accenture indias quest for inclusive growth

8/9/2019 Accenture Indias Quest for Inclusive Growth

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Indias Quest for

Inclusive Growth

Achieving High Performancethrough Inclusive Business Models

A Research Report


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ContentsForewords 05

Executive summary 08

Why now in India? 10

Constraints along the way 16

The path ahead: a three-step plan 20

Aligning the operating model with theinclusive business model 32

Building relevant capabilities 40

Time to change 44


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The time is just right for companies to pursueaggressively the agenda of inclusive growth. Oncethe province of corporate social responsibility,the effort to bring Indias geographically remote

and low-income groups into the mainstream ofeconomic life now has the potential to becomethe most valuable business opportunity of thenext decade.

The market is there. Low-income consumersare moving up the economic ladder inunprecedented numbers and will account for

most of the growth in disposable income.Advances in technology are making theseconsumers increasingly accessible. And there isplenty of motivation. The aspiring large poor andgeographically remote populations are showinggrowing interest in adopting technology andare willing to pay for products and servicessatisfying their wants in a sustained manner.

But while service companies are increasinglysigning up, many large manufacturers are notcommitting themselves. Almost unanimously,they say that inclusive business models will beimportant for future success. But widespreadconcerns about investment costs and commercial

viability are keeping a large majority of them onthe sidelines and jeopardizing their place in theIndian economys next spurt of growth.

Our report explains how these concerns canbe overcome. A three-step framework offersguidance for developing the market focus,business model, culture and capabilities that are

needed to succeed with inclusive growth whileremaining competitive for the future.


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ForewordsIt is a wonderful feeling for both of usto co-chair the AIMA conference oninnovation for the second consecutive

year. We would like to warmlycommend Accenture and AIMA forcontinuing to stimulate debate aroundinclusive innovation. Its a topic thatwe care deeply about and one that isboth timely for India and relevant forIndian business. We truly believe thatbusinesses ability to drive inclusivegrowth through innovation will be thedefinitive story of Indias future.

Businesses, especially those in themanufacturing domain, have a

number of factors simultaneouslyunfolding to their advantage, probablyfor the first time in the history ofindependent India. Growing opennessand confidence within rural and urbanpoor towards use of technologies,an aspiring and enterprising youngpopulation, expanding web of servicesinfrastructure and rising incomelevels are all combining into creatingan opportunity, which needs to beproperly understood and shaped.

Discovering the different contoursof this opportunity is now theresponsibility of business.

Inclusive innovation can become thevehicle to provide a direction to thisprocess of discovery. For example,innovation in the space of inclusivebusiness models can help businessesachieve a balanced convergencearound their goals to becomeprofitable while serving people andconserving environment. Businesses

will be able to introduce products andservices capable of providing a higherlevel of performance from fewerresources for more people.

To succeed, Indias business leadersmust articulate a clear vision ofinclusion; one that is founded in their

own deep-seated commitment toserving the unserved and creatingvalue for many and not only formoney. Boards and senior managementneeds to shoulder the responsibilityof nurturing infectious leadersthat can seed inclusive-innovationmindsets across the organization.Business leadership must encourageemployees to innovate fearlesslyand operate creatively. New metricsneed to be developed that can assessmeaningfully, the unique contributions

being made by the firm and itsworkforce in the space of inclusivebusiness.

Businesses need to focus on nurturingan organization culture wherein theentire enterprise starts finding itrelevant to develop a sense of shared-destiny with under-served and lowincome populations of India.

We have no doubt that this excitingtransition will trigger the creation ofwinning companies in the new age ofglobal innovation.

Dr. R. A. Mashelkar

President, Global Research Alliance& Bhatnagar Fellow,National Chemical Laboratory

R. Gopalakrishnan

Executive DirectorTata Sons


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In announcing that 2010-2020would be the Decade of Innovation,the Government of India formally

recognized the power of innovationto transform the countrys economyand society. A core component of thishistoric effort is using innovation toachieve inclusive growth by bringinginto the economic mainstream thecountrys vast low-income andgeographically remote populations.

Over the period of last two years, veryinteresting and powerful economicand business literature has evolveddiscussing the opportunities that exist

for businesses to make the most ofthis transformational opportunity.1Wecontinue to make our contributionsin an ongoing way, helping to shapethe thinking of corporations in thisarea. Last year, we joined with AIMAto publish a report titled Innovatingfor High Performance in India. In thatreport, we offered a framework onusing innovation as a tool to achievehigh performance while simultaneouslyunlocking value for society. This year,

we are diving deeper and are focusingon providing a framework to developinclusive business models that arecommercially viable.

The economic and social goals ofinclusive growth laudable enough inand of themselves now have addedmeaning: they represent perhaps thebiggest business opportunity of thecoming decade.

With the global economy still

unsettled and sometimes alarminglyerratic, companies are looking for asafe harbor of stable growth andan increasing number of Indian firmsare betting that consumers in remoteparts of the country and low-incomepeople in both urban and rural areascan fill that role. The technologies arenow available to reach these largelyuntapped markets. The countrys poolof young entrepreneurs is ready forthe assignment. And the challengeto address stagnating growth in themanufacturing sector demands somefresh thinking.

The opportunity to bring the poor andthe geographically isolated into themainstream not just as consumers

but also as employees, distributors andintermediaries cannot be wasted. It isa rare confluence of many pluses. Itis a chance for the poor to climb theeconomic ladder into the middle class,a chance for those in remote villagesto join the countrys commercialnetwork, a chance for companies toexpand their reach and a chance, forthe manufacturing sector to growinclusively and, for the environment tocatch its breath through a new credoof produce more from less for more2.

Service companies seem to be gettingthe message and are coming upwith commercially viable disruptiveinnovations across the value chain.But many large manufacturingcompanies are holding back, fearfulof the level of commitment that isneeded and skeptical that inclusivebusinesses can last. Their concerns,while understandable, could threatentheir competitive base in the future

by keeping them out of markets thatwill soon blossom. Those concernsalso stand in the way of the majorrole that manufacturers could play asemployers, offering a way out, and away up, for both the rural and urbanpoor. In inclusive growths version of avirtuous circle, those new employeeswould become consumers with morediscretionary income and that, in turn,would add new fuel to the economy.

In preparing this study the first in-depth look at how the manufacturingsector is approaching growth through

inclusive innovation we talked toand surveyed 55 senior executivesat a cross-section of manufacturingcompanies and complementedthis primary research with broadcase study analysis and secondaryresearch. Our report offers insightsand guidance to manufacturers aboutthe obstacles that must be removedand the competencies that have to bedeveloped if they are to pursue thisopportunity. We think the potentialsize of the prize, for all the interested

parties, is more than worth the effort.

Anish GuptaManaging Partner ProductsOperating Group, Accenture India


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Executive summaryThe term inclusive growth, onceconfined to the pages of nationaldevelopment plans in emerging

markets, now increasingly appearsin the annual reports of Indianfirms and with good reason.

The effort to include low-incomeand geographically remote sectorsof society in the countrys epicsurge in economic expansion isno longer motivated solely byconcerns about corporate socialresponsibility. Instead, because of thecontinuing market volatility and theincreasing reach of information and

communication technologies, inclusivegrowth is emerging as perhapsthe biggest business opportunityof the coming two decades.

Inclusive growth embraces thehave-nots and brings them into themainstream of the economic systemas customers, employees, distributorsand intermediaries. Low-incomegroups will then start to climb theladder and grow into the middle class.Companies that become inclusiveand win the loyalty of customersin this market will be positionedto climb the ladder with them.

A time for actionMarket volatility is pushing firmsto find stable and growing revenuestreams across geographies. Theyare counting on emerging markets,and rightly so. Most of the growthin consumer spending is expected to

come from people in emerging marketswho have a much lower spendingcapacity than traditional middle-classconsumers in developed countries.The fastest-growing consumer classin the emerging markets of Asiaconsists of people spending $2 to $4a day, according to a recent reportfrom the Asian Development Bank.3

At the same time, the power ofinformation and communicationtechnologies is making it possible

for more companies to reachgeographically remote populations,as well as low-income people inboth urban and rural settings,

and include them in new businessmodels. Government funding andextremely low-cost equipment

are making computing hardwarefar more accessible to the poor.Mobile connection points areincreasing at a breakneck pace.

