we have lived on the resources borrowed from our children and their children. Actually, stolen from them! This description is just a recast of Earth Overshoot Day, some of you would be familiar with. That was 2^nd August in 2017. 
2. Top 1% of the richest people on earth own 50% of all wealth. And, the bottom 50% own a meagre 1%. A statistic we can all be very shameful of…      

These "inglorious" achievements were recognized a few decades ago and we have set for ourselves what we called Millennium Development Goals then. We didn’t get very far, so we have re-set for ourselves Sustainable Development Goals, now to be achieved by 2030.

For a more balanced achievement of wealth, welfare and well-being, as envisaged in SDGs, we need to see ourselves as “partners” in the mission than merely as “parts” doing our own bit. All hands must be on the deck. 2030 will just be here, like tomorrow! Each part does have a different and complementary role in this new “partnership” approach.

1. Government: For scale. Not just for funds, but for its machinery that’s spread across the nook and corner. 
2. NGOs: Terrain knowledge. Social mobilization. Community empowerment. For, there’s no better bet than empowered communities to achieve sustainable development. 
3. Businesses: Surely, not for the CSR money they are manadated to spend. The mandatory CSR spend, aggregating to Rs 25,000 crores, doesn’t even add up to four days of Government’s budget on welfare! It’s actually for their project and financial management capabilities. More importantly, for their entrepreneurial energies, innovation, and for designing the much-needed impact-making interventions. 
4. In addition to the three parts I had outlined earlier, I will call out a fourth part: Technical & Scientific Establishments - these could be from any of the three sectors - for their domain knowledge and for continuous action learning. For designing best practices based on science and evidence. Otherwise, the interventions end up shortsighted.

It’s easy to play the words, parts and partners, but it is not easy to actually forge and foster partnerships. There are more broken and failed partnerships, than there are successful ones. It’s important to recognize the barriers to partnerships before we move any further.  

• Entrenched prejudices colour actions and communications:
• Businesses and Governments think NGOs are too micro-focused and inefficient.
• Governments and NGOs think Businesses are too profit-minded and there’s always something ulterior in their social motives.
• NGOs and Businesses think Governments are just outlay focused and its officers are corrupt.

• Work cultures and practices lead to operational friction and frustration:
• NGOs can’t fathom the need for institutional systems & controls. “Can’t you just trust us?” is their exhortation. 
• Government is too siloed and procedure oriented and end up pushing all action to the last quarter of a year! Do you know that some 27 approvals are required to translate an MGNREGA project idea into a reality? 
• Businesses expect execution like clockwork, which doesn’t make sense when social capacity of underprivileged communities needs to be built.

• And, once partnering starts, there’s a new problem! Of adversarial posturing by each partner, due to perceived threat to their respective territories.
• We know our bit. You don’t need to tell us!

With odds stacked so badly against partnerships, how do we make partnerships work? Let me share a three-point formula, based on our experience of implementing ITC’s CSR projects in partnership with some 85 NGOs, 9 Governments, and 15 Technical & Scientific Institutions:

1. Co-create projects from the beginning. Conceptualise multi-stakeholder projects after explicitly recognizing the complementary strengths of each partner, and how without any one of them the outcomes would fall short of the community needs. 
2. Design a predetermined review rhythm. A platform of key members of each partner to review progress and remove roadblocks. This way, the engagement becomes more evidence based and resolution focused; otherwise, there’s lot of finger pointing based on different perceptions. 
3. One of the partners must become an Orchestrator of the partnership and take on the primary responsibility for the project outcomes. To convene and harness the collective power. To make things work.

Thank you.

Agriculture: Twenty Years from Now...

Following is a summary of my remarks in an “Agri Panel” at the Global Entrepreneurship Summit earlier today, in response to the question, “What do you think will be game-changing about how we think about agriculture, twenty years from now?”

Soon after the panel moderator sent me this very interesting question a couple of days ago, the first thing I did was to post this question on Twitter, Facebook, and LinkedIn to crowdsource thoughts from my friends. There were nearly two hundred unique responses! They added up to twenty pages of text, without counting the number of pages in the links I received. Overwhelming, isn’t it?

All I am doing now is to simply synthesize those inputs and share with you J

The future of any system is shaped the current aspirations of the key stakeholders. Let’s take a look at the aspirations of the consumers, producers and the society at large…

Consumers want sufficient quantity of food (because we would be nearly nine billion by then, and on average richer than today), that is tasty (although, a friend did say in lighter vein, “since we will have nano-bots in our blood streams, and since our memories could be uploaded on to cloud, maybe we don’t need food and therefore no agriculture; we probably just need some electricity, or batteries, or just a few hours of exposure to sun ;-), is safe (you are all consumers here, don’t you agree that harmful chemicals in food is your topmost concern?), nutritious (scientists say that most of the world is suffering from invisible hunger), and all of these at reasonable prices!     

