Business Model Innovations

for
Inclusive Growth
Rekha Jain
IIMA-Idea Telecom Centre of
Excellence, IIM Ahmedabad
 Why Business Model Innovations
are Necessary for Inclusive Growth
• Higher cost to serve
• Lower propensity to pay
• Possibly larger numbers of smaller value
transactions
• Dispersed population clusters
• Poor infrastructure
• Lower levels of literacy in general and digital
and financial literacy in particular.

• Innovations focusing on dramatically lower cost

of production, distribution and new payment
methods for service delivery.
 Role of Mobiles in Business
Model Innovations
• Internet (disintermediated the supply
chain)
– geographical distance irrelevant
– 24*7
– Typically need the PC (location, electricity,
connectivity)
• Similar Role for Mobiles
– Geographical Coverage
– Low cost end device
– Electricity
– Ownership
 Case Study
on
Innovation in Business Model
for
Inclusive Growth
in
FMCG Company
 About the Company

• Marico Limited (ML)* a leading Indian firm in

consumer products and services in the global
beauty and wellness space.

• Widespread distribution network both for

procurement of raw material and distribution.

• Coconut oil an important product for ML

– Copra (dried kernel of coconut) procurement was a
critical activity for ML.
– Tamil Nadu, Kerala, Andhra Pradesh, Karnataka
(major states)
 Farmers convert nuts to copra (self or copra
converters) PRODUCTION

Broker consolidates few CCs to

a truckload -> terminal markets.
The CCs accompany the
product. The broker takes the AGGREGATION
CCs to various traders’ shops in
Some traders Interior traders the market.
buy nuts buy copra
directly from directly from Traders in the terminal market
farmers and assess the quality, quote a price
farmers and TRANSACTION
convert to - -> cash payment to the CCs.
CCs.
copra.
Traders at the terminal AGGREGATION
(Brokers
market.Æ Local brokers, TRADERS)
operating on behalf of
upcountry millers and some
local millers
Local and upcountry millers
buy from the traders. MILLER
Millers
 Disintermediation of the Supply
Chain – First Phase
• The Disintermediation Initiative : Physical Supply Chain
• ML procured copra from Mumbai based traders. (Little
control over costs and quality)
• Opened buying offices in Kerala,
• Direct Procurement from vendors by supplying
them copra drying machines
• Establishing linkages with traders in terminal
markets
• Traders brought full truckloads to ML factories
(Eliminated the transaction fee, reduced multiple
loading and unloading costs)
• ML also set up its own Collection Centres (CC). Over
time, ML had increased the number of self owned
CCs.
• Procurement Quantity assurance and better prices
to farmers.
Disintermediation of the Supply
Chain – Second Phase
• Introducing Reverse Auctions: Accepted
telephone quotes from copra traders, only
during pre specified three one hour slots
during which traders were reuqired to
specify the quantity and price when they
offered sell quotes.
– Initial resistance
• Issues
– Manual aggregate all sell offers received over the
phone
– Traders would typically wait until near the end of
the designated slot before placing the call.
 Disintermediation of the Supply
Chain – Third Phase
• Super imposing the Electronic Markets
– Web based system in 2002.
– Opening email accounts for farmers, traders
– Investing in their training and
– Incentivising those farmers who used email. Reduced
turnaround time (from nine days to one), availability of
summary of transactions, placements of bids online etc.
• The buying team was provided with PDAs
– Viewing and accepting the bid while on the move due to
the seamless integration developed between the web
based system and PDA
• Placing sell offers by a simple SMS based system
• Other sms based services: Arrival of trucks.
 Convert nuts to
copra (self or copra
converters)
Traders
buy nuts ML Owned
directly Collection
from Centres
farmers
and ML
convert to
copra The traders in the
terminal market buy
from farmers and
Interior traders Copra Converters
buy copra directly
from farmers and
Copra Converters
 Business Model Innovation
• Direct Linkages: Supply Linkage and Sources of
Knowledge
– Producers, converters and traders of copra.
• To support this approach,
– Systematic review of the supply chain.
– It first engineered for greater efficiencies by removing
the intermediaries, managing aggregation
• Further value added by giving electronic
information to the traders regarding the time of
reach of their produce.
• Such changes could be brought about only by
working closely with farmers, traders, copra
converters etc.
 Innovations in Business Model
• Effective target of service bundles
• The innovation in business model is
embedded in the ways in which ML
effectively bundled the different service
elements to the target groups of suppliers
and customers.
– Target groups perceived significant value
addition in the existing processes,
– Despite major changes brought about in
the interfacing business processes with
their suppliers and customers.
 Innovations in Business Model
• Changed Role of Intermediaries
– ML gained advantages by creating special, new
intermediary role for itself.

