Anuradha Sengupta: If you want to transform society, you need to take people along with you. The power of impossible thinking necessarily involves some amount of R&D of the mind. But how are these experiments to be conducted and at what cost and when do they start paying? That's on Lessons In Excellence today. Jerry Wind will tell us how it is done and Shiv Kumar; head of ITC's international business division will share his experience of the ambitious e-chaupal concept. Thank you, Shiv Kumar, for joining us and Jerry., R&D of the mind - is that possible? How does one do that?
Jerry Wind: Well that is relatively simple. The idea is, because of the continuous changing environment, it's imperative for us to continuously experiment and we cannot just rest and continue what we have been doing in the past but continuously we have to experiment whether if it is a planned experiment like it is in science, whether it is adaptive experiment where we plan continuously to experiment or we learn from natural experiments - what's happening around us. But it is critical due to the changing environment that we continuously engage in active experimentation.
Anuradha Sengupta: What does this involve - I mean what kind of - give me a scenario in which this kind of R&D of the mind can be done and how it can be done.
Jerry Wind: It can be any situation that you confront. Today's environment is different than yesterday's and I think every firm faces changes in consumer behaviour, changes in technology, changes in government regulation, changes in competitive activities and just to continue what they have been doing, relying on their own mental model will not allow them to succeed so what they have to do is, they have to when dealing with natural experiments, observe what is happening around them and then say, 'how can I learn from this?' For example, the US army used to have a video game for recruiting.
Suddenly someone realised that there have been tens of millions of games that have been played and said, 'why don't we analyse what all these recruits did in terms of the game?' and they got enormous amounts of insight into strategy with works, without the works in mining this enormous amount of data. So the idea here is - not that all the time you have to design your own experiments, but in the natural experiments area you have to be open to the idea that if I have some opportunity for learning, what can I learn from the failure of the companies? What can I learn from the collapse of the dot.com bubble? So the idea is, 'how can I continuously learn?' Adaptive experimentation is critical.
If I go with a single strategy, at the end of the year, I really don't know what should I do next because I don't know whether to stay with the same strategy, improve it, change it? I have not learnt much, but if I design my own strategy, it is an experiment. I am trying three different things in three different places. I can tell them, which of them works better and then I can modify my next year's strategy. I learn something during the year and that is the key. If I am going by 'this is my strategy and I am going by this', there is very little learning from this.
Anuradha Sengupta: Do you buy into this?
Shiv Kumar: Yes absolutely. Unless you look at things very differently. If you continue doing things the same old way and there can be a whole lot of deficiency in the way you do things and -
Anuradha Sengupta: But how much of this having to look at things differently is it because you are pre-emptying or is it because you are reacting? Because we are going to get into the e-chaupal model and concept but that was a reaction to the fact that the market around you as an exporter of commodities and a buyer of agricultural commodities was changing, isn't it?
Shiv Kumar: Yes, the basic reason to start could be reaction; it could be many other things also. But the way you look at it differently means that it is not a reactive thinking. For example in e-chaupal, we were the buyer of commodities. If you have to reduce cost or improve quality, all that you could do if we were thinking in the old way was appoint commission agents in the mandi's who are better skilled or cut the transaction cost a little bit by improving transportation costs.
But nobody really though for decades altogether that transactions outside of this market ever existed. If a farmer was very small, he had to go to the market, he had to sell because that is the only economic way of doing things. That was the traditional way of thinking. If you want to be a commodity exporter, marginally increment you could always do but when e-chaupal started, we said, "Think of it very differently."
Anuradha Sengupta: When you came up with this idea - you say that it could be a reaction. You are reacting to something but then you evolve completely new mental model of doing something. But when you came up with something that seems to be pretty radical, not now but in 2000 when you started it, it must have been. What was the reaction from the company, from the management, from people driving ITC?
Shiv Kumar: At one level, obviously when you say, "I want to put internet in the village and the farmer will look at it and transact", obviously the first reaction is - "ok, can a farmer actually access internet? and we remember in the 2000, even in the urban India that telecom did not fully take shape and…
Anuradha Sengupta: And electrification in some places still -
Shiv Kumar: Yes, there were certain issues. But nonetheless after the model was fully explained. Mr. Deveshwar was the chairman…
Anuradha Sengupta: Did you look for a pilot?
