Transcript ITC eChoupal

ITC ECHOUPAL INITIATIVE:
A CHALLENGE OF INCLUSIVE GROWTH
Case Information
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Discipline: Value Chain
Description: ITC Chairman challenged International Business
Division (IBD) to generate a new business plan that would
increase the division’s revenues to $442.6 million by 2005.
Learning Objective: To figure out how to improve the
ineffective supply chain for agricultural goods.
Subjects Covered: Indian culture, supply chain, technology
Setting: India; Soybean Industry; 2003
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Dahod – 25 KM S
Olivia Momosor
Imperial Tobacco Company of India Limited
 Founded
August 1910
 Indian Conglomerate
 Changed to I.T.C. Limited in 1974
 Vision: “A Commitment Beyond the Market”
 Business Portfolio
 Cigarettes
& Tobacco
 Hotels
 Information
Technology
 Packaging, Paperboards & Specialty Papers
 Agri-Exports
 Foods
 Lifestyle Retailing
 Greeting Gifting & Stationery
John Wiley & Sons,
Inc. & Dr. Chen, Information Systems – Theory and Practices
http://www.itcportal.com/the_itc_profile/history_evolution.html
Olivia Momosor
Business Strategy
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ITC Vision
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Sustain ITC's position as
one of India's most
valuable corporations
through world class
performance, creating
growing value for the
Indian economy and the
Company’s stakeholders
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