Farmers want higher incomes (as you know, per capita income of farmers around the world, especially in emerging economies, is far lower than the general per capita) with lower risk (weather and disease related production risks, price volatility). Their labour deserves more dignity (as it is, hardly any youth from the next generation wants to be a farmer) and they deserve better quality life (as in, the conveniences and comforts that are common in urban settings).  

Society at large would like agriculture to conserve natural resources (water and top soil, for example) and where possible, actually renew them. Agriculture needs to be resilient to climate change (the summer rains and warm winters, extreme climate episodes like heavy downpours on one hand and droughts on the other, etc), and again, where possible, positively impact climate change (sequester carbon, minimize greenhouse gas emissions etc).

An interplay of these different - at times conflicting - aspirations gives rise to three distinct scenarios, all of which will co-exist in twenty years. Let me label them: Farms as Factories, Homes as Farms, and Back to Basics!

Farms as Factories: By using the metaphor of factories, all I am saying is that the consistent quality of output will be produced, crop after crop, by leveraging the evolving technologies – both farming (like seed, nutrients, farm-equipment, agronomy practices etc) and digital (IoT, block chain, hyper-spectral imaging, GPS / GIS etc). A friend called them, “hardware, software, and liveware”). Another friend went to the extent of visualising a self-managing seed! These seeds will analyse the experienced conditions like soil, weather, water etc and invoke the necessary embedded features that would maximize the yield and quality. This may sound like fantasy today, but those of you who are familiar with experiments on seeds with multiple layers of coating in the past may very well say this could be a reality in twenty years!

Homes as Farms: I am sure, you have heard of vertical farming, balcony farming, kitchen gardens and such other names. Once supply chains are established to supply DIY-type mini production units, seeds, nutrients etc to the households, this phenomenon will expand more rapidly. This food is safe without any doubt in the consumer mind, and zero carbon miles! Business Models are also in the works for another kind of service. If you are not adventurous enough to grow crops in your backyard yourself, you can simply let out the space to Service Providers who can grow crops on a BOO model. Besides experts growing the crops in this model, a colony-level kitchen garden is more optimal than a household level garden. And a third model, which is not a ‘home-as-farm’ strictly speaking, is a partnership between a group of, say, five thousand, consumers and a community of, say, five hundred farmers. I know of several such partnerships across cities, built as WhatsApp Groups integrating even the e-commerce functionality.       

Back to Basics: Much of today’s ills of agriculture are due to chemical-intensive mono-cropping paradigm. A more sustainable future scenario would be an integrated farming system consisting of polyculture, permaculture, organic compost, bee-keeping, animal husbandry, renewable energy. In fact, I already see some farms where solar energy brings larger revenue than the conventional crops.  

As the panel went forward, there were other questions, but for now I am wrapping up this post without covering them.

As always, comments are most welcome J This is a live and lively topic! 

Scaling-up Sustainability Solutions

This blog-post is built around my talk at the WBCSD Annual Meeting held in Chennai last month.

The Background:

2015 was a year of ambition that saw the adoption of the historic Paris Agreement and the Sustainable Development Goals (SDGs). World leaders committed to building an inclusive and thriving low carbon economy, and the SDGs provide us with an all-encompassing agenda for developing our societies while addressing the critical issues of poverty, inequality and environmental degradation. This unprecedented framework for action calls upon each of us to contribute, and forward-looking companies are translating ambition to implementation at scale.

Among other things, the event showcased how companies can capitalize on the new opportunities and economic incentives while contributing to the SDGs, thanks to WBCSD business solutions that align to their strategy and operations. The session in which I spoke zoomed in on how corporate leadership has scaled up solutions in India, and how this can be applied around the world. I shared ITC’s experiences in this regard.

Scale at which ITC operates:

Over the years, ITC has designed and implemented several large-scale programmes to create sustainable livelihoods, enrich the environment and address the challenges of climate change. I illustrate the scale using a couple of examples…

ITC’s soil & moisture conservation programme promotes local management of water resources by facilitating community-based participation in planning and executing watershed projects. Nearly 8,000 water harvesting structures have been constructed under this initiative, covering a total area of about 650,000 acres. It’s difficult to visualise that scale, and for a lay-person anything beyond the sight of a naked eye is big! It may be easier, if I use the analogy of Geneva Lake, a large water body most of the audience present must’ve seen; then imagine the whole city of Geneva of which this large lake is a small part. The area covered by ITC through the soil & moisture conservation intervention is 160 times the size of Geneva city! Yes, a hundred and sixty times.