Shiv Kumar: No. All that he initially asked for was to do a pilot. We said we would require about Rs50 lakh to do a pilot. But after looking at the whole idea he said, "I think it makes enormous sense. Why don't you take Rs10 crore and do a full-bloodied experiment? Lets give it a full try. You say because of problems like power and internet access, it is possible that six months later you will come back and say - It seems to be tough, why don't we give it up? But here take Rs10 crore, try it full blast and then possibly it will succeed because the inherent idea has some sort of sense." So that was how the whole thing started. Yes, there was some amount of scepticism to say that will this work? But at the same time if the resources are required to make it work, resource were also made available.
Anuradha Sengupta: How do you compare this scepticism with I am sure the skepticism you met in the villages themselves or was there no scepticism. There must have been because here was a concept that was completely new and technology that did not exist.
Shiv Kumar: Yes for the most time in India the people who went into villages, took the villagers for a ride. If I am coming into village saying that why don't you buy this (and) half the time the product was spurious. Why did you sell it when half the time the payment didn't go back? So when we went to the villagers saying that here is the computer, here you can access the price. If you like you can sell or you can go back to mandi's and sell. Firstly people wanted to know, "Can this really happen? Everything for free? What do we need to pay? Can computers actually give the prices that are actually prevailing in mandi's?" That level of scepticism did exist but as the people came in for training, for example when they understood that here is a value they can actually access, we kept aside two days of training for our sanchalaks and the computers as to how to actually access websites and all that - they learnt in two hours and said, "ok, what next?"
Anuradha Sengupta: Ok, Jerry, any parallels to what Shiva has just outlined that they did?
Jerry Wind: I think what they have done is the right approach especially when you are grappling with a radical idea. When you want to educate the people and tell them what it is, there was no way they could implement this unless they educate the farmers and his own people. And the other one is some commitment to experiment wit this but this is a perfect example of the importance of experimentation. Had he not experimented with this, he still would have been in the old trading business.
Shiv Kumar: Absolutely and experimentation also carried on further to "How do you buy commodities better?" But the same channel that is put in place, we figured out and realised eventually that education can get into growing better crops, you can increase yields, supply the quality inputs and therefore you get much better productivity and therefore it is not just a transaction cost reduction but a much larger productivity improvement which is also possible. That is ongoing experimentation.
Anuradha Sengupta: You have talked about how when you were trying to put a new model into place and trying to create new systems and processes to support it or try and dismantle older ones that you might have to show measurable results, you might have to show symbolic gestures to show that this is being successful. How important is that?
Jerry Wind: Very important and in this case, enlightened management that said, "Lets really demonstrate the results", this is a significant experiment. But realise that there were two experiments here. First was the experiment in the mind. He experimented - Shiv experimented with the idea - will it work, designed it, developed it, then the next step was actual implementation of this experiment in the real world and the reason for the second is to demonstrate. Management loved it and enlightened it and said go do it and through simulation or other ways of trying to demonstrate this viable concept. But the process of going through the experimentation and then demonstrating results and education is key.
Anuradha Sengupta: And it is not just the management, it is also the people in the villages you had to take along with you and you had to convince them to start using this.
Shiv Kumar: And our own field staff who are going to do this and are interfacing with the villagers on an ongoing basis. Certainly demonstration brings in that energy and be a part of people from all sides.
Anuradha Sengupta: What were some of the symbolic kinds of things that had to be done to keep people from understanding that this is a concept that A can work and B will survive?
Shiv Kumar: The very first - if you are taking the same example of commodity buying, the price that is prevailing in the mandi can actually be in a real time basis be available in the village. The farmers said, "Will it actually be the same price or will you say something else?" They had someone before they sold the material to us, went across to the market yard, cross-checked whether that was the price coming. When they came and delivered to us - are they weighing right? In mandi's they always got cheated in what weight they got. So they did a cross weighing on the weigh bridge outside and said - no, it is happening. So proof of actually execution was always sought for and pestered for by the villagers until someone said - "Here is someone who is doing it right, lets go up to it". So every stage of action they sought that? So to say.
Anuradha Sengupta: Which is what you keep saying, measurability and bringing it out.
Jerry Wind: In this case Shiv had another challenge because of the bad experience of the farmers before. He had to create trust. It not just that he had to start from level one. It ok, he had to educate you but he had to overcome the history of basically being cheated, lack of trust. So he had to create the trust. So it is a tougher job. But this is a spectacular example.
Anuradha Sengupta: When we talked about how it began because of the necessity, it was a reaction, then it was a big large-scale experiment. When did it become a business that was sustainable and is it profitable?