Firms in India are particularly wellpositioned to take advantage of thisopportunity. They have direct accessto the worlds second-largest emergingmarket, one in which a huge low-income group is poised to enter themiddle class. By 2030, the share ofthe total population in the emerging

middle class, those earning $4 to$20 a day, will triple, to 49 percent,or 725 million people exceedingfor the first time the number ofthose earning under $4 a day. Anexplosion of consumer demand,spread across a range of low- andmiddle-income segments, will allowIndian businesses to experimentwith different scaling strategies,making the cost of pursuing inclusivebusiness models much lower for firms

in India than for many competitorsin other emerging markets.

Companies in India also have access toa large pool of young entrepreneurialtalent used to working in severelyconstrained situations. Steeped inthe tradition ofjugaad, the abilityto find quick-fix solutions at verylow costs, these youngsters formthe basis of innovations deliveringmore from less for more.

Inclusive growth could jump-startIndias manufacturing sector, whichis sorely in need of a new frontier.The sectors contribution to grossdomestic product has been stuck atabout 17 percent for a decade andits share of global manufacturingoutput has fallen further andfurther behind Chinas share.

Companies in India now have anally in their pursuit of inclusion: theIndian government. The governmentrecently established a NationalInnovation Council to help developan Indian model of innovation thatwould focus on inclusive growth.

The Council is expected to supportthe launch of similar bodies onthe sectoral and state level.

Barriers in the roadFrom Everonns online educationnetwork4to Airtels Kisan SancharService5(Communication service toFarmers), service firms are provingparticularly adept at developingsustainable and commercially viableinclusive business models. However,the same can be said of only a few ofIndias big manufacturing companies.

A large majority of the seniormanufacturing executives we surveyedacknowledge that inclusive businesseswill outperform their non-inclusivepeers over the long run and nearlyall believe that inclusive businessmodels will be important to shapethe future. Yet less than a third areincorporating inclusive objectives asa critical component of their coreinnovation process. This commitmentdeficit is hobbling the manufacturingsectors activity in this key area.

The reluctance to commit to inclusionis tied in large part to a fear that thebleeding from a startup inclusivebusiness would hamper a companyscore business and overall viability. Thefear comes from the fact that manymanufacturing firms have limitedexperience in low-income and remotemarkets, making it difficult to developcustomer-relevant products or toplan effectively. The fear also comes

from other harsh realities: razor-thinproduct margins require many inclusivebusinesses to achieve significant scalebefore they can be commerciallyviable but very few have the abilityto fathom what the scale should be.

Companies sitting on the sidelinesdont have the right culture to do wellon the inclusive playing field. Insteadof being attuned to on-the-groundrealities in poor and remote areas,a predominant number of Indian

manufacturers are at present focusedon middle- and high-income markets.Rather than taking a long view withinclusion initiatives, they are tied


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to quarter-by-quarter profit-and-loss reports to satisfy investors.

Finally, many senior executives simplydont know how to get started. Inparticular, they dont know how tobuild a robust inclusive businessmodel. Not only are their leaders

and workforce not aligned culturallywith inclusive growth, but they alsolack the capabilities to implementthe right innovative approaches.

The way aheadAs difficult as those obstacles appearto be, they can be removed. To preparethis report, the first to focus solely oninclusive business models within Indiasmanufacturing sector, we interviewedand surveyed 55 senior executivesfrom a variety of leading corporations.Based on their experiences and ourresearch, Accenture has constructeda three-step framework for successin inclusive growth markets.

1. Achieve the rightmarket focus.

The key first step to viable growthis identifying innovative domainsto deliver significant benefits to

poor and/or geographically remoteconsumers. As highlighted in ourresearch publication Innovating forHigh Performance in India, launchedat the Global Innovation Conference2009, eight main areas are rich insuch opportunities: agriculture,biotechnology, pharmaceuticals,health care, education, financialservices, green technologies andinformation and communicationtechnologies. By finding the customer

gain or pain points in each of theseareas, manufacturers can identify theright opportunities for inclusion.

2. Design the business modelfor inclusive impact.

Viability further depends on quicklyscaling the impact of the innovationto large numbers of new consumers.We have found four types of inclusiveimpacts that can be scaled acrossthe value chain through businessmodel innovation: changing the price/performance envelope; nurturingskills and capabilities; enhancingincome and lifestyle; and conserving

natural resources. Companies thatsucceed in reaching large numbersof poor and/or distant consumers usemodels that simultaneously achievemore than one type of impact.

3. Align the operatingmodel with the businessmodel and build relevantfunctional capabilities.

Injecting an inclusive belief structureinto the organizational culture isessential for an inclusive businessmodel to succeed. All the elementsof the operating model (leadership,organizational architecture, talentand metrics) must be aligned tocreate a culture that respects andfosters inclusion. Four capabilities

are also central to the effort.Companies must develop strongempathy in understanding customerwants; partner with appropriateinclusive entrepreneurs; adopt low-cost prototype models that permitfast failures and quick recoveries;and leverage inclusive innovationsin other parts of the business andother markets. Armed with thesecapabilities, companies are in aposition to acquire appropriate and

timely information about customerpreferences, price risks effectively,scale operations efficiently andultimately secure better margins.

Successful firms leverage innovationsfor low-income markets such as newproducts and improved supply-chaincapabilities to enhance operationsin their traditional higher-incomemarkets. In bolstering their otheroperations, these innovations helpoffset the significant investmentsthat often define the early stagesof inclusive businesses.


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Why now in India?


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2010 2020 2030

20

40

60

80

0

100 .5

16.5%

83%

49%

48%

1

31%

68%%o

ftotalpopulation

Source: Estimates based on Key Indicators for Asia and the Pacific 2010, Asian Development Bank, August 2010

US $0 - US $4 US $4 - US $20 >US $20

Figure 1: Indias growing middle-class compared with the poor (average daily per capita income)

A number of factors are coming

together to make inclusive growthperhaps the biggest businessopportunity of the next decadefor companies in India. Suchgrowth embraces low-income andgeographically remote groups6 theunreached of society and bringsthem into the mainstream of theeconomic system as customers,employees, distributors andintermediaries. Over time, these groupswill start to climb the ladder and growinto the middle class.

To do business in this market,companies must make products andservices available not just at lowcost but at ultra low cost requiringinnovative manufacturing, marketingand delivery solutions. The challengespresented by these and other hardbusiness realities have been difficult toovercome in the past.

For that reason, doing good

has traditionally been the primemotivation for inclusive growth,in the form of corporate socialresponsibility. But now companies canalso do well by entering this arena,particularly in India. The low-incomemarket is huge, exceeded only byChinas, and so is the emerging middleclass. India also has a large numberof young entrepreneurs who havegrown up in the tradition of jugaad7,the Indian version of a workaroundthat finds quick-fix solutions atvery low costs. And the countrysmanufacturing sector, which trailsChinas, is in need of a new frontier.

At a time when the global economyis still shaky, that frontier lies inthe thousands of small towns andtiny villages in Indias sprawlingcountryside as well as in the manypoor sections of its cities. Armedwith the latest information and

communication technologies,

companies in India now have themeans as well as the motive to reachthe hundreds of millions of Indias poorand use innovative business models todrive inclusive growth.

Huge numbers ofpotential customersManufacturing firms in India, withdirect access to the worlds second-largest emerging market, have a major

competitive advantage over many oftheir counterparts in other countries.Indias population in the income groupof $4 to $20 a day, its emergingmiddle class, is expected to explodeover the next two decades, increasingfrom some 16.5 percent of the totalpopulation to 49 percent in 2030 (seeFigure 1). The 725 million people whowill make $4 to $20 per day in 2030will coexist with 710 million peopleearning less than $4 a day8.


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Large consumer demand spread across

a range of low- and middle-incomesegments will provide businesses inIndia an opportunity to experimentwith different scaling strategies. Thecost of pursuing inclusive businessmodels will be substantially lowerfor firms in India than for manycompetitors in other emergingmarkets.

