Businesses cannot succeed in societies that fail. We have always created innovative business models that enmesh the goals of shareholder value creation with what is good for the society at large
In an exclusive conversation with Avisekh Agarwal and Dhruv Chadha, Mr. Sivakumar talks about e-choupal, the need for government reforms and ITC’s vision that supports its triple bottom line phliosophy. While many think that sustainability is a need for a tobacco company to prove a point to the detractors, Sivakumar believes it to be a an ingrained management and company philosophy.
How was the idea of e-Choupal conceived? What was the ethos behind starting something this unique?
The underlying idea behind anything that ITC does is to create shareholder value and benefit the society. For e-Choupal, the ethos was to benefit the farmers, who were receiving a very small share of the consumer price of their produce. So we decided to look at this issue in a way where we could generate profitability, benefit the farmers and also benefit the environment.
In developed countries like the US and Australia, there exist models where companies control the entire value chain right from the farming stage to the retailing stage. So we thought of creating something on similar lines which would give us more profitability and also plug in the farmer’s woes. Ideally a farmer’s produce should travel from the fields to the factory, but practically, it moves from the farms to several dealers to traders and then finally to factories. This incurs several additional costs of logistics, packaging etc along the chain.
We realized that the primary reason for this was that there was no better price discovery mechanism for the farmer and if we could create an alternate price discovery mechanism for the farmer by the use of internet, the chain could be shortened.
This was the basic model on which e-Choupal 1.1 was conceived.
How much initial capital did you require to set up something like this?
In the first year we spent around 3 crores. During those years, there were hardly any computers in the villages and we were skeptical about the acceptance of our concept. Also there were issues like lack of proper infrastructure, power, telecom network and government laws in certain areas that needed to be dealt with. Keeping all these in mind, we believed that probably Rs. 50 lacs were sufficient for pilot testing this project. However, the Chairman and the board of ITC were very supportive and believed that a project like this would require much more and sanctioned Rs 10 crores. They believed that even if this project did not succeed then at least lack of money should not be the reason for it.
ITC is considered as a socially responsible company. It has been supporting the triple bottom line philosophy for many years and is one of the few companies to put out a sustainability report. Is sustainability a need for a tobacco company to prove a point to the detractors or is it an ingrained management and company philosophy?
ITC’s sustainability philosophy is inspired by its vision “to transform ITC into a vibrant engine of growth with substantial and growing contribution to the Indian economy, sub serving national priorities whilst rewarding shareholders by creating growing value for the Indian Society”. ITC articulated this vision, around 15 years ago, recognising the challenges and opportunities emerging from two major global threats, viz. widespread poverty and large scale environmental degradation which are even more pronounced for India, and could severely constrain economic progress and therefore, the sustainability of business itself. While sustainability of the communities in which businesses operate is critically important, ITC’s vision also recognises that these major threats must be addressed, as businesses cannot succeed in societies that fail.
It is this abiding vision, and the strong values of Trusteeship, that has enabled ITC to implement large scale sustainability initiatives which have led to creating meaningful societal value. These initiatives today cover the following:
Empowerment of over 4 million farmers through the world acknowledged ITC e-Choupal
Creation of 56 million person days of employment through ITC’s Social and Farm forestry
programme which has greened over 125,000 hectares
Providing water resources through watershed development that covers over 77,000 hectares
Providing animal husbandry services to over 500,000 milch animals
Supporting sustainable livelihoods for over 40,000 rural women
Reaching out to over 300,000 children through its supplementary education programme
Over 41% of energy consumed in ITC is from renewable sources
All ITC’s premium luxury Hotels are LEED Platinum certified making it the greenest luxury
hotel chain in the world
The scale and magnitude of these initiatives clearly reflect ITC’s deep commitment to sustainable business practices.
How important is the concept of Public-Private Partnerships to the success of the Indian economy?
While the scope of this question is quite broad, let me respond to it specifically with respect to the agriculture sector. Governments in India have obligation to protect the interests of small & resource-poor producers on one hand and low-income consumers on the other. This means dealing with the conflicting demands for higher farm gate prices and lower food prices simultaneously. The Government attempts to resolve this conflict through subsidies, which tends to distort the structure of the markets and makes it difficult for private sector to operate. The best way forward is through Public Private Partnerships that build vibrant markets rather than distort them; for example, directly transferring subsidies to farmers & consumers who can then be serviced by competing private sector companies.
What according to you are the most important agricultural reforms that the government must implement at this point in time?
