When tobacco giant ITC flagged off its agri-business in 1988, itwas operating in a protected economy, procuring agri-products frommandis and exporting them. However, the '90s saw the opening up ofthe Indian economy, bringing opportunity for many-along with morethan a few challenges.
According to S. Sivakumar, Chief Executive, ITC Agri Business, itwas a tense situation and the challenge was to innovate or perish."We did not have the resources to compete with the global majorswith multiorigin sourcing capabilities and neither did we want tofollow the business model prevalent in the unorganised sector, whichgets its margin through contract defaults and tax evasions."
ITC realised that by owning the agri-product procurement valuechain, they could serve the needs of the end customer better andreduce their "true cost of contract." Because ITC maintainedoversight of the goods for a broader part of the chain, buyers wereable to realise substantial savings in their true cost of contract,which included, apart from the product cost, other elements likequality variability, cost of delays, warehousing, packing andshipping costs.
Key Challenge
To build a unique and competitive channel to reach farmers, whichis different from the model used by unorganised players and MNCs.
Innovation
An Internet-based two-way platform to procure from and sell tofarmers, which has evolved into a mobile-based channel that offersservices too.This was the birth of e-Choupal-a shift in the businessmodel of procuring from mandis to directly procuring from farmers.It led to substantial reduction in procurement costs, and alsobrought consistency and predictability in the supply chain.
Today, there are some 6,500 e-Choupal centres and all of 4million farmers who use the e-Choupal platform across 40,000villages in 10 states. However, fewer people are aware of the extentto which the agri business division of ITC has continued to innovatearound the original model, evolving it to its current form as a trueplatform for engaging rural consumers and producers. Becauseplatforms typically host an array of commercial partners and serve awide range of customers, they cross many types of innovation; thisis certainly true of e-Choupal.
For ITC, e-Choupal was originally a channel innovation that wasable to extend its reach through a VSATbased IT network, even invillages with no proper road connectivity. In each village, atrusted 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 ruralcommunity, he plays a different role than a typical channel partnersuch as an end-retailer or a distributor would. However, theinnovation did not stop here.
ITC realised that to earn greater profits from the channelinfrastructure it had built and better protect the business model,it could create a more dynamic, two-way flow of goods through thatchannel. Between 2005 and 2007, e-Choupal began offering third-party access to rural India. Currently, there are 160 partners fromdomains as diverse as seeds, consumer products, finance, insuranceand employment who sell their products to rural consumers through e-Choupal's channel. ITC leverages brand "e-Choupal" to promote thesepartners.
Charging for access to the platform helps ITC recover substantialcosts of infrastructure and operations. Second, coupling its coreoffering of "terrain expertise" (which was initially built throughthe commodity procurement chain) with "domain expertise" of itsnetwork partners, e-Choupal is able to offer new products/servicesto its village customers, which broadens their access to usefulgoods and opportunities. For the network partners, e-Choupal is acost-effective way to access the rural consumers without buildingtheir own distribution channel. This was e-Choupal v2.0.
But the innovation did not end there: The procurement networkthat was transformed into a product platform is now gettingamplified into a service platform. e-Choupal is actively looking atemployment, training and agriculture services business (productivityenhancement options that could double yields, respond to climatechange, etc.) as new anchor businesses.
As the model evolves, it is equally conscious of the need toaddress the most pressing problem in the agri-space: producingabundant food that is safe and healthy, yet climate-friendly. Thenext level of innovation that ITC e-Choupal is engaged in focusseson ways to align small farmers with the war against climate change.
At ITC, the innovation imperative has come from two sources. Theexternal environment (like when the Indian economy began opening upor, more recently, the negative effect of high food prices and theresultant government intervention on e-Choupal's anchor procurementbusinesss) has caused ITC to learn how to adapt quickly and innovateunder duress. At the same time, the internal approach to innovation-multi-dimensional, quick to leverage internal capabilities in across-functional way and learn how to apply them in new situations-gives the e-Choupal team the conviction to try radical new ideasover time.
The impact of this model is widespread. Other than its widereach, the e-Choupal model has led to 4-7 per cent reduction in thetrue cost of contract for different buyers in the commoditiesbusiness. For ITC, there has been a 40 per cent reduction intransaction costs of procurement. This channel throughputs more thanRs. 2,000 crore in sales for ITC and its partner companies. Throughe-Choupal v3.0, which will personalise crop management advisory forfarmers, crop yields could potentially double.
MONITOR'S TEN TYPES OF INNOVATION FRAMEWORK: ITC e-CHOUPAL
1. Business Model: v1.0: Bypassing mandis from the procurementprocess by directly connecting with farmers. v2.0: Transforming theprocurement channel to a distribution channel. v3.0: Building aservices platform.
2. Networking: v2.0 and v3.0: Transforming e-Choupal network intoa platform to partner with multiple agencies to provide value-addedservices.
3. Enabling Process: v1.0: Leveraging the established credibilityof the sanchalaks to play a specific role in building up theoriginal e-Choupal channel.
4. Core process: v1.0: Setting up a wide IT and logisticsinfrastructure 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-costaccess 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 theability to easily "plug in" to the network.
7. Brand: v2.0 and v3.0: Leveraging brand "e-Choupal" to promotesales of its FMCG and network partners' products/services.
8. Customer experience: Bringing transparency and ease tofarmers, both as suppliers of agri-products (v1.0) and as customersof ITC's value-added products/services (v2.0 and v3.0).
Organisations that achieve breakthrough innovation usually coverat least 3-4 types of innovation included in the framework. ITC e-Choupal fulfils eight.
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