UnprecedentedaccessibilityIndias low-income and geographicallyremote populations are now withinreach. The continuing spread ofinformation and communicationtechnologies is making thosegroups much more accessiblethan ever before. New connectionpoints arise daily as governmentfunding and low-cost innovations such as a $35 touch-screenlaptop developed in India makepurchasing computing hardware

more feasible. Mobile connectionpoints with low-income populationsare increasing at a breakneck pace.Even at the heart of the economic

downturn, India added 10 million

mobile connections each month,thanks largely to a surge in new cell-phone accounts among the poor.

A large pool ofentrepreneurial talentFirms in India that want to implementinclusive business models have accessto a vast young entrepreneurialtalent pool adept at working inseverely constrained conditions.

Moreover, the entrepreneurialculture of targeting new customersor untapped markets is stronglyprevalent in India compared withother BRIC economies (see Figure 2).

A wake-up call for themanufacturing sectorThe contribution of the manufacturingsector to Indias gross domesticproduct (GDP) has stagnated at

around 17 percent during the lastdecade. Indias share of globalmanufacturing output, which was 1.1percent in 1995, increased to only

2.2 percent by the end of 2009 (see

Figure 3). In contrast, Chinas sharesoared from 4.2 percent to 18.5percent during the same period.

Inclusive innovation can becomethe force to infuse energy across alllevels of the Indian manufacturingsector. Innovations, which will spinoff new technologies and requirenew skills and training, will give riseto disruptive business opportunitiescreating employment for low-income and geographically remote

populations across the value chain(for example, microspinning seesidebar). India can become a hub ofinclusive innovation and a testingground for inclusive business models.

China

5

10

15

20

25

30

0

35

15%

27%

32%33%

Russia Brazil India

Source: Adult Population Survey, Global Entrepreneurship Monitor (2009)Note: Early-stage entrepreneurial activity is measured as the percentage of population of age 18-64who are either a nascent entrepreneur or owner-manager of a new business.

%o

ftotalentrepreneurialactivity

Figure 2: Early-stage entrepreneurial activity targeting new customers or untapped markets, 200409


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The strength of India's textiles

industry lies in operations wherenumerous tiny, knowledge-based,

low-capital units are networked to

produce competitive products and

services. But the scaling up of the

sector has led to a concentration of

jobs in certain areas of the country.

The complexity of technology and

operational logistics resulted in the

clustering of mills in a few locations,

although the rest of the cotton

textile industry is widely dispersedgeographically. Further, this

concentration has little relationship

to the availability of raw material

(cotton) or markets (for yarn), both

of which are also widely dispersed.

This disconnect adds to the cost

of materials and distribution,

making it harder for the small-scale

farmer/weaver to earn a living.

Micro spinning promises a

breakthrough. The innovativetechnology decentralizes the entire

fibre-to-fabric textile chain and

opens up possibilities of creating

substantial numbers of rural jobs

across the nation: a single micro

spinning unit can reportedly

secure the livelihoods of 100 rural

families. Micro spinning makes yarn

spinning viable at one-hundredth

of the prevailing investment costs.

In micro spinning, ginned cotton isdirectly carded and then converted

into slivers thick, continuous,

untwisted strands that can be

used for spinning into yarn. The

process cuts out the damaging

compression of the fibre into

bales, followed by the even more

damaging and energy-intensive

unbaling. It also cuts out the

need to transport cotton from

the growing areas to the spinningmills. Overall, micro spinning makes

for a more balanced, efficient

and ecologically responsible

organization of the textile industry.

Micro Spinning: Spreading Out the Jobs

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Source: Fractal Foundation (2010)


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Using inclusive businessmodels to spur nationalgrowthImproving Indias capacity to innovateis critical to provide inclusive andstable economic growth.

Firms can make a seminal contributionby launching inclusive businessmodels. By integrating low-income and geographically remotecommunities into the value chain and

enlisting public-private partnershipsin the effort, businesses can helpbuild a national culture of inclusiveinnovation. As these initiativescreate wealth, they will also createexcitement and encourage othersto pursue innovative breakthroughs.(For more details, see the sidebarUnderstanding inclusive businessmodels.)

Businesses now have the Indian

government as their ally in thisjourney. India is taking concertedmeasures to promote inclusiveinnovation as part of the Decade ofInnovation. It has recently formeda National Innovation Council withthe mandate to evolve an Indianmodel of innovation focusing oninclusive growth. The council, inturn, is empowered to promote theestablishment of sectoral and stateinnovation councils.

Source: IHS Global Insight, 2010

%o

fglobalmanufacturingoutput

India China

1995

4

8

12

16

0

20

2

6

10

14

18

1.1%

4.2%

1.2%

6.5%

1.7%

9.5%

2.2%

18.5%

2000 2005 2009

Figure 3: Share of world manufacturing output (India vs. China)


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Constraints along the way


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Indian C-suite executives recognize

the benefits of inclusive business.About 68 percent of the executiveswe surveyed believe that inclusivebusinesses will outperform theirnon-inclusive peers over the long runand nearly all, 98 percent, believethat inclusive business models will beimportant to shape future success.Despite that acknowledgment,only 30 percent of the firms wecontacted are currently incorporatinginclusive objectives as a critical andindispensable component of their coreinnovation process (see Figure 4).

This commitment deficit as onesenior executive at a fast-moving-consumer-goods company put it continues to hinder manufacturersdevelopment and adoption of inclusivebusiness models. The reluctanceto commit more resources to pushinclusion is primarily being drivenby continuing uncertainty aboutthe commercial viability of doing

business with poor and geographicallyremote populations, as well asthe absence of the organizationalculture needed to compete in

these markets (see Figure 5).

Worries about commercialsustainabilityThere are several reasons whymany C-suite executives continueto question the sustainability ofdoing business in low-income andgeographically remote markets.

First, a number of manufacturingfirms, due to the nature of theirbusiness (e.g., industrial products andchemicals), have limited visibility insuch markets. In the past, they haveinvested little or nothing in gatheringinformation about customer tastesand preferences or even the availableemployee skill sets in these markets.

Furthermore, the fragmented natureof these low-income and remotepopulations has hindered the gatheringof data. The lack of consistent sourcesof usable market information has made

it more difficult for firms to developcustomer-relevant products or to planeffectively and justify investments making sustainability less certain.

Second, inclusive businesses must

often commit capital to buildentirely new business capabilities such as supply chains becausethe capabilities that already existto serve middle- and high-incomemarkets can be put to only limiteduse in doing business with the poor.Additionally, the required startupcosts are compounded by long timehorizons between initial investmentand business sustainability.

Thanks to razor-thin product margins,

many inclusive businesses mustachieve significant scale beforethey become viable. But making aproposition commercially sustainablethrough scale can be very difficultin the context of inclusive businessmodels. Continued investment tobuild and scale an inclusive businesscan have a significant negativeimpact on a companys short-termresults a diff icult prospect for manyC-suite executives.

Source: Accenture Survey, 2010

Dispensable

Partly dispensable

Indespensable

20%

50%

30%

Figure 4: Dispensability of inclusion in the innovation process


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In our interviews, executives said

that one of their most pressing fearswas that bleeding from a startupinclusive business would hamper thecompanys core business and hurt itsbroader results.

Absence of requiredorganizational cultureTo be successful in low-income andgeographically remote markets, firmsneed to be attuned to on-the-ground

realities. However, a predominantnumber of manufacturers in Indiahave developed their businesses forthe middle- and high-income markets.Leadership has become increasinglyfocused on quarter-by-quarter profit-and-loss reports to satisfy investors.In lower levels of the organization,incentives have been designed toencourage talent to deliver on theneeds of wealthier consumers.

The legacy corporate structures

and culture that have resultedfrom building a business to targetmiddle- and high-income consumershave impaired the ability of manymanufacturing entities to developincisive inclusive solutions that meetthe unique demands of low-incomeand geographically remote markets.

Not knowing what to doIn our interviews, a significantnumber of the executives pointedto a barrier that wasnt listed in ourformal survey. They just dont knowwhere to start on the journey ofinclusion, these executives said. Nordo they know how to build a robustinclusive business model.