ITC’s Farm & Social Forestry programmes have greened more than 560,000 acres through tree plantations by enabling financial, technical and marketing support to small and marginal farmers. Again, this acreage by itself may not make sense, other than appearing as some large number. Let me add, that those trees have sequestered more than 5,000 kilo tonnes of CO2, which is equivalent to keeping as many as one million diesel cars off the road, based on specific emission factors! Yes, a million cars.

The ITC e-Choupal initiative is a powerful example of a development model that delivers large-scale societal value by co-creating rural markets with local communities. With a judicious blend of click & mortar capabilities, ITC e-Choupal has triggered a virtuous cycle of higher productivity, higher incomes, and enhanced capacity of farmer risk management, larger investments and higher quality and productivity. These services reach out to some four million farmers. Again, just to visualise the scale, may I say that every Indian farmer could be brought into such a network, with not more than thirty companies operating at this scale.

All these, while ITC’s revenue has grown tenfold over the last twenty years! Profits grew 33 times and the Total Shareholder Returns grew at a CAGR of over 23%

For more details do read the GRI - G4 compliant, comprehensive, Sustainability Report of ITC.

The How of This Scale:

Essentially a three-dimensional approach. Focus. Outcome Orientation. Innovation.

Focus:

Imagine a Venn Diagram. The focus of our efforts is on those areas that converge from three angles. First, the development challenges that matter to the nation. Second, those interventions that create enduring value for our stakeholder communities. As many as 250,000 people participated directly in a “Needs & Priorities Assessment” exercise in the PRA format, earlier this year. Third, those initiatives where our interventions can multiply the impact significantly by virtue of their touch-points with our value chains or their geographical vicinities.

The resultant key focus areas, viz. livelihoods for the poor, sanitation, gender equality, vocational skills, education, and climate action mirror the important global SDGs too.

For a deeper understanding, you can browse through ITC’s CSR Policy and Sustainability Policies.

Outcome Orientation:

Often, sustainability interventions are designed as point solutions. They do make a difference, but not at scale. For example, provision of information or knowledge to small holder farmers. This is certainly one component of the services provided by ITC e-Choupal. While this is a necessary condition, this won’t, by itself, raise their incomes. The information and knowledge need to be often translated to investments on the farm. But, given the inherent risk associated with farming, farmers hesitate to make those investments. This is where our livestock and such other interventions that bring supplementary incomes come into play, which enhance the risk bearing ability of the farmers. Once the intent to invest is there, the next challenge is gaining access to the recommended inputs, credit, crop insurance, farm machinery etc. The intensity of agriculture has a bearing on natural resources like water and top soil. Without a community effort, individual farmers get trapped in the tragedy of commons and exhaust these resources, and face an unsustainable future. This is where our soil & moisture conservation interventions come into play. And so on…

Thus, commitment to the eventual outcomes - and doing whatever is necessary as well as sufficient - only can demonstrate the impact and involve the communities on larger scale.

This integrated approach of ITC and the impact is well documented in a report published by APAARI.

Outcome is not a static target but a dynamic goal as the communities evolve. New goals get set on an ongoing basis to make the programmes contemporary and strengthen their enduring relevance. For example, in the sixteen years since the first e-Choupal was rolled out, the model is in its fourth version now!

Innovation:

Investment in sustainability initiatives at this scale cannot be sustained by merely keeping a portion of the profits aside. With our Chairman, Mr Deveshwar articulating the paradigm of “responsible competitiveness” for growth, the entrepreneurial energies of the whole organisation are harnessed to innovate business models that improve business competitiveness while creating sustainable livelihoods and enriching environment.

“Making Markets Work for Green GDP and Sustainable Livelihoods” is the theme of one of his speeches at ITC’s Annual Shareholders Meeting.

More importantly, co-creating solutions together with the participating communities makes the innovations relevant. This approach also synergises the complementary strengths of the multiple stakeholders, and helps execute the programmes at scale. Call it a PPPP – Public Private People Partnership – approach, if you will…

Will the new CSR mandate be a game changer?

As you may know, the new Companies Act of India mandates that companies of a certain size and profitability must spend at least 2% of their net profits on Social Responsibility activities (See Section 135 on Page 80 of the Act)

I was a panelist at the 'CII National Summit on CSR' in Delhi held on 30th September 2013. These were my opening remarks in response to the question posed to my panel, "Will the new CSR mandate be a game changer?"

The 2% CSR spend is estimated at about Rs 20,000 Crores. This money is less than what Government spends in five days, considering the annual expenditure budget of Government is some Rs 17 Lakh Crores. Subsidies alone, out of this total amount, exceed Rs 250,000 Crores! Therefore the 2% CSR spend is not going to bring in the game-changing resources...

