After a long day of working in the fields, Laxman straightened his back on the charpoy[1] and smoked a bidi. Just as the smoke left the smouldering bidi, he would feel his worries disappearing too. Only they weren’t. They would haunt him. His life was the same every day, caught in the straightjacket of poverty and hopelessness. Decades of working in the fields and listening to rebukes and rejections, he had lost all hope for himself. Trying to hold all four corners of a tent during a storm was the story of his life, quite literally.
His house, a temporary, wilting structure made of polyurethane sheets and bamboos that stood meekly in a ten feet by ten feet clearing, was mostly engaged in a losing battle with the weather elements. Strong winds and lashing rains were all it took to knock it down.
A narrow patch of mud separated his house from the village road. During elections this village road would spring into action, but on most other days, one could only see the odd buffalo cart carrying produce to the local market.
Turning round a corner, he looked at his two children. They would throw a stone and then jump here and there. He noticed the sun, fast setting in the distant horizon. It made him more downcast, hopeless.
‘What should I do?’ he kept thinking, as the last rays of the sun left the village. In a few moments, his wife would call out to him for dinner. It had been like this for decades. Somehow, he wanted to provide his children a way out of this labyrinth. He wanted to open new doors for his children. He couldn’t bear the thought of his children leading the same life as he had led. He had seen the clout of the district collector many times, and secretly imagined his children growing up to be ‘officers’.
He turned to look at his house. Leaking roofs, uneven floor, insects bred by moisture, and a complete lack of sanitation. Outside was definitely better than inside. No wonder then that his children spent most of their time there. If he wanted them inside, studying, opening possibilities for themselves, the first thing he needed was a proper place to stay, a pucca[2] house.
In many ways, Laxman’s life was pre-historic. Just giving him existence. Nothing else. Perhaps, he too needed a proper place to stay, an address that would be permanent and not at the mercy of the weather.
Laxman’s present condition was far from stable. A casual labourer, who worked in the fields during sowing season and did odd jobs otherwise, he lacked the financial resources to build even a one-room structure. No one would give him a loan, except for the greedy moneylender who had driven many to the point of suicide.
A hundred kilometres away, in a different world, in the central business district of Delhi, seated at his huge wooden desk, beside a large window the size of a wall, was Alok Sharma, senior manager of the largest cement company of India.
He could have been a tall-dark-handsome hero, who owned a vineyard or swept dames off their feet. Instead he had chosen to wear a suit and a tie, and happily worked in this cement company.
Sitting in his swanky office, a prerogative reserved only for the best managers, he was busy flipping through a business magazine, trying to ascertain the mood of the economy. While his company had grown steadily over the past decade, and held a commanding market share, the looming recession threatened further revenue-growth.
It was a cause for worry, but in their insatiable thirst for expansion, the board had sent an unequivocal message to Alok: innovate. He knew that the company needed to find new alternative revenue streams. They needed to discover newer markets. Possibly, a new way to look at its business. It needed to re-engineer and redesign. Negative growth was inexcusable. It was blasphemy.
After the last page of the magazine had been turned, he buzzed and asked his team to report to the conference room in five minutes.
While his secretary came into his room to get a few signatures, Alok said to her, ‘Is there any point trying to change something we can’t? Better to just adapt, no?’
The secretary understood. This pearl of wisdom was not for her but for Alok himself. He often said things to people that he wanted to tell himself.
‘Guys, you all are aware that the recession is threatening our revenue growth and, as always, the board is not ready to take a dip.’ Alok looked around to see that all agreed.
‘Short of buying cement from our company, and eating it for lunch, what can we do!’ remarked the exasperated marketing manager, irritated at the board’s gluttony. A nervous laughter followed.
Alok had called a multidisciplinary meeting with people from production, finance, marketing, and distribution.
‘While that could be our last resort,’ said Alok with a chuckle, ‘the message, from our friends in the board, is clear: innovate or perish. As usual, they want a plan.’
He began explaining his plan to the team. There were a variety of responses. Shock, disbelief, mockery and cynicism. There was only one person who was enthusiastic about the plan: Alok himself.