Figure 5: Barriers to implementing inclusive business models

20%0%

Worries about commercial sustainability

Absence of required organizational culture

Absence of risk taking ability within managers

Inadequate allocation of financial and human resources

Ill-equipped procurement, sales and marketing infrastructure

Poor in-house innovation infrastructure

Lack of a buy-in from top management

40% 60%

48%

45%

39%

32%

18%

14%

7%

Source: Accenture Survey, 2010

Note: The percentage figures exceed 100% as respondents were asked to identify a minimum of two barriers to implementing inclusive business models.


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The path ahead: a three-step plan


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The obstacles to inclusive growth

may seem daunting but they are byno means insurmountable. Manyservice companies and even a fewmanufacturers have been successfulpioneers. While their journeys intomarkets dominated by low-incomehouseholds and/or geographicallyremote communities have had theirshare of surprises and setbacks, thesecompanies now have a firm footholdthat is steadily expanding. Whetherby smart strategic planning or by trialand error, they have figured out theway forward.

The mistakes they have made, and

the lessons they have learned, nowserve as a valuable roadmap for thecompanies that follow. To be sure,these companies, too, will encountersome surprises and setbacks. But the

journey is less risky and the rewardsmore reachable, thanks to those whohave gone before them.

Based on lessons distilled from the

experiences of these firms, we havecodified a framework that we callProject ENIGMA (ENgaging withInclusive Growth MArkets). Theframework identifies and links thethree steps that companies must getright to succeed (see Figure 6).

Step One Step Two Step Three Outcome

Commerciallyviable inclusivebusiness model

Build relevantfunctionalcapabilities

Align the

operating modelto the inclusivebusiness model

Design the businessmodel for inclusiveimpact

Achieve the rightmarket focus

C-suite executives surveyedby Accenture-AIMA (2009)reported that inclusiveinnovations are creating themost attractive businessopportunities in thefollowing markets:

a. Agriculture

b. Biotechnology

c. Pharmaceuticals

d. Health care

e. Education

f. Financial services

g. Green technologies

h. Information andcommunicationtechnologies

There are four basic typesof inclusive impact:

a. Changingprice/performanceenvelope

b. Nurturing skills andcapabilities

c. Enhancing income andresources

d. Conserving naturalresources

Embed spirit ofinclusiveness

Find engagingleaders

Renew

organizationalarchitecture

Nurture talent tothink and breatheinclusion

Developappropriatemetrics

Develop strongcustomer empathy

Partner with rightinclupreneurs

Use fall-fast

prototyping

Leverageinnovations inother markets

Thinking

Doing

Figure 6: Project ENIGMA (ENgaging with Inclusive Growth MArkets) Accenture Framework


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Step 1: Achieve the rightmarket focusBased on the experience ofmanufacturing companies that havesuccessfully designed commerciallyviable inclusive business models,the first step is to identify the rightopportunity for delivering disruptivebenefits to poor and/or remotecustomers. Our 2009 Accenture-AIMA report, which surveyed seniorexecutives as well as consumers,

found eight key business areas thatare rich in such opportunities. Theseareas are agriculture, biotechnology,pharmaceuticals, health care,education, financial services, greentechnologies and informationand communication technologies.Manufacturers must identify customergain or pain points and define theexact nature of their inclusiveintervention in the context of theseeight areas.

Step 2: Design thebusiness model forinclusive impactOnce the focus of the innovationeffort is determined, a business modelcapable of benefitting large numbersof prospective customers from low-income and/or geographically remotepopulations needs to be designed.

Our discussions and case studyanalysis show that four broad types

of inclusive impacts can be scaledacross the value chain throughbusiness model innovation. Thefour types are: changing the price/performance envelope; nurturingskills and capabilities; enhancingincome and lifestyle; and conservingnatural resources. (For more details,see sidebar Understanding inclusive

business models.) Companies thatsucceed in reaching large numbers ofconsumers typically employ models

that have more than one type ofinclusive impact.

Step 3: Align theoperating model with theinclusive business modelThe operating model of the businessentity implementing the inclusivebusiness model must be aligned toenhance the scale and quality ofinclusive impact. By embedding aspirit of inclusiveness across elementsof the operating model (leadership,organizational architecture, talent andmetrics), a firm can cultivate a culture

that is aligned with the organizationsinclusive objectives. The next chapterof the report describes how somecompanies made this transition.


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Build relevant functionalcapabilitiesAt the same time, companies mustfocus on developing and renewingfunctional capabilities to ensurecommercial viability in inclusivemarkets. Armed with such capabilities,businesses are in a position to acquiretimely information on customerwants, price risks effectively, scaleoperations efficiently and securebetter margins. We have identified

four capabilities that companies mustbuild they need to develop strongcustomer empathy, partner with theright inclusive entrepreneurs, usefail-fast prototyping and leverageinnovations in other markets. Thesecapabilities are discussed in detail inthe last chapter.


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Changing price/performance envelope

Nurturing skillsand capabilities

Enhancing incomeand lifestyle

Conserving naturalresources

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Understanding inclusive business models

What are inclusivebusiness models?Large segments of low-incomepopulations* and those residingin remote geographies (such aspopulations in mountainous regions,forest dwellers etc.) suffer from alack of financial and physical assets,services, skills and employment toparticipate in mainstream economy.Moreover, given that these populationspredominantly engage in economictransactions outside the reach oforganized markets, they miss out ona range of opportunities resultingfrom improvements in technologyand other advances. Many a timesthey remain unreached. We termthese gaps opportunity deficits.

Businesses can eliminate these deficitsand improve the quality of life of thesegroups through the implementation ofcommercially viable business models.For the purpose of this discussion,

business models achieving such resultsare inclusive business models.9

Typology of inclusivebusiness modelsBased on extensive secondaryresearch and discussions with seniorexecutives of large companies thatemploy inclusive business models, wefind that these models can be broadlycategorized into four types, based ontheir impact:

Changing price/performanceenvelope delivers high performanceproducts satisfying wants of low-

income populations and those residingin remote areas at ultra low prices.

Nurturing skills and capabilities imparts skills paving the way for low-income populations and those residingin remote areas to seek employmentin organized markets.

Enhancing income and lifestyle creates new sources of income,and helps improve the lifestyle, forlow-income communities and those

residing in remote areas.

Conserving natural resources reduces the overall climate footprintof the company, thereby extendingthe life and quality of the naturalresources being accessed by low-income populations and those residingin remote areas.

Figure 7: Types of inclusive business models


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Characteristics of robustmodelsA robust inclusive business model ischaracterized by scale and commercialviability.

Scale is important for business reasons(to compensate for low margins andto reach commercial viability) and alsofor development reasons (to matchthe scale at which wants need tobe satisfied on a sustained basis). This

minimum number is sensitive tonational context and to the markets inwhich a company operates.

Inclusive business models also need tobe financially self-sustaining or self-funding. Firms must not use revenuesearned from other parts of thebusiness to cross-subsidize the costof doing business with low-incomeconsumers.

Opportunities to beinclusiveOpportunities to be inclusive existacross the value chain.

In the pre-production phase,manufacturing companies can exploreopportunities to integrate the skillsets and products that low-incomecommunities and those residing inremote areas have to offer to enhancestability, flexibility and predictability

of procurement at significantly lowcosts. They can sharpen their valueproposition by opening outside-inchannels of customer insight.

During the production phase,businesses can typically focus oninnovating products or offerings withthe potential to disruptively changethe price/performance envelope.They can think of partnerships andinnovations that can reduce not onlytheir own climate footprint but also

that of the customer. Companies can

look to outsource certain parts of

their production to suppliers fromlow-income groups and benefit fromtheir local knowledge and innovativemindset.

In the post-production phase,businesses can create innovativedistribution networks throughcollaboration with a diverse talentpool across low-income communitiesand remote regions. They shouldexplore how value can be generatedand renewed through such

relationships.