Most of the policies and institutional framework in Indian agriculture were from the 1960s vintage. That was an era of food shortages; higher farm production and public distribution of food were the primary objectives. With the increasing per capita incomes and growing awareness, today’s consumers are seeking better quality and more variety in their food products. They prefer products that offer convenience while buying and using. Food safety is another area of concern. Consequently, the objective of the engagement with the farmers cannot be limited to familiarizing them with the latest crop production techniques, but must include post-harvest practices, crop diversification, on-farm value addition, production & price risk management, marketing etc. In this backdrop, the private sector, with its presence across the value chain is in a position to play a pivotal role from agri-extension to food marketing, and complement Government’s efforts.
Pre-requisites for facilitating such a role by the Private Sector include reforms in three key areas viz. making agricultural markets competitive by disbanding the monopoly of Mandis under the Agricultural Produce Marketing Act, attracting investments into storage & handling infrastructure by removing restrictions under the Essential Commodities Act, and enabling efficient price discovery & risk management by reforming Forward Markets Regulation Act.
How has the e-Choupal Initiative evolved over the years and how is e- Choupal 3.0 different from its predecessors?
Choupal 1.x series consisted of different business models that reorganised the agricultural commodity supply chains to empower small farmers’ participation in global value chains.
e-Choupal 2.x series leveraged the same infrastructure to build a marketing channel for several categories such as farm inputs, consumer products and financial services to reach the under-served rural consumers.
Now, in eChoupal 3.0, we are attempting to do three new things. By integrating mobile devices into the eChoupal network, delivery of crop management advisory services is being personalised to individual farmers. Through Choupal Haat – a specially designed interactive engagement platform – communication with rural consumers is deepened. Finally, we are replicating the lessons from our experiences in agribusiness to connect rural youth to job markets through an internet-cum-mobile-phone transaction interface. This includes the Rozgar Duniya employment exchange currently, and in due course will add employability skill building programmes.
Of these, Choupal Haats initiative has already been scaled to reasonable levels. For example, this year, through this platform, we would have facilitated interaction for various brands with more than six million rural consumers. The other two initiatives are at different phases of prototyping and pilot testing.
Different locations and products have different dynamics, which require flexible, if not multiple business models. How are you dealing with this challenge?
That’s the underlying logic of eChoupal 1.x series. For example, while 1.1 creates value by eliminating the non-value-adding costs in the physical supply chain of an agricultural commodity, the 1.2 does so by preserving the identity of the product along the chain to produce differentiated consumer products. In a different context, 1.3 creates value by assisting farmers in producing crops as per specified processes, eg. organic, while offering traceable supply chains to food safety conscious consumers. And, so on with 1.4 and 1.5 suiting different contexts…
Where do you feel would adjustments need to be made if this model is scaled up to more advanced villages like those in Punjab and Haryana?
In the villages and markets where infrastructure is still evolving, the agri supply chain based business models under eChoupal 1.x provide the anchor to build the platform. These models cannot generate sufficient incremental value in the relatively more efficient markets like Punjab & Haryana. But, business models being prototyped under eChoupal 3.0 could fit well in such advanced markets.
ITC has always been the spearhead for innovation, where do you see future business opportunities for the group?
As a result of ITC’s conscious strategy to develop multiple drivers of growth to ensure a growing contribution to the Indian economy whilst creating larger societal value, several ITC’s businesses have assumed leadership positions in their market segments; it is the leading FMCG marketer with a large number of world-class Indian brands, the largest paperboards manufacturer, the most profitable hotel chain, a pioneer in agricultural and rural transformation and one of the fastest growing mid-tier IT business. Going forward, every one of these domains offers further growth opportunities for the group.
How easy is it to balance the corporate pressures for profitability with the commitments for impact to the society and environment?
With innovative business models that enmesh the goals of shareholder value creation with what is good for the society at large, it is possible to make sustainability an integral part of the value proposition. It is a matter of pride that different ITC’s businesses support sustainable livelihoods of over 5 million people today, whilst the total shareholder returns grew at a compounded annual rate of 25% over the last fifteen years! At the same time, ITC is the only company in the world of comparable dimension to be carbon positive, water positive and sold waste recycling positive
People form the backbone of any organization. How is ITC dealing with its requirements of human capital?
ITC believes that people are the group’s major asset, and that together they will sustain ITC as an institution with vitality and perpetuity. We follow an integrated approach to human resources, covering recruitment – with focus on quality and future; performance management – with focus on competencies, values, process orientation and results; career planning – by leveraging the diversity of roles, geographies and businesses; rewards – both monetary and non-monetary, and learning & development- through employee life cycle. The learning & development initiatives include function specific development programmes for the front-line, while the middle level managers with high potential are prepared for leadership roles through interventions that expand their strategic bandwidth.