If represented income-wise, the Indian population was like a pyramid with an untapped market of hundreds of millions at the bottom. The people at the bottom of the pyramid might not have the per person purchasing power of the middle classes, but as an aggregate the purchasing power and the market size was colossal, running into billions of dollars each year.
‘Perhaps, the looming recession is just the opportunity to think of this vast untapped market whose needs have been languishing under the garb of social welfare in the corridors of uninterested government departments,’ thought Alok.
‘What if doing business in that segment is profitable? What if we could re-engineer, redesign and repackage our product so that it becomes a sustainable model in that income category?’ he said, while his teammates stared in disbelief.
‘Are you saying that we will now have the lowliest of the labourers as our customers, and somehow, that will rescue the company?’ one of them remarked.
‘We should just tell them that recession is not our problem, and there is no way we can offer them growth when the whole economy is shrinking,’ said another.
His team was divided. Anger against the unfair expectations of the board. Incredulousness at the idea Alok was discussing.
Like a good manager, Alok always had his finger on the pulse of the team. He knew when to give in and when to rein in.
‘Okay, I hear you guys. At this moment, however, this is the only plan we have. Unless anyone of you has anything better, it is either this plan or eating cement for lunch.’ He looked at everyone else, took off his glasses, and sat down. ‘Right now, all I am really asking is that you do not dismiss this idea even before we have had a chance to analyse it.’
Reluctantly, after the initial reactions had been allowed to live and die, the team started to discuss the plan. They started analysing the opportunity from their perspectives. The plan in front of them was a completely different way of doing business than what they were accustomed to. They did not need minor tweaking of their business practices; they needed a complete overhaul.
There were challenges at each step. The mood was sombre. ‘It just cannot be done,’ was the general outlook written large on everyone’s face. Except Alok’s.
His experience told him that sometimes great achievements were born out of crazy ideas. A thin possibility could carry the day.
With help and motivation from Alok, the team ventured deeper into the challenges, dissecting them.
‘If we sell cement, how will they get the remaining building material?’
‘At what price?’
‘How will the low-income category pay? Can we extend credit to them? Is there a bank that would oblige?’
‘Who will ensure the payment discipline?’
‘Who will build these houses for them? How do we distribute this product to their villages?’
‘For a minute, forget the many challenges. Do you agree that if, and I know it’s a big if, all the challenges can be overcome, this will be an excellent opportunity to beat recession?’ enquired Alok.
Barring some reservations, they all agreed. If the challenges could be met, the company could reap handsome benefits. It wouldn’t have to worry about growth for the next few years. This opportunity right now existed in the no man’s land between the spectre of perishing and the promise of growing.
In four weeks, after hours of charged brainstorming sessions, some of which took place during coffee breaks on the building terrace, the team devised a solution they wanted to test. After getting an in-principle approval from the board, a jeep full of executives from the company headed towards Laxman’s village for an unusual picnic that could change the lives of many.
They were given a hearty welcome by the sarpanch[3]. He made sure that the entire village attended this presentation. After all, if this scheme worked, if he could help casual labourers build even a one-room house, his re-election to the panchayat was certain.
In fact, housing was amongst the foremost social schemes in this region. The central and state governments had launched many schemes. Then there were philanthropy trusts too. The sum total of all the grants and aid was too little compared to the magnitude of the problem. There were several potential beneficiaries. Even when the aid did trickle down to this village in the northern region of India, the effect was far from desired.
The material was substandard, the corruption rampant and the whole programme behaved like a car with no driver. It had been launched many times, but there was no sense of purpose and ownership. There was no accountability. No quality benchmarks. No one cared enough. Since it was charity, people just washed their hands off after having supplied the material or money.
The octogenarian got up from his seat and took the mic.
‘I have examined this scheme, and I am satisfied that it is for our benefit. All should enrol. It will benefit our children. Do we want our children to do well?’ he exclaimed, wanting a response in return.
‘Yes! Yes!’ came the thunderous response from the villagers.
After a few minutes of handling some questions, the sarpanch passed the floor to Alok.
‘We are grateful to have the support of sarpanch Ji[4] in this project. He has always wanted the best for you,’ said Alok, looking towards the village head and nodding respectfully.