– Despite the disintermediation, there is a need for

intermediaries, especially when dealing with
underserved population, at least in India.
(literacy, digital literacy, financial literacy)

– The business model innovation lay in both

disintermediation on one hand and creating and
appropriating value from new intermediary roles
for themselves
 Frameworks to Model
Innovation
• Innovations in the Core Processes
(Creation of Electronic Markets)

• A Strong Innovation Ecosystem

comprising the supporting business
processes and IT for the core
processes.
 Business Model Innovation

Supporting
Innovation
Ecosystem

Core Process Complementary

IT Support (Web Innovation Processes
Based Portal, sms Creation of (Physical chain
support) reengineering)
. Electronic
Markets

ML needed to redesign its own

organizational processes,
structures, incentive
mechanisms to ensure desired
outcomes of strengthening its
linkages with the farmers,
traders etc
 Benefits
• Reduced management time for purchasing, vendor
development (by allowing it to develop profiles of
suppliers) and deepen its reach to traders, copra
converters and farmers.
• Quantity Assurance
• Traders/Copra Converters/farmers could directly
deal with “ML, the end customer”.
• Fear of complex transactions, (depend on an
intermediary). With introduction of IT and SMS
services he is able to place his sell bid himself.
• Also he is able to log on to the online account
provided by Marico to go thro his transactions which
includes live quality and accounting details – two
key things which any supplier would be intereseted
in.
 Challenges

• Reengineering the physical supply chain

– Managing the vested position of incumbent entities
(for example brokers and traders), was an important
basis on which the entire electronic
disintermediation initiative could be built.
• The need for evangelization of technology efforts
• Keeping track of constant improvements in the
technology interface
• The role of IT department in facilitating
developments that met the business needs was
important.
 Conclusions 1/2
• Mobile technology has given rise to opportunities for
innovative business models to emerge.
• Inclusive growth models can lead to profitable
initiatives, to be effective, these require further support
through redesign/review of existing complementary
processes.
• Effective service delivery for underserved populations
requires contextualization of existing mobile/IT based
system.
• Business model innovations may be modeled as
innovations in core processes working within the
context of a supportive “innovation ecosystem”
consisting of the supporting, complementary
processes. The core and supporting processes need to
be integrated and IT interventions need to be
embedded to increase the efficiency and scope of the
underlying business models.
 Conclusions 2/2
• Developing IT interventions as a part of core innovation in business
models has challenges in a rural/underserved population due to
the low propensity to pay and/or high cost to serve, and low
functional or digital and financial literacy.

• There are significant payoffs in terms of first mover advantage and

financial benefits (due to the large rural population sizes in India)
in developing business models that focus on inclusive growth.

• The competitive edge comes because the early movers

decide/change the structure of the existing business model to their
advantage, by changing the role, relationship and cost structures
of different stake holders. Such an advantage is difficult to be
appropriated by others, as it would require changes to existing
business models, a difficult feat for a new comer.

• An inclusive growth agenda can be leveraged by enterprises for

competitive advantage with innovative business models.
Thank You
• Since many of the farmers and other stakeholders
were not technology or process savvy, bringing
about changes in their business process was really
difficult. Visible benefits to them facilitated the
transition. Thus ML needed to design its own
organizational processes, structures, incentive
mechanisms to ensure desired outcomes of
strengthening its linkages with the farmers, traders
etc. The organizational mind set not only allowed
exploitation of technology to derive business
benefits for itself, it also balanced it with sharing
those benefits with farmers, traders etc. This
required ML to work in partnership mode with
these stakeholders.
• Leveraging technology for farmers,
traders etc., required tremendous
effort in designing appropriate
interfaces, first with a phone based
system and later with Internet and
mobile based systems. It required
considerable evangelization efforts as
well as willingness to make a slower
transition that farmers traders etc felt
comfortable with.
• In ML, there was a company wide initiative
to "re-engineer the supply chain" prior to
introduction of the electronic market,
development of the web based electronic
"market" place, investment in education
and IT literacy, design of support to
complement the newly designed processes
(for example, being able to switch to mobile
based bids on the portal) are examples of
support processes that were critical to the
success of the innovation.
• The business model innovation comprised
innovation not only in the core processes but also
development of the innovation ecosystem
comprising of redesign/review of support and
complementary processes.
• A part of successful business model innovation
ecosystem was the partnerships with suppliers,
vendors and a variety of other stakeholders (Stuart,
2000). This includes understanding, appreciating
and formalizing the role, relationships and
deliverables appropriately (Paavilainen, 2002;
Rulke et al., 2003). Figure 6 gives a schematic view
of the core innovation and the “innovation
ecosystem” in the context of business model
innovations.
• Since many of the farmers and other
stakeholders were not technology or process
savvy, bringing about changes in their
business process was really difficult. Visible
benefits to them facilitated the transition.
Thus The organizational mind set not only
allowed exploitation of technology to derive
business benefits for itself, it also balanced
it with sharing those benefits with farmers,
traders etc. This required ML
 Mobiles for Service Delivery for
the Rural/Urban Poor
• First time experience of services
• The supply chain for copra consisted of farmers,
who either converted coconut to copra or sold it to
Copra Converters. The Copra Converters, in turn,
sold it to a broker, who coordinated the supply
across several Copra Converters to arrange for
transportation and helped them to sell in the
terminal markets to traders. The broker got a
commission both from the Copra Converters and
the traders.
• Traders bought copra in the terminal markets for
millers, as most millers did not have offices in the
terminal market towns. There were also some
“interior traders” who directly bought copra from
local farmers and CCs and supplied it to millers.
They typically had higher volumes of supply than
local traders.