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For more

people

with profits

For more

profits only

Less output from less resources More output from less resources

Inclusive Business Model

Example: Business model built

around the Tata Nanocar

Traditional business model

most commonly seen variety

Suboptimal inclusive

business modelsExample: Business model

built around jugaad the vehicle

26

Benefits derived frominclusive modelsCompanies engaging with inclusivebusiness models identify a gap insociety and then work to bridgethe gap. By implementing inclusivebusiness models, businesses stand to:

Unearth new revenue-generatingcustomer segments

Launch new products

Achieve new standards in customersatisfaction and customer relevance

Create new scaling capabilities thatcan be adapted across sectors

Derive new applications of existingtechnologies through greater synthesis

Discover new sources of talent

Ensure a strong brand recall

Most importantly, inclusive business

models are not models based onjugaad**. Traditional business modelsare seen to focus only on profitmaximization through optimizingproduction of output by using aminimum level of input. Althoughbusiness models based onjugaaduse fewer resources compared withtraditional business models andin many cases provide benefits tosociety, the performance of theirmanufactured goods is often poor(see Figure 8). Because these productsare generally offered in unorganizedmarkets, their quality is unregulated,environmental safety standards arecompromised and customers have noavenue to voice grievances. Inclusivebusiness models, therefore, offer bigimprovements.

Figure 8: The difference between an inclusive business model and business models based on jugaad

* Populations with consumption expenditure between $1 and $4 per person per day.

** Jugaad is a locally made vehicle used in villages of India as a means of low-cost transportation. Over time, jugaad has come to mean an innovative quickfix to a problem.


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Figure 9: Companies implementing inclusive business models in the manufacturing domain

Changing price/performanceenvelope

Nurturingskills and

capabilities

Enhancing incomeand lifestyle

Conservingnatural

resources

First Energy(Oorja Stove)

Indian mobilehandset

manufacturers

HUL (Shakti)

Marico(safflowerinitiative)

JainIrrigationSystems

ITC(e-Choupal)

TataMotors(Nano)

Keggfarms(Kuroiler)

27

A roster of success stories with inclusivebusiness models

Mapped below are examples of

manufacturing companies, from avariety of sectors and of dif ferent

sizes that have managed to build

robust inclusive business models.

First Energy

The company developed the Oorja

biomass smokeless stove. The

stove uses biomass gasification

technology, developed and patented

with the Indian Institute of Science,

Bangalore. The fuel is made f rom

compacted agri-residue. Withthe help of this stove, a meal for

a family of five can be cooked

for less than Rs.6 (approximately

$0.13). First Energy has created its

own distr ibution channels and also

partnered with NGOs and self-help

groups to use existing channels.

Together, they have created a

marketing network of 3,000 vi llage-

level entrepreneurs/dealers (some

of whom are women) to sell the

stove and fuel in the villages.

Tata Motors

Tata developed Nano, the peoplescar, at an affordable on-road price of

less than Rs. 135,000 (approximately

$3,000), satisfying requisite quality

and emission standards. Just as

the mobile revolution heralded

inclusion in communication, by

making a telephone affordable

to even the street-side hawker,

the Nano has the potential to

make every footloose Indian

"transportation inclusive." To arr ive

at a disruptive price positioning in

the market which is sustainable, the

company has reduced many cost

structure elements by engineering

innovations, which include use

of cheaper and environmentally

environment friendly materials.

Indian mobile handset

manufacturers

During the last three fiscal years,

a clutch of three Indian mobile

handset companies, Micromax,

Spice, Karbonn mobiles have been

able to snatch more than 10 percent

of the handset market. By effectively

modulating their sourcing, these

companies are in a position tosell their products at much lower

price-points without sacrificing

margins. The companies ensure

that their models carr y features

most wanted by aspirational

youngsters in rural and semi-rural

parts of India. They have lean

organizations and carr y very low

overheads. These companies focus

on heavily integrating the latest

technologies in their handsets while

also making sure that the handsets

look trendy and give buyers pride

of ownership. The four companies

have also started investing heavily

in training young people from rural

and remote areas to become part of

their sales and technical workforce.

Keggfarms

The company has developed Kuroiler

scientifically developed poultry

stocks for production in village

households. Keggfarms supplies day-

old Kuroiler chicks to the owners of

the mother units in rural sections,

normally in batches of 700-1,000 at


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a time. These birds are then picked

up by the village vending youth,who sell them to local households.

The self-employed village vending

youth earn f rom Rs. 4,000 to Rs.

5,000 per month (approximately

in the range of $89 to $111).

The households pay Rs. 35-40

(approximately in the range of $0.77

- $0.89) per bird. The birds, which

are grown primarily on agricultural

and household waste, lay anywhere

from 140 to 160 eggs a year, much

higher in comparison to number of

eggs laid by normal birds. The hens

generally grow to 2.5 kilograms

and the males up to 3.5. Keggfarms

serves an estimated 1 million rural

households and is expected to

generate more than Rs. 4 bil lion

($89 million) worth of rural incomes.

Hindustan Unilever (HUL)

Launched in 2001, Project Shakti

is a key element of HULs alternate

distribution strategy. The Shakti

network trains women members

of village-based self-help groups

to become sales representatives

called Shakti ammas. Shakti

ammas are small entrepreneurswho invest in their distr ibution

businesses. Each month, a typical

Shakti distr ibutor sells consumer

products worth Rs. 10,000-15,000

(approximately in the range of $222

to $333), earning around Rs. 1,000

(approximately $22). By the end of

2009, the Shakti network comprised

45,000 Shakti ammas covering

100,000-plus villages across 15

states and reaching more than 3

million households every month.

ITC Ltd.

Launched in 2000 by ITC, the

giant conglomerate, e-Choupal has

displaced many of the traditional

intermediaries who worked with

rural farmers by disintermediating

them from the chain of information

flow and market signals. With a

judicious blend of click and mortar

capabilities, village Internet kiosks

managed by farmers called

sanchalaks give the agricultural

community access to information in

the local language on the weather

and market prices, offer guidance

on scientific farm practices and riskmanagement, facilitate the sale of

farm inputs and purchase produce

from the farmers' doorsteps.

Real-time data and customized

information provided by e-Choupal

enhance the ability of farmers to

make decisions, align their farm

output with market demand and

improve quality and productivity.

e-Choupal reaches more than 4

million farmers growing a range

of crops including coffee, rice,

soybeans and wheat through

6,500 kiosks in more than 40,000

villages across 10 states.


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29

Marico

Maricos team uses modernIT platform for tracking the

contract farming, providing

necessary updates to farmers

through SMS , troubleshooting

and monitoring production. The

company shares research on seeds

and package of practices with

farmers thereby helping them

improve farm yields and incomes

substantively. At present, 40,000

farmers across 7 states cultivate

saff lower for Marico over 100,000

acres. Through this safflower

initiative, Marico has also been

able to help farmers transform

around 8000 acres of fallow

land into productive assets.

Jain Irrigation Systems Ltd. (JISL)

The company provides farmerswith micro-ir rigation systems (MIS)

and other products and services

to increase the yield and quality

of crops. It then purchases the

resulting fruits and vegetables,

through its food-processing

divis ion, which sells them to

foreign and domestic markets. In

this way, the companys inclusive

business model reaches farmers

both as consumers and producers.

By partner ing with the Indian

government, the company has been

able to leverage subsidies to lower

the price points of its products sold

to small farmers. In 2008-09, JISL

bought 35,000 tons of onions from

1,800 contract farmers, 90 percent

of whom were small operators.

Source: Published Annual Reports of various companies, Interviews and information based on the publication by Jenkins, Beth and Eriko Ishikawa (2010).Scaling Up Inclusive Business: Advancing the Knowledge and Action Agenda. Washington, DC: International Finance Corporation and the CSR Initiative atthe Harvard Kennedy School and Accenture (2010); Masters of rural markets : The Hallmarks of High Performance.

# Exchange rate utilized for calculations in this section is 1$ = Indian Rupees 45


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Chemicals & Pharmaceuticals

Industrial Equipment

Metals & Mining

FMCG and Consumer Durables

Automotive

Energy & Infrastructure

Cement

Textiles

33%7%

7%

5%2%

22%

13%

11%

$200mm - US $500mm

$501mm - US $1bn

Above $1bn

38%

35%

27%

Figure 10: Survey responses by industry sector Figure 11: Survey responses by size of annual sales

31

Research methodology

This report draws on several

research components. First,Accenture conducted an extensive

review of the existing literature,

including media resources, academic

journals, corporate annual reports

and business studies, to discover

what issues are most pressing

for India-based companies

attempting to build inclusive

business models. The sur vey of

secondary research revealed a

clear deficit of relevant insights

into inclusive business models in

Indias manufacturing industry.