Shiv Kumar: No, right from the beginning it is conceived as a business model but business model with a difference.
Anuradha Sengupta: Would you explain how a mental model becomes a business model?
Shiv Kumar: I think one of the issues was the strategy that you are looking at, a strategy that is a trade off. But this whole business model started with a mental model to say that you are not - If you are giving a better deal to a farmer, obviously you area paying out of your pocket. If you have to access information, he has to pay for that information. It is not of that kind which really happens. He can actually access information but we don't pay it out of our own pocket.
In an emerging economy there is value lying in the market you can extract. So from day one it is conceived as a business model but a business model which is also serving the society. So right from the beginning the model itself was very different and from that context it has certainly delivered if the farmer is empowered to decide where and when he is selling or is empowered to decide what he is buying and why he is buying a particular kind of agricultural input.
That is certainly happening fine. On the other side, when we are buying commodities, wither you are saving certain transaction cost or you are buying cargo where you are able to preserve identity and therefore improve quality of your output. So all of that is feeding back to your profitability although the level of investment that goes in terms of training, the infrastructure that is put into place, you need to put your own telecom connectivity to put your own power back, you need to train people at all levels so consequently the cost of these whole operation is certainly high and there is a gestation period and that is why it required corporate like ITC to get in and do that but the whole thing is evolved like a business model right from the beginning.
Anuradha Sengupta: Jerry, your take on that, this gestation period. How much time do you spend - you know this is a concrete example but when you are dealing with mental models, when you are dealing with wanting to change things and transform things, how much time is enough for them? I mean for a company it is easy. You have financial targets and constraints.
Jerry Wind: Well, unfortunately there is no rule we can give you. It varies in each case but it is quite critical that we devote time to the initial experimentation of the mind, for developing, allocating time for new ideas, challenging the assumptions. If you just continue, life is just normal but I think it is the responsibility of top executives to try and say - let me devote time to challenging my current mental models, examining the changes in the environment, does it require a change or not. Some people may devote five minutes to this and it may be great and others may give more time but you cannot, if you are running the business on a day-to-day basis and fight all the fires and everything else, you just don't have time for this and you just have to take time and that is really emphasising the R&D of the mind because that is a necessary condition before you can actually go to the actual experimentation and try to implement the models and unless we can implement it and act upon it, nothing can happen.
Anuradha Sengupta: This e-chaupal concept has prompted you to think other possible things that you can do with it. But before I get into it, the e-chaupal thing is not a one-way thing is it? You have companies now that are using the network and the system to supply goods into the village and not just to buy goods from the village. You want to tell us a bit about it?
Shiv Kumar: Yes. I think the whole infrastructure that is being put into place although it is seen that there is an IT kiosk in the village, what e-chaupal is, is the definition that people are looking at but the infrastructure that is put into place, one, certainly an IT kiosk, but managed by somebody within the community of the sanchalak, and that is within the walking distance of these farmers.
In the second level there is a brick and mortar infrastructure, chaupal sagar, which is within the tractable distance of the farmers and that is managed by the traditional middleman in a new role as the samyojak. Then in the third layer infrastructure, virtual infrastructure which is a collaborative sort of companies that I talked about and government agencies, all of which is orchestrated by ITC on a pan-India basis.
So this infrastructure that was put into place to deliver information independent of transaction so that your agricultural commodity buying was more efficient. We have realised that these are the same fundamental issues of rural India - fragmented farmers disbursed across 600,000 villages and all of them so heterogeneous and weak. Infrastructure can be used for taking other goods and services back into the village.
Whether you are bundling information or knowledge together with transaction or you are separating it from transaction that is all that you are doing. Therefore you can take these goods back so today certainly ITC's consumer goods are going back into villages, but whole lot of other companies - whether it is agricultural inputs, farm equipment, consumer goods, consumer durables, financial products, - at this point of time, all of them are going back into the villages using the same infrastructure.
This also changes its own paradigm in the sense that when you looked at consumer goods selling for low income consumers, earlier it was, how do I cut costs, how do I cut the size of the pack so that I am able to give them at that price and so on. But this paradigm that how do I put more money in their pocket so that they are able to spend more and improve their quality of life in any other productivity and create a virtual cycle. So therefore it is a two-way transaction that is happening, is created a virtual cycle in the villages. Put more income and improve the quality of life by getting better standard of products back into the villages.
