Role of Corporate Sector in Inclusive Growth: Importance of Business Model Innovation
Earlier today, I spoke at the SMF-IIMA Conference on “Challenges to Inclusive Growth in the Emerging Economies”.
My talk posed and answered four questions.
Q1: Who is “excluded” from the current growth process, that we now want to include?
Two sets of people are excluded, may be are even short changed, from the exciting growth story of the emerging economies in general, and India in particular, in recent times.
- Some sections of our population, because they suffer from certain inherent disadvantages, are excluded from the new economic opportunities and growth (e.g. farmers, rural crafts persons, people with physical disabilities etc)
- Some other people are excluded from the economic equations, because they don’t have a say today! I am talking about our grand children and their grand children. The decisions taken by our generation have a bearing on the availability of natural resources (e.g. water) and the quality of ecology (green house gases) when they are around on this planet.
Q2: What can Corporate Sector do in this context?
Traditionally inclusive growth has been the domain of Government, Civil Society Organisations, Multilateral Institutions. Although there has been some progress over all these decades, none of us can feel satisfied with today’s position of either of these excluded segments. For example, per capita GDP of an Indian farmer is just about 1/4th of that of rest of Indians. And, the concerns on climate change are at a level we have never seen before.
Programmes of these agencies miss out on one or the other aspects of three crucial areas.
- Sustainability – where the programmes are subsidy based, their long term sustainability is suspect
- Outcome effectiveness – for the target segment of people is weak, as the programme focus is typically on outlays
- Scalability – is often the most challenging aspect of a successful programme
Call these SOS, if you will, by the first letters of the three areas. That’s the message to the world.
On the other hand, by the very nature of enterprises, Corporates survive & thrive by doing these three things right…
- Profit, the key metric of financial sustainability is the core objective of any commercial enterprise
- Value Proposition to the target group of customers is the essence of market and competitive strategy, and guarantees outcome effectiveness.
- Growth, the other metric by which Corporates swear, is what goes into determining market capitalisation of an enterprise
In other words, Corporates have the specific wherewithal to engage in inclusive growth agenda by applying these capabilities and deal with the SOS challenge.
Q3: Why is Business Model Innovation important?
Despite such a case for Corporate involvement in inclusive growth, there is widespread skepticism too!
Many in Government and Civil Society are skeptical about the intentions of Corporates. They simply see such engagement as a lip service, since they believe that ‘profit’ and ‘inclusive growth’ are at cross-purposes
Even the Financial Investors see a conflict between a company’s profit objective and its social or environmental engagements.
On the other hand, if Corporates stay out, the SOS challenge unlikely to vanish. If the income divides expand and the ecological insensitivity continues we will have a serious problem. No business can succeed in a failed society, or in a world where natural resources are exhausted.
Then, there is also a huge business opportunity in selling products & services to the poor, and in selling eco-friendly products.
How do we reconcile these conflicting realities? The only answer is Business Model Innovation.
If we are able to innovate business models in a way that the profit objective of Corporates is enmeshed with the social or ecological benefits to the community at large, the new goal will be well aligned.
While many Corporates create shareholder value indifferent to society, and some even do at the cost of society, the conflict can be resolved if shareholder value is created “through” serving society. That’s where business model innovation comes in!
By calling it business model innovation, I am distinguishing it from product or service innovation that can help inclusive growth. Renewable energy, micro finance, mobile phones, and road infrastructure are some examples of such product & service innovations.
Q4: Is there a special tool kit for business model innovation for inclusive growth?
Based on my experience in building the many phases of ITC eChoupal, and having observed several other inclusive growth initiatives of ITC from ring side, I see three important tools in a kit that will help innovate business models and deliver inclusive growth.
- Co-creation together with the Communities: Both design and execution. This makes up for the missing infrastructure (eg individual credit rating, dispute resolution) through infusion of social capital. This also cuts costs. More importantly this co-opts lead consumers and helps accelerate product & service innovation. Two of the new institutions innovated under ITC eChoupal system viz. Sanchalak and Samyojak are vital components of a co-creation platform.
- Leveraging Technology: Technology helps in remote delivery of services (eg eLearning, Telemedicine) and overcomes the physical access barriers as well as the knowledge concentration barrier. Technology can multiply productivity. Technology can also personalise solutions to individuals, so important given the heterogeneity of the target segment we are talking about. Technology helps in precision, leading to better resource usage and improve quality of the output.
- New Revenue Models: Integrating the micro producers into value chains that connect them to the markets, is one way in which their share of a consumer price can be taken up. The principle of “Third Party Pays”, as in Media business, is an important way in which the burden on the low-income producers or consumers can be reduced. This leads to rapid market expansion. Platforms that can carry products & services of several other organisations can create “increasing returns ecosystems” and deliver exponential growth, once the network effect sets in.