As a result, Accenture conducted

surveys and interviews with 55C-suite executives across the

industry. This primary research was

the first of its kind to focus solely

on inclusive business models within

manufacturing. The face-to-face

interviews and surveys sought to

understand how C-suite executives

at Indias leading manufacturers

view the link between inclusive

business models and future

competitiveness. It also aimed to

uncover the drivers and barriers

to building inclusive business

models as well as the extent to

which India-based manufacturers

incorporate inclusive objectives intotheir core business. Finally, survey

and interview data were analyzed

to gain insight into the firm-level

competencies that need to be

developed to succeed in this area.


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32

Aligning the operating model with

the inclusive business model


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33

In our publication Innovating for

High Performance in India, launchedduring 2009, we discussed theimportance of nurturing an innovationmindset across an organization, andhow crucial it is for talent not tobe risk averse. We also discussedthe need to develop systems thatallow the seamless integration ofinnovation into business models.

But executing inclusive modelsrequires an entirely different level ofcommitment an overall acceptance

of the inclusion imperative for long-term business success. It requiresleadership and employees acrossthe company to accept inclusionas an integral part of their beliefstructure. Once integrated, aninclusive belief structure acts as aconvex lens helping leaders andemployees to see merit in devisingsolutions that converge to meetthe needs of business, people andthe environment simultaneously.

In their book, Competing for theFuture, Gary Hamel and C.K. Prahaladhave said that strategic intent hasthree key components: destiny,

direction and discovery. That analysis

has particular relevance for companiesconfronting the challenge of inclusivegrowth. If a company does not have asense of shared destinywith the poor,it will probably not go in the rightdirection nor embark on the kind ofexperimentation and discovery thatwill produce innovative breakthroughs.

At its core, an inclusive belief structuredoes embrace a shared destiny,expressed through a commitment toserve the unserved. The belief structure

must also have a strong sense ofdirection replete with ambitiousgoals, stated time frames and a clearvision that each project has a humandimension. It must see the link betweenconnectivity and the improvementof villagers lives, for example, or theavailability of very cheap medicationsand what that means for the healthof the poor. And it must have deepconfidence in its ability to travel on thebumpy road of discovery. Constraints

will always exist creative solutionswill always need to be found. Patienceis key as a company focuses on thesenew consumers, it must understand

that commercial viability will take time.

But it will come, so long as the overallbelief structure has been taken to heart.

This section discusses some ofthe ways in which an inclusivebelief structure becomes part ofthe organizational culture.

Embed a spirit ofinclusivenessOrganizational values form the

bedrock of organizational culture.They give employees something theycan easily identify with. And they helpemployees find common cause withone another.

Embedding the spirit of inclusivenessin the organizations value frameworkcreates a very strong platform fornurturing a culture that respects andpromotes inclusion. An environmentis fostered in which employeesincreasingly start to find connections

between their personal growth and thegrowth of the enterprise with that ofsociety at large.


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Figure 12: Reasons for leadership not being aligned to meet the needs of an inclusive business model

10%0%

Leadership (board and senior management) in the companyexcessively focused on product and process innovation

Board unable to understand the importance of inclusive

business models

Leadership interested but not allocating required financial andhuman resources

Leadership not interested in doing business with low-income andgeographically remote households

Other

25% 30%15% 40%5% 20% 35%

38%

22%

13%

7%

4%

Source: Accenture Survey, 2010Note: Sixteen percent of the respondents found their leadership completely aligned to addressing issues pertaining to inclusive business models.

34

Moreover, embedding the spirit of

inclusiveness in the value frameworkcreates a platform for integratinginclusion in various programs of theorganization, including those in thearea of innovation. The outcomesof such innovation processes arestartlingly different they cater to theneeds of low-income communities andconserve resources. Productive mindsin the organization can then startthinking about how innovations for thepoor can be leveraged in markets formiddle- and upper-income consumers.

We recognize that such a change willnot happen overnight. It takes time,especially in large organizations,for a critical number of leaders andemployees to develop an inclusive beliefstructure and set the process in motion.

Find engaging leadersLeadership plays an extraordinarilyimportant role in winning minds over

to an inclusive belief structure.

The board and top executives needto spend quality time in identifyingleaders capable of framing compelling

business questions about inclusive

markets for the consideration of cross-functional teams.

While conducting reviews of seniormanagement and CEOs, boards mustmake it a point to ask questions suchas, How is the next 10 percent ofincremental revenue going to begenerated in a way that displays ourcommitment to being a responsibleand inclusive business? Asking suchquestions compels senior managementand CEOs to think of opportunities that

benefit the poor. More importantly,it compels them to start looking forleadership that can motivate others topropose disruptive solutions.

The current situation on theleadership front is problematic amongmanufacturers, however. While 93percent of senior executives surveyedare interested in focusing on doingbusiness with low-income householdsand populations in remote areas,

they seem shackled by two factors:excessive focus of the board andother members of senior managementaround product and process innovationand boards not understanding the

importance of inclusive business

models (see Figure 12).

The problem is that senior executivestypically think of product innovationcoming first and only later do they tryto relate it to the companys businessmodel. But inclusive business modelsrequire companies to view process andproduct innovation as an integral partof the model. If the model isnt wovenaround the innovation from the verybeginning, a company wont knowwhat to do with the innovation when

it arrives or may end up benefiting thewrong customers.

Renew organizationalarchitectureReplicating conventionalorganizational architectures whileoperating in low-income markets hasprovided only limited success. Sixty-four percent of the business leaderssurveyed described their organizational

architecture as being just partlyaligned with inclusive business models.


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As a result, organizational roles need

to expand in terms of the type ofactivities performed, with a goal ofbecoming closer to the market. Thiseffort requires senior leadership to bemore hands-on in devising inclusionstrategies. Almost 50 percent ofthe C-suite executives surveyedthink that establishing initiativesthat encourage employees to shareinnovative ideas with leadership iskey to creating greater alignment oforganizational architecture with theinclusive business models. (For moredetails, see Case study Adjustingorganizational architecture to matchan evolving business model: the caseof ITCs e-Choupal).

Companies need to shorten thecommunications route betweenlower, market-facing levels and topmanagement for faster exchange ofideas and feedback. Moreover, flows ofinformation and instructions have tobe increasingly multidirectional to help

senior leadership better understandthe complex market while designingbusiness plans. ITC Ltd., one of Indiasbiggest conglomerates, achieved thisresult by continuously renewing and

aligning its organizational architecture

to keep pace with its evolving inclusivebusiness (see ITC E-choupal case study).

Nurture talent to thinkand breathe inclusionAs mentioned in the first part of thisreport, India is home to a large poolof young people who have grownup with the tradition ofjugaad,innovating quick-fix solutions at verylow costs. Companies need to exploit

the availability of such entrepreneurialtalent to launch business modelshaving inclusive impacts.

They have a long way to go. The resultsof our survey indicate that as many as80 percent of senior executives believethat the talent in their organization iseither partly or completely nonalignedto launching successful inclusivemodels. Human resource policiesthat are not geared to hire andretain employees who are willing to

experiment are cited as one of the keyreasons for that nonalignment (seeFigure 14). The other key reason is thelack of innovation mentors.

Mankind Pharma has some interesting

insights to offer. The underlyingphilosophy of the company is thatmedicine should be affordable andmust be accessible to poor andremote populations in India. Stateswith low per capita income suchas Uttar Pradesh and Bihar havetherefore been its revenue engines.To reach customers in these regionseffectively, Mankind recruits itsfield staff (medical representatives)from low-income semi-urban andrural populations. According toMankinds CEO, these recruits arehighly enterprising, perseverant andinnovative. Mankind has kept all ofits medical representatives on itspayroll to make them feel a part of thebusiness family.

In spite of being very small comparedwith its global counterparts, Mankindpays one of the best salaries in theindustry to its representatives. It hasput in place strong and transparent

incentives, which it implementsmeticulously, and it makes it a pointto recognize and reward performance.During the last fiscal year, 4,000of its 6,500 representatives were


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Adjusting organizational architecture to matchan evolving business model: the case of ITCse-Choupal

Through its evolution, ITCs

e-Choupal initiative has grappledwith a common question: How

can e-Choupal better personalize

offerings to meet the needs

of individual farmers while

achieving the scale necessary to

be commercially viable in low-

income consumer markets? ITC has

successfully answered this question

by incorporating disruptive business

model innovations into each

version of its e-Choupal init iative.

