From Mandi to Market
When tobacco giant ITC flagged off its agri-business in 1988, it was operating in a protected economy, procuring agri-products from mandis and exporting them. However, the '90s saw the opening up of the Indian economy, bringing opportunity for many—along with more than a few challenges.
According to S. Sivakumar, Chief Executive, ITC Agri Business, it was a tense situation and the challenge was to innovate or perish. "We did not have the resources to compete with the global majors with multiorigin sourcing capabilities and neither did we want to follow the business model prevalent in the unorganised sector, which gets its margin through contract defaults and tax evasions."
ITC realised that by owning the agri-product procurement value chain, they could serve the needs of the end customer better and reduce their "true cost of contract." Because ITC maintained oversight of the goods for a broader part of the chain, buyers were able to realise substantial savings in their true cost of contract, which included, apart from the product cost, other elements like quality variability, cost of delays, warehousing, packing and shipping costs.
Key Challenge Innovation |
Today, there are some 6,500 e-Choupal centres and all of 4 million farmers who use the e-Choupal platform across 40,000 villages in 10 states. However, fewer people are aware of the extent to which the agri business division of ITC has continued to innovate around the original model, evolving it to its current form as a true platform for engaging rural consumers and producers. Because platforms typically host an array of commercial partners and serve a wide range of customers, they cross many types of innovation; this is certainly true of e-Choupal.
For ITC, e-Choupal was originally a channel innovation that was able to extend its reach through a VSATbased IT network, even in villages with no proper road connectivity. In each village, a trusted community member is appointed as a sanchalak to man the e-Choupal; this helps faster awareness of e-Choupal brand through word-of-mouth. Since the sanchalak is equidistant from ITC and the rural community, he plays a different role than a typical channel partner such as an end-retailer or a distributor would. However, the innovation did not stop here.
ITC realised that to earn greater profits from the channel infrastructure it had built and better protect the business model, it could create a more dynamic, two-way flow of goods through that channel. Between 2005 and 2007, e-Choupal began offering third-party access to rural India. Currently, there are 160 partners from domains as diverse as seeds, consumer products, finance, insurance and employment who sell their products to rural consumers through e-Choupal's channel. ITC leverages brand "e-Choupal" to promote these partners.
Charging for access to the platform helps ITC recover substantial costs of infrastructure and operations. Second, coupling its core offering of "terrain expertise" (which was initially built through the commodity procurement chain) with "domain expertise" of its network partners, e-Choupal is able to offer new products/services to its village customers, which broadens their access to useful goods and opportunities. For the network partners, e-Choupal is a cost-effective way to access the rural consumers without building their own distribution channel. This was e-Choupal v2.0.
But the innovation did not end there: The procurement network that was transformed into a product platform is now getting amplified into a service platform. e-Choupal is actively looking at employment, training and agriculture services business (productivity enhancement options that could double yields, respond to climate change, etc.) as new anchor businesses.
As the model evolves, it is equally conscious of the need to address the most pressing problem in the agri-space: producing abundant food that is safe and healthy, yet climate-friendly. The next level of innovation that ITC e-Choupal is engaged in focusses on ways to align small farmers with the war against climate change.
At ITC, the innovation imperative has come from two sources. The external environment (like when the Indian economy began opening up or, more recently, the negative effect of high food prices and the resultant government intervention on e-Choupal's anchor procurement businesss) has caused ITC to learn how to adapt quickly and innovate under duress. At the same time, the internal approach to innovation—multi-dimensional, quick to leverage internal capabilities in a cross-functional way and learn how to apply them in new situations— gives the e-Choupal team the conviction to try radical new ideas over time.
The impact of this model is widespread. Other than its wide reach, the e-Choupal model has led to 4-7 per cent reduction in the true cost of contract for different buyers in the commodities business. For ITC, there has been a 40 per cent reduction in transaction costs of procurement. This channel throughputs more than Rs. 2,000 crore in sales for ITC and its partner companies. Through e-Choupal v3.0, which will personalise crop management advisory for farmers, crop yields could potentially double.
MONITOR'S TEN TYPES OF INNOVATION FRAMEWORK: ITC e-CHOUPAL
1. Business Model: v1.0: Bypassing mandis from the procurement process by directly connecting with farmers. v2.0: Transforming the procurement channel to a distribution channel. v3.0: Building a services platform.
2. Networking: v2.0 and v3.0: Transforming e-Choupal network into a platform to partner with multiple agencies to provide value-added services.
3. Enabling Process: v1.0: Leveraging the established credibility of the sanchalaks to play a specific role in building up the original e-Choupal channel.
4. Core process: v1.0: Setting up a wide IT and logistics infrastructure even in remote places.
5. Product performance: v1.0: Reducing cost of contract (buyers), offering value-added services (farmers). V2.0 and v3.0: Low-cost access to rural India (network partners).
6. Product systems: v2.0 and v3.0: Offering a range of products/services to address farmers' needs. Offering network partners the ability to easily "plug in" to the network.
7. Brand: v2.0 and v3.0: Leveraging brand "e-Choupal" to promote sales of its FMCG and network partners' products/services.
8. Customer experience: Bringing transparency and ease to farmers, both as suppliers of agri-products (v1.0) and as customers of ITC's value-added products/services (v2.0 and v3.0).
Organisations that achieve breakthrough innovation usually cover at least 3-4 types of innovation included in the framework. ITC e-Choupal fulfils eight.