However, if Corporate India harnesses its 'innovation capacity' and leverages the 'power of partnerships' to solve India's social and environmental problems, I am sure it can change the game!

Instead of looking at the 2% amount as 'a philanthropy budget', if companies can innovatively embed CSR into their business strategies, larger problems can be solved.

This could be in the form of 'socially inclusive business models' where the capacities of low income suppliers and distributors can be strengthened to improve their productivity, market access, and bargaining power, while enhancing the competitiveness of the whole value chain in which the company is a part. Eg. ITC eChoupal.

On the environmental front, investing in renewable energy is a low hanging fruit, given our unreliable grid power, and the high cost of diesel-generated power. Innovation of higher order is required to build 'green supply chains' that regenerate the natural resources consumed in a business. Eg. ITC FarmForestry. 

Embedding CSR into business strategies would also ensure that the CSR spends do not get impacted in times of slowdown. Of course, this whole argument is not to rule out the need for philanthropic spends in cases of extreme distress.

Now I come to my second idea. I believe four types of partnerships could contribute to game-changing outcomes:

Partnerships with other Corporates operating in the same geography or working in the same domain can create joint projects and / or knowledge platforms for experience sharing.

Partnerships with CSOs / NfPs for social mobilisation and impact audits.

Partnerships with Communities themselves for gaining deeper insights while designing and executing projects. Also, Users Groups for democratising common property management.

Partnerships with Governments to create markets for trading "social credits" ala "carbon credits", and for aligning social subsidies to develop inclusive markets rather than distorting markets. This is besides the PPPs for building infrastructure that are already gaining traction.

While no one stopped Corporates from innovating and partnering to solve societal problems - indeed several companies have done so, successfully - the new CSR mandate hopefully inspires many companies to look at this as a game changing opportunity.

Never believe that a few caring people can't change the world. Indeed it is the only thing that ever has ~ Margaret Mead 

Physics and ITC eChoupal

At a conceptual level, several ideas behind eChoupal were based on Physics. This write-up is a part of an old document; just realised this was never posted on Shiv's Third Eye...

So here goes:

Value Creation

As a physics student I was deeply fascinated by Einstein’s famous insight e=mc². Until he figured out the implication of speed of light, energy and mass were two independent and unrelated fields. With one stroke of genius he converged the two, and the world was never the same again.

In a similar manner, capitalist markets, with self interest of the entrepreneur as the foundation, were never thought of as a means to achieve social equity.

Interest of the disadvantaged communities, on the other hand, was always considered as the exclusive domain of Government or Community based organizations or Not-for-profits.

Much later, when our experience at ITC has demonstrated that markets do deliver social equity when you co-create them together with empowered communities, I felt the same excitement as I did when I understood Einstein’s equation.

In other words, co-creation concept has converged the two independent domains of equity and markets. Equity = Markets Co-created with Empowered Communities. A new meaning to e=mc²! And the core idea behind the value creation process in eChoupal.

Value Delivery

Another metaphor from physics, Lever, helps in easily understanding the idea behind the value delivery process in eChoupal system.

People at the Bottom of the Pyramid access markets under constrained conditions because of the voids in physical or institutional infrastructure, besides limitations in some of their own capacities.

Void filling by some appropriate “lever” can force multiply the outcomes and enable an empowered market access for these people.

Investment in Information & Communication Technologies was the key lever that made all the difference in case of eChoupal, through the process of price discovery in the village.

Value Capture

Yet another physics principle, ChaosTheory, holds the secret of the most important idea in the "business" model aspect of eChoupal viz. the value capture mechanism.

In the world of chaos, an attractor ensures stability and predictability.

Much the same way, as the Orchestrator of the eChoupal ecosystem, ITC puts the network together, innovates the value capture mechanisms that do not strain the small wallets of the customers at the Bottom of the Pyramid. Win+win outcomes for all stakeholders through logistics reorganization, value through identity preserved produce are obvious examples of this phenomenon.    

Vision of eChoupal

Yet another physics metaphor! Black Holes for a Green World.

Curious? Another blog-post, in due course, will have the details.

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

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.

1. 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)
2. 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.

1. Sustainability - where the programmes are subsidy based, their long term sustainability is suspect
2. Outcome effectiveness - for the target segment of people is weak, as the programme focus is typically on outlays
3. 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...

1. Profit, the key metric of financial sustainability is the core objective of any commercial enterprise
2. Value Proposition to the target group of customers is the essence of market and competitive strategy, and guarantees outcome effectiveness.
3. 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.

1. 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.
2. 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.
3. 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 :)

Swimming through Blue Ocean - The ITC eChoupal Story

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!

Blending Innovation and Social Entrepreneurship, Changing lives

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

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 :-)

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

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 :-)