Solutions evolved from reorganizing

farms output supply chains toencouraging price discovery in

vil lages by leveraging the Internet

and co-opting social capital in

the form ofChoupal Sanchalak

choosing a lead farmer f rom the

vil lage to act as the key interface.

Subsequent versions of the

e-Choupal initiative have developed

innovative methods of orchestrating

collaborative networks to deliver

products and services to rural

consumers in a more cost-effective

manner. Most recently, ITC has

deployed advanced analytics and

mobile technologies to track data of

individual farms in order to propose

tailored productivity improvements.

The ITC e-Choupal experience

offers evidence that the regularrecalibration of organizational

architecture is necessary to

achieve prolonged success

in low-income markets.

While drawing heav ily f rom its

original operating model, ITC found

that reforms to its architecture were

essential. The firm restructured

the architecture by augmenting

employees roles through two

additional layers of responsibilities.


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Figure 13: ITC e-Choupal v3.0

ITC e-Choupals inclusive business model

Target customer market

Expanded to include low-income rural customers

Value proposition Diversified products at competitive price-points

Key capability

A predictable, scalable and cost-effective network of

formerly unorganized farmers, as suppliers and customers.

ITC e-Choupal

Continued renewal of organizational architecture has helped ITCs Agri Business launch progressive e-Choupal versions

ITC Agri Business traditional

organizational architecture

Set vision & values

Develop strategy

Coordinate

implementation

Execute

Challenging new

business models

Building innovative

business models

Devising solutions

& experimenting

First-hand insights into

customer aspirations

Corporate governance and

portfolio management

Orchestrating resources to

optimize deployment

Drive supply chain synergies

Key account management

Additional role to innovate

and execute inclusive

business model

Additional role to achieve

operational efficiency

Scalability and

customization in

the context of

low-income markets

Top

Mgmt

Senior

Mgmt

Middle

Mgmt

Junior

Assoc.

Original business model of

ITCs Agri Business

Target customer market

International commodity traders Value proposition

Product offering at competitive prices

Key capability

Low-cost sourcing from Mandis

The first new layer was designed

to address the lack of g ranularinformation about low-income

customers tastes and preferences

on a dynamic basis. New employee

responsibilities such as insight-

search dialogues at the grassroots

level to appreciate customer

aspirations and a focus on business

model innovation at the senior

management level helped

streamline the innovation-to-

execution value chain and produce

an innovation process that was

more precisely guided by on-

the-ground market realities.

As e-Choupals business expanded

into low-income markets acrossIndia, the firm added the second

new layer of responsibilities, to

capture operational efficiencies

from the growing scale. New

supply-chain duties for middle

management produced efficiencies

in e-Choupals back-office

operations, while higher-level

management took an even

broader v iew and attempted

to drive synergies between

e-Choupals inclusive business

and ITCs traditional business.

This constant recalibration of

its organizational architecturecontinues to position ITC

e-Choupal to produce innovative,

disruptive business models that can

achieve scale and customization

in low-income markets.


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Figure 14: Reasons for talent nonalignment in the context of inclusive business models

HR policies not geared to hire and retain workforce willingto experiment with inclusive business models

Absence of innovation mentors/motivators across different

levels and across types of workforce

Absence of initiatives to build culture of innovation withinthe organization

Absence of incentives for workforce to experiment withinclusive business model innovation

Innovation teams not delegated with a specific fund andpowers to finance innovation initiatives of team members

Other

36%

33%

24%

18%

4%

16%

Source: Accenture Survey, 2010Note: The percentage figures exceed 100% as respondents were asked to identify a minimum of two drivers responsible for non-alignment of talent with therequirements of inclusive business models.

10%0% 25% 30%15% 40%5% 20% 35%

38

awarded medals for their performance.

Because of this HR strategy, Mankindsdistribution network has becomeits major strength. By leveraging itsnetwork, which has helped it reachpractically every village in India havingmore than 1,000 residents, Mankindis now one of the fastest-growingpharmaceutical companies in Indiawith a CAGR of 35 percent over thelast four years. Its drugs are amongthe most widely prescribed in India.

Democratizing innovation is a way to

engage the talented, entrepreneurialIndian mind. To make employees feelinvolved and motivated to contributetheir ideas, open environmentsshould be formed to encourage freshthinking that can lead to innovations.The Suggestion Scheme at MarutiSuzuki India Ltd. offers a tremendousopportunity to all employees,including shop-floor techniciansand associates, to engage in Kaizeninitiatives throughout the year with

the initiatives and thinking facilitatedby the company. Under the auspicesof the Agni (Fire) initiative, MarutiSuzuki provides middle-management

executives in cross-functional teams

with physical and virtual space aswell as a budget to share innovativeideas. After the idea process reachesa certain level of development,the company allocates a mentorto each of the teams to help theideas reach fruition. Teams with themost promising ideas meet with topmanagement at regular intervals.

Instilling fearlessness among teamsembarking on a journey of developingand implementing inclusive business

models is critical. Fearless teams arenot afraid to experiment and fail.Marico, the maker of beauty andwellness products, has gone a longway in instilling fearlessness andpushing employees further than theythemselves thought possible. As aresult, Maricos best innovations havecome during the most critical times inits history. When its footprint in thecoconut-oil segment was threatened,Marico transformed itself into a

combative organization. Within ashort time, Maricos team introducedinnovations in the areas of pricing,packaging, marketing and supply chain

that have made it the number one

player in the coconut-oil segment.


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Develop appropriatemetricsThe type of metrics used to measureorganization and workforceperformance reflects a companyscommitment to its value framework.By benchmarking performance,metrics can establish the case fora new strategic growth initiative.Hence, an organization with a strongcommitment to inclusive innovationneeds to institutionalize a different set

of metrics to root itself in an inclusivebelief structure.

Purely financial indicators do not fullycapture a models progress towardcommercial viability. It is also veryuseful to look into ways to measurethe strength of the value propositionvis--vis low-income groups orgeographically remote communities.For example, it is useful to know thesize of the real income differentialover the long term from an inclusive

intervention as compared withalternative economic arrangements.The impact such a differential createson aggregate market demand is alsouseful to know.

Regardless of the indicators chosen,

it is important to be specific abouttargets and how to measure them, asin any commercial venture. Companiesshould insist that their partners areequally rigorous in their monitoringand evaluation.

In the context of businesses beingfueled by inclusive models, companiesshould emphasize the use of indicatorssuch as return on capital employed(ROCE) rather than indicators likeoperating margin. This approach helps

companies know if inclusive innovationhas generated robust value for largenumbers of low-income customersfor a sustained period of time. Inother words it helps the companyunderstand if the innovation hasgenerated enough demand to supportprices and volumes that could exceedthe costs of production and marketing,including the cost of capital.

They need to focus on finding new

ways to measure innovation efficiencyrather than simply measuring overallmanufacturing efficiency. They alsoneed to pay more attention to howthe business enhances access andinfluence rather than ownership andcontrol.


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Building relevant capabilities


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We saw that concern about

commercial sustainability is the keybarrier that keeps companies fromexperimenting with inclusive businessmodels. Companies can overcome thisconcern by developing the functionalcapabilities that others are alreadyusing.

Develop strong customerempathyCustomer empathy meansunderstanding a customers wants andhaving the ability to interact with thatcustomer in a personalized way. Itsthe ability to imagine what the life ofthat customer is like.

Developing strong customer empathyis challenging, especially when oneis doing business with the poor. Onmany occasions, poor customersare reluctant to express their realviews about products because offear of comparison with peers orbecause of survey fatigue. Besides,some businesses have a tendencyto lump the poor into a single mass

of consumers, when, in fact, several

segments exist and each needs to beunderstood.

Companies therefore need to deviseinnovative ways to build a sharperunderstanding of customer wants.Among other things, they shouldinvest in creating a band of inclusiveinnovation scouts teams that willspend time with low-income groupsto identify their wants and proposepossible innovations. Otherwise,companies will end up addressing

needs that are very low on thecustomer priority list.