ITC Mission

create a sustaining high
economic growth rate
with equity over many
years in order to convert
the world’s largest pool
of economically
disadvantaged people
into viable consumers,
thereby translating
development into
economic freedom.
Definitions
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Choupal: Hindi word for evening gathering, where
villagers chat, gossip, or share stories and news
from the day
Mandi: Hindi word for market yard
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Information Systems Strategy Triangle
Business Strategy:
-“A Commitment beyond the market”
- Create economic freedom
- Reengineer supply chain
- Fix market inefficiencies
- Information sharing
- Differentiation
IS/IT Strategy:
Organizational Strategy:
- Work with village culture
- Have transparent pricing
- Technology is available to everyone
- Reimbursement for transportation
- Waiting area at processing facilities
-No commitment required to join ITC eChoupal network
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
- eChoupal kiosks
- Computer
- Connection lines
- UPS power supply
- Printer
- Internet access for remote villages
- Technology training for farmers
- Created pricing trends
- Computerized weightbridge
- Performed soil testing
D’Aveni’s “7 Ss”
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Which of D’Aveni’s 7 Ss is most applicable to ITC?
 Shifting
the Rules of Competition
 Found
new ways to serve their customers and transformed
the industry
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Porter’s Competitive Forces Model
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Threat of New Entrants?
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 Low-Moderate
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Bargaining Power of
Buyers?
 High
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Bargaining Power of
Suppliers?
 Moderate-High
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Threat of Substitute
Products?
 Moderate
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Industry Competitors?
 Low
Four Actions Framework
ELIMINATE:
• Intermediaries
• Farmer’s Risk Aversion
• Time Pressure (Perishable)
REDUCE:
• Inefficiencies in the Market
• Inconvenience to the Farmer
• Instability of Income
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
RAISE:
• Crop Yield
• Quality of Product
• Level and Quality of Information
CREATE:
• New Marketplace
• Trust and Transparency Throughout the
Supply Chain
1. What was ITC’s motivation for creating the eChoupal?
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IBD lagging behind other divisions
Ineffective supply chain for agricultural goods
Farmers losing 60-70% of potential crop value
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Agricultural yields of 1/3 to ¼ of global standards
Middlemen reduced profit margin
Unfair practices
Farmers had limited capacity for risk
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Minimized investment in crops
 Lower crop value, slimmer margins
Farmers didn’t want to risk new farming methods
Tracey Abdo
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2.(a) What were the old & new physical flows &
information flows in the channel?
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Old Physical Flows
 Farmers hauled produce on a 1-day journey to mandi for
auction
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Farmers at mercy of CA’s offer
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Manually operated scales resulted in 0.5% loss
Cash payment delayed after unofficial credit period
CA brought produce to ITC processing facility
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Tracey Abdo
No way to store unsold produce
Then hauled to winning bidder’s shop for weighing
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Often had to wait 2-3 days to get into market
1700 farmers per day
CA receives reimbursement for soybeans
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2.(a) What were the old & new physical flows &
information flows in the channel?
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Old Information Flows
 Choupal
served as primary source of information for
farmers
 Due to isolation of farmers, no market price information
other than word of mouth
 Farmers
hauled to market in hopes of receiving enough to
cover their costs of transport
 Forced to settle for whatever they could get
 No
access to weather report
 Poor access to crop education
Tracey Abdo
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2.(a) What were the old & new physical flows &
information flows in the channel?
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New Physical Flows
 Eliminate
the “middle-man” – the mandi
 Farmers sold directly to one of 44 ITC hubs
 Same
 ITC
distance as mandi
hubs serve as “one-stop shop”
 Herbicides,
 ITC
sowing seeds, gas lanterns, soy bean oil
saved $5/ton on freight cost
 In
return, reimbursed farmers for travel time, resulting in
$8/ton increase fore farmer.
Tracey Abdo
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2.(a) What were the old & new physical flows &
information flows in the channel?
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New Information Flows
 Transparency
of Information
 Access to information via eChoupal
 Weather
Reports
 Global crop standards
 Best Practices
 Market prices from around the world
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Demand, production, prices: highs & lows
7-10 day market outlook on Chicago Board of Trade
 Q&A
forum
 News page
Tracey Abdo
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2.(b)What made this implementation successful?
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Based on belief that farmer needed an alternative
to the mandi system
Worked with and respected existing culture:
choupal, sanchalak
Transparency of information
No obligation
Tracey Abdo
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
3.(a) What barriers did ITC face in embarking on this
project?
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The current supply chain must be broken
Village A
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Mandi B
Factory C
Transactions outside the mandi was prohibited by
the Agricultural Produce Marketing Act
The cultural infrastructure in the villages
Perishable product (soybeans) = time pressure
Trust
Lack of technology in villages
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
3.(b) How did the principles espoused by ITC overcome
the obstacles facing the eChoupal?
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eChoupal kiosks places technology at the core
of the new supply chain, allowing farmers to
break away from old supply chain
Government amended Agricultural Produce
Marketing Act to allow legalized purchases of
soybeans (and other agricultural commodities)
outside the mandi
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ITC convinced the government of the potential
benefits to the farmers and the economy
Incorporated new supply chain into already existing of the
Choupal by placing the eChoupal kiosks in lead farmers homes
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Sanchalak – lead farmer who received basic IT training, served as the
liaison between ITC and the famers
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Olivia Momosor
3.(b) How did the principles espoused by ITC overcome
the obstacles facing the eChoupal? Continued…
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Time pressure and corruption were extinguished through the
transparency of the eChoupal
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Accessible to everyone
Prices being offered were shown in writing
Created price discovery, so farmers were able to make informed
decisions of where to sell their beans
Expanded upon Mandi model
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Farmers received cash upon delivery
Reimbursed for transpiration costs
Website provided information on whether, best practices, crops, market,
Q & A, and news
Processing facility offered soil-testing lab
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
4. How was value created in this model? Can everyone in
this supply chain “win”?
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Yes! ITC created a system in which value is created for everyone
along the supply chain (Value Chain Model)
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Farmers- Access to new information
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Empowered them to make their own decisions
Allowed them to produce a better product
Increased profitability by 8$ a ton
Sanchalak- Farmer’s representative
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0.5% commission on the sale of soybeans
2%-3% commission on complimentary products
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Herbicides, sowing seeds, fertilizers, gas lanterns, etc.
Samyojak- Broker between ITC and farmers
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2%-5% commission per transaction
1% commission on cash disbursements
More opportunities to earn commission off farm inputs
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
5. How should ITC develop this platform for the future? Is
this model sustainable? Why?
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ITC’s Future
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Develop Infrastructure
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More Hubs, Kiosks, and Choupals
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Expand Into Other Regions and Markets
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Create a barrier to entry for competitors
Coffee, Seafood, Wheat
Maintain Founding Principle of Trust and Transparency
Continue to Innovate
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Continue to Provide Beneficial Information
Continue to Update and Enhance Information Technology
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Is ITC’s Competitive Advantage Sustainable?
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This model will only be sustainable as long as there
are inefficiencies in the market that technology and
information sharing can fix.
 Once
these inefficiencies are corrected, ITC must rely on
 Ability
to Innovate
 Loyal network of suppliers
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
N
Recommendations
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Continue to Develop Infrastructure
 Create
2.
a barrier to entry for new competitors
Expand into Other Markets and Industries
 Maintain
3.
principles of trust and transparency
Continue to Innovate and Develop Information
Technology
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Lessons to Be Learned
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Information is the Key
 Allows
for more productivity
 Creates a better product
 More efficient marketplace
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Trust and Transparency throughout the Supply
Chain
 Creates
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a value chain that everyone can benefit from
Acknowledge and Respect the Existing Culture
http://www.youtube.com/watch?v=qkHWdhobgiM
Steve Hartman
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Current Position
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Over-arching vision of the company:
"Enduring Value. For the nation. For the Shareholder."
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Over 26,000 people employed
More than 60 locations across India
4 million farmers empowered
6,500 e - Choupals installed
Recognitions:
 One
of World’s Most Reputable Companies by Forbes
 Top 50 Asia’s best performing companies by Business
Week
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Olivia Momosor
Nation Oriented
"ITC believes that its aspiration to create enduring value
for the nation provides the motive force to sustain
growing shareholder value. ITC practices this philosophy
by not only driving each of its businesses towards
international competitiveness but by also consciously
contributing to enhancing the competitiveness of the
larger value chain of which it is a part.“
--Chairman Y C Deveshwar
Olivia Momosor
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Questions?