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…

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 :)

eAgriculture: Perspective to Practice

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 :)

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