‘I know that many of you dream to build a pucca house for your families. Why shouldn’t you? Apart from food and clothing, this is the single most important thing that you can provide to your family,’ Alok started, gazing intently at the crowd of over a hundred people before him. Laxman was one of them. Just yesterday one passer-by had told him that the sarpanch had called the entire village.
‘You need wait no longer. This scheme, which is open to everyone, will enable you to build a house in eighteen months,’ he said, surveying the silent excitement of the people in front of him. He could see the gleam in their tired eyes already. ‘To provide you more details and help you enrol in it, we will be appointing an agent in your village shortly. This agent will be your point of contact with us. More than our agent, he will be a friend to you, who will help you reap the benefits of this scheme.’
‘You will have to register in groups of three. Each of the three people, by turn, will collect the money from the other two and deposit a small amount with us every week.
Remember, those three people must be people of your choice, whom you trust. According to the scheme, in case of default, all the three will have to pay a penalty.’
‘In about 12 months we will send you the entire material that you will require for building a one-room house. Our team will also train you to build that house yourself using the material.’
Their strategy was simple. They were selling them not just cement, but the complete building material. They could source the material from other companies at prices that the villagers could never negotiate, driving down the overall cost of the house. The agent would coordinate between the villagers and the company, and ensure that deliveries and payments happened on time. Extending credit, perhaps the biggest challenge, was overcome by an innovative method. Instead of individual credit, there was a provision for group credit, in which three people were enrolled together, who kept each other in check to avoid penalties.
This scheme had brought hope to Laxman. There was a way out for his children. He would do whatever it took to make sure that he built that pucca house in twelve months. He quickly talked to others who worked in the field and also to some members of his family. A group of three was formed and the enrolment started. There were more like Laxman, and the village, which looked like it had been forgotten, started bustling again.
‘The programme is successful in all parameters. The sales are promising. The biggest surprise is the default rate on credit. It is a mere three per cent, a fraction of what it would have been in urban areas,’ Alok said to his team a year after the exercise was launched. ‘Isn’t that amazing?’
Common sense would indicate that the casual labourers, who didn’t even have a proper home, would fall in the high risk-category. The reality was otherwise. Through the ingenious system of enrolling in groups of three, a unique group reward and penalty system was established. Any person who defaulted would not just have to face penalties, but a level of social boycott. This motivated people to pay on time.
Apart from generating a new revenue stream for the company, this programme had brought about a social change in Laxman’s village. They could now plan and build their own homes without depending upon charity. They could live lives of dignity as consumers. They had the reins of their lives in their own hands. They were empowered.
Further, because of the strict payment discipline and the huge penalties that were enforced as a group, casual labourers like Laxman started saving money rather than spending it on liquor and tobacco. This had huge social implications for their communities and their families.
‘Eighteen months back, we sat in this very room confronted with a strange plan. We all thought it was impossible. Challenges upon challenges, my God, what odds! I think we all took a leap of faith. Was it worth it? Yes, the sales are good. The numbers look promising. The board is happy. Yet, I promise you, there is something you will get today that trumps a fat bonus any day,’ said Alok stepping out of the meeting room where Laxman was waiting.
An ecstatic Laxman entered the large conference room, with his hands folded in deep gratitude towards the gathering. His family had spent the previous day for the first time in their pucca house. He quickly opened the gold-coloured box of sweets and went around the room distributing laddoos[5] to all present.
‘Because you took that leap of faith eighteen months ago, yesterday, Laxman finally got his pucca house,’ said Alok.
A passionate applause followed. People slowly got up and lined up in front of Laxman to shake his hand and congratulate him. An animated Laxman could not believe his eyes. So many officer-like people shaking his hand, giving him respect. Hesitantly, he requested Alok for a picture.
Alok was only too happy to indulge him. He called in his secretary and arranged for a nice picture of Laxman with the entire team.
It seemed like a dream to Laxman as he lay on his charpoy, watching his children play. Now there was more traffic on the village road. The village was no longer forgotten; it truly belonged to India. It had a stake in the country.