Anuradha Sengupta: You know, Shiv mentioned many things that evoked the picture of India. He mentioned the rural markets, he mentioned the consumers and their purchasing power, he mentioned - everything that creates in pieces a picture of India. When we talk mental models today, what is the kind of mental model that we would need to sort of arrive at of the country and more importantly which is what I want you to answer, how do we communicate that model with people we want to transact with across the world?
Jerry Wind: It is a tough question but let me state it as a fact that the process for communicating this is no different than communicating in anywhere else and since I am not an expert in India, let me give you an example that I am more familiar with, which is a challenge we currently face in the US which is the anti-Americanism feelings around the world and the question is, 'How do we address it?'
And in trying to address the anti-Americanism in various segments around the world, primarily we identify that there is a group called business for diplomatic action, which involves a number of business leaders who initiated the action, and my think tank at Wharton is working with them. And primarily they are focusing on trying to identify the target markets, the different constituencies that will be a target for the communication, whether it would be the media, the foreign press, whether it will be the decision makers, whether it will be the consumers in other countries that want them to buy American products, whether they be investors who want to invest in the US and so on. One we identify the target market, we say, "ok, what is going to be the message?"
And in the message, it is critical that we not only tell them how great we are but it is really a message that is relevant for them and the challenge here is first of all in creating the message here is that to make sure that we understand them, we listen to them. Unfortunately one of the images of the US outside is of being very arrogant and one of the solutions here is to try to tell the people, we are trying to understand you, we are trying to relate to you and then to demonstrate the value that working with US businesses around the world has created. What are the value and the contribution that working with us has done. This is the message. Then the media use all available media, whether it may be movies on flights before you land in the US.
Anuradha Sengupta: Shiv, what do you think Indian companies should do to a project their mental model and therefore the behaviour, the India we think we are? I am not sure we are clear.
Shiv Kumar: I think obviously it is a very large canvas but continuing with the discussion we had in e-chaupal, I think what we are really trying to communicate and what we are delivering to the world today is poverty and disadvantages, for a whole lot of the world became a problem that we are trying to solve. And business in a typical way didn't have a role other than little bit philanthropic sending to corporate social responsibility. For the first time here is an excitement to say that the business is getting engaged in doing social good and create profits through this. Here you can change the world for good and you also generate profit shareholders. I think that kind of message is very powerful.
Anuradha Sengupta: Jerry, we have to close Lessons in Excellence, the series that we did in the past few weeks where we talked about the power of mental models and the power of impossible thinking. I want you to leave us with some of your final thoughts; some key take-away's from the concept.
Jerry Wind: Well, let me suggest three things and let me give you two examples with them. One of them - mental models are hard to see, but they have an enormous influence on everything that we see, the opportunities that we can capture and addressing the threats that we can feel and let me give you an example.
There is the famous study where you show a group of people, a film where there are basketball players throwing the ball to each other. And they asked the audience the number of times the players in white shirts throw the ball to each other. They count. In the middle of the screen where the video progresses there is a man dressed in a black gorilla suit walks through the stage, stands in the centre, pounds his chest and leaves the stage very slowly.
After they finished the video, we asked the people the number and typically people give you fairly accurate number of how many times people threw the ball. We also asked them how many times have you seen - what else have you seen? And typically 50 per cent of the people never see the gorilla. I repeated this video, which was designed by two researchers at the university among 100's of top executives, including hundreds of top executives of the world's largest global banks and others.
Universally we found that 50 per cent of the people did not see the gorilla. There is an incredible message here, if you can reflect on this for a minute, basically people are so obsessed focusing on a task that they miss the gorilla that walks in front of them. Now how many gorillas do we miss that are in front of us in terms of changing environment, changes in consumer behaviour, changes in technology, changes in competitive behaviour, changes in opportunities?
So there is a huge lesson here in terms of the fact the we have to be much more cognisant of the mental models that we have so that we won't miss the gorillas in front of us. The second conclusion is that our innovation and achievements are often limited by the boundaries of our own thinking and again there is a great example here. The example is something that you actually mentioned in one of our first interviews and this is the 4-minute mile.
Until Roger Bannister broke the 4-minute mile barrier in 1954, everyone believed that this is an absolute barrier on human ability that no one can run. Physically no one can run a mile in more than four minutes. When Roger Bannister broke this, within three years there were sixteen other runners who broke the 4-minute / mile barrier. To the extent that we know that