The scouting team at Godrej & Boycethat was responsible for developingthe Chotukool cooler spent a longtime in the field during the earlyphase of the project to learn aboutthe habits and lives of consumers inlow-income groups across rural India.Systematically applying tools such asobservation and interview methods,language and image-processing skills

and reflective thinking, the team wasable to unearth a range of insights

that ordinary surveys would not have

divulged. Among other things, theteam found out that the few peoplewho owned second-hand refrigeratorskept them largely empty there wasnothing to keep except water!10

Chotukool, with its combination ofsmall size, low price and easy mobility,represents the first technologicallyviable and affordable option to storeperishables in poor communities. Thecooler, which has a capacity of 43 litersand weighs 7.8 kilograms, is solid state,

uses no compressor or refrigerantsand operates on a 12-volt battery. It ispriced between Rs. 3,250 and Rs. 3,500($73-$79). For several types of smallbusinesses, like flower sellers, snackvendors and kiosks, Chotukool has thepotential to become an earning asset byextending the shelf life of products andby reducing waste.


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Partner with the rightinclupreneursForming partnerships with appropriateinclupreneurs (entrepreneurs whohave successfully implementedinclusive business models) tocomplement in-house functionalcapabilities makes inclusion initiativesmore viable and sustainable.Companies must not hesitate to joinforces with diverse companies acrosstheir value chain (even companiesfrom nonrelated industry sectors ornonprofit organizations), but onlyafter conducting a robust evaluationexercise. Forging the right partnershipsbenefits companies in many ways. Ithelps generate valuable insights oncustomer wants, aids in identifying

new customer segments and reducesthe cost of entering unknown markets.

When Eureka Forbes launchedAquaSure, a water-storage purifier,through its traditional distributor-dealer channel in rural markets, salesdid not pick up. It then teamed withBasix, a microfinance company, tosell the product. Sales jumped by20 percent. Eureka Forbes leveragedBasixs network of loan officers whoserve as the link between the company

and the rural populations, providingcustomer intelligence while alsomarketing the purifiers to the self-helpgroups that it meets regularly.

By teaming up with microfinanceinstitutions, consumer productcompanies such as Eureka Forbes arecreating more than just a new robustdistribution channel. They are alsocreating a wealth-generating web ofmicro-entrepreneurs that could pullthousands of rural households out of

poverty.

Use fail-fast prototypingA business model that is successfullyinclusive must be able to scalerapidly once launched. Therefore,even if a model is the product ofcareful planning, it must undergorapid prototyping, incorporating all

necessary adjustments, once thecompany starts feeding back datafrom the field. The idea is to think big,start small and scale up fast, but withminimum investment.

Marico continues to occupy thenumber one position in many of thecategories - across rural and urbanlow- and middle-income groups. Thelow-cost/fail-fast prototyping modelhas been key to Maricos success. Thismodel has helped Marico repeatedly

fine-tune product characteristics andpackaging of its brands to suit thebudgets and usage requirements oflow-income populations.

Leverage innovations inother marketsBecoming inclusive necessarilyrequires new ways of doingbusiness. The most successful firmsmaximize the value of these inclusive

innovations. They do so by building anorganization that can quickly transferbenefits of inclusive innovations toother parts of their business. Fromnew products to improved supply-chain capabilities, these firms leverageinnovations for low-income marketsto enhance efficiency and marketrelevance in their traditional, higher-income markets. In so doing, they helpoffset the significant investments thatoften define the early development ofinclusive businesses.

ITC-Aashirvaad is the number onebrand in packaged flour. In such ahighly taste-elastic segment, ITC hasattained the lead by successfullyleveraging key attributes of thee-Choupal network to create best-in-class products for middle- and high-income households. With the help of

its farmer-network, largely made upof small and midsize farmers locatedacross 25,000 villages in four states,ITC is well positioned consistently toprocure different varieties of high-quality wheat in a cost-effectivemanner.

Most interestingly, ITC pumps in apredetermined portion of the profitsfrom every pack of Aashirvaad productto water conservation efforts carriedout under the rubric of the Boond

Se Sagar initiative (From Droplet toOcean Initiative). The "Boond se Sagar"initiative is focused on moistureconservation and making wateravailable to very small & marginalfarmers. The effort has alreadyprovided jobs to 26,000 people, madepossible life-saving irrigation on31,000 acres and implemented soil-moisture conservation measures onmore than 37,000 acres owned by verysmall and marginal farmers.


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Time to change


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Old habits die hard especially those

that have served us well. Indiasmanufacturing companies are stillbeing well served by focusing on themiddle- and upper-income markets athome and on expanding abroad. Somehave reached powerhouse status andbecome players on the global stage.But as a sector, manufacturing hasbeen stagnating in its contribution toIndia's GDP.

Looking ahead, it is important to learnsome new habits and join increasing

numbers of service companies inembracing inclusive growth. Bringingproducts and services to remote partsof the country and to low-incomepeople in both urban and rural areashas become much more than a way tofulfill corporate social responsibility. Itis now a business opportunity.

This is the moment to reach out to the

middle class of the future. Remember,hundreds of millions of low-incomepeople will be entering the middleclass by 2030. By attracting themas customers now, through inclusivebusiness models, you will grow withthem as they make their climb. In twodecades, Indias combined low- andmiddle-income groups will be morethan 1.4 billion strong exceeding thetotal current population of China. Ifyou want to remain competitive in thefuture, it is time to get serious aboutinclusion now.


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AuthorsAnish GuptaManaging Partner, ProductsAccenture, [email protected]

Raghav Narsalay

Accenture Institute forHigh [email protected]

Research Team: Ryan Coffey,Aarohi Sen, Smriti Mathur andMamta Kapur

Sources1Some very interesting literature thathas evolved in this space is:

Prahalad, C. K . and Mashelkar, R.A. (2010); Innovations Holy Grail;Harvard Business Review; July-August

The Economist (2010); A specialreport on innovation in emergingmarkets; April 15th

Immelt, J. R., Govindrajan, V.and Trimble C. (2009); How GE isDisrupting Itself; Harvard BusinessReview; October

2This terminology owes its existenceto the writings of Dr. R. Mashelkar.

3Asian Development Bank (August2010); Key Indicators for Asia andthe Pacific 2010; 41st ed.; thispublication was accessed at: http://www.adb.org/Documents/Books/Key_Indicators/2010/pdf/Key-Indicators-2010.pdf

4Everonn operates the worlds largest

education based on VSAT satellitetechnology. Its VSAT-enabled virtualand interactive classrooms deliverhigh quality content to thousandsof students of all ages across India.It currently serves more than 1500institutions, many of which are locatedin Tier II and Tier III cities whereteacher absenteeism is very high.

5IFFCO Kisan Sanchar Ltd. is a50:25:25 joint venture among BhartiAirtel, Indian Farmers Fertilizers

Cooperative Ltd. (IFFCO) and StarGlobal. This joint venture has beenformed with the objective of bringing

cost effective communication andother add on informational VAS torural communities. Communicationservices are provided by Airtel whileIFFCO utilizes its vast network formarketing and distribution of services.

6Geographically remote populations

reside in hamlets and villages in hillyand mountainous regions or at theperiphery of reserve and forest areas,which are difficult to access. About110 million people live in such areas inIndia.

7For more on this read, Prahalad,C. K. and Mashelkar, R. A. (2010);Innovations Holy Grail; HarvardBusiness Review; July-August

8Accenture estimates based on ADBand World Bank data.

9There already exist two definitions ofinclusive business models as follows:

An inclusive business is one whichseeks to contribute towards poverty

alleviation by including lower-income

communities within its value chain

while not losing sight of the ultimate

goal of business, which is to generate

profits. as defined by the World

Business Council for SustainableDevelopment

Inclusive business models includethe poor on the demand side as clients

and customers, and on the supply side

as employees, producers and business

owners at various points in the value

chain. They build bridges between

business and the poor for mutual

benefit. as defined by the UnitedNations Development Programme

10JICA (2010); Chotukool: Innovatingat the Bottom of the Pyramid; http://www.jica.go.jp/india/english/office/topics/100517.html


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