A week after the meeting, a postman came to Laxman’s doorstep and delivered the ivory-framed picture to him.
Laxman hungrily opened the packing and looked at the picture, his first picture. Surrounded by the top executives of India’s largest cement company, he sat in the middle, grinning.
He called out to his wife and children. Once again, he touched the photo, the smart officers with their suits and ties. Then he looked at his kids, and finally at the setting sun. Only today, the setting sun promised a new dawn. There was hope and it was proudly, and permanently, standing on all fours and come strong winds or lashing rains, it would not disappear.
POSTSCRIPT
Thousands of businesses access markets every day and sell their products and services to the consumers. Some companies operate in existing markets and others create new markets, introducing new products and services.
Free markets bring the idea of capitalism to our doorstep. It is through these markets that supply meets demand. They are a very important distinction between socialism and capitalism.
Free markets are so called because they are free from control. Rather than the government setting an arbitrary price for resources, the free market system leaves the price to be decided by the demand-and-supply characteristics of the sellers and buyers respectively. Neither the government nor anyone else can decide what gets sold and for how much. Instead, a healthy competition takes place between various suppliers that delivers not only choice but also efficient prices to the consumers.
Big or small, one-man shows or large organisations, from the rickshaw puller to large airlines, all are in a sense, business models. Whatever the outward appearance or the architecture, business models are entities that serve their customers while generating profit for themselves. Every day, in the market, business models compete with one another. Who wins depends mostly upon which business model is more effective.
An effective business model creates win-win situations for all connected with it. In short, it caters to all its stakeholders.
There are many stakeholders in business. Investors, who invest their capital. Employees, who work in these companies. Customers, who have a need that is being served. Vendors, who supply raw material or services. The government that provides the necessary infrastructure for the business to flourish. In fact, nowadays, even the environment is considered a stakeholder.
If you examine the most successful business models, from large corporations to the neighbourhood grocer, you will find that each day these businesses strive to serve their customers in a way that fulfils the interests of each of their stakeholders.
Management guru, Gary Hamel, says that the real threat to businesses is, in fact, from the unwillingness of management executives to confront the changing expectations of their stakeholders.
Can a company that fails to look after its stakeholders survive for long? The answer is no. Stakeholders bring vital resources, skill sets, and other enabling mechanisms that just cannot be replaced. In fact, a business model that is alert to the needs of its stakeholders will find it easier to garner more resources, skills, and other enabling frameworks for long-term growth. An interesting term is used for businesses that are well on the path of long term growth: sustainable businesses.
Apart from the other stakeholders, in the preceding parable, Alok realised that there was another very important stakeholder: the sarpanch. His interest was re-election and this scheme helped him fulfil that interest. His interest was aligned. What would have happened had the sarpanch’s interest not been served?
Despite all the good features, the scheme wouldn’t have succeeded the way it did.
Increasingly, as illustrated by the parable, even social issues are being sought to be addressed by effective business models. This branch of business is often termed Bottom of Pyramid (BoP) solutions, after the path-breaking book by management guru, CK Prahalad.
Business models that have created value for all its stakeholders, while addressing a pressing social need, can have huge implications. They have challenged the assumption that the plight of the underprivileged can only be improved by social aid and philanthropy.
Even large companies are now recognising the immense potential that is trapped in the collective purchasing power of this large part of the world. Companies are re-engineering products to suit their purchasing power. Unilever and many other major consumer companies are re-engineering their products to capture this burgeoning market. One such example is the one-rupee shampoo pack.
Another typical characteristic of the low-income segment is the relatively recession-proof nature of their livelihood and purchases. Companies that can effectively tap into this market can mitigate many effects of recession on its balance sheets. Patrimonio Hoy is an example.
[1] A traditional Indian bed woven mostly out of jute.
[2] The term pucca means 'solid' and 'permanent', from Hindi. Pucca homes are typically made of concrete, stone, clay tiles and metal in contrast to older homes made of mud and organic material.
[3] Is an elected head of a village local self-government called the panchayat (village government) in India
[4] Is an Indian salutation, suffixed to the name, denoting respect
[5] A popular and auspicious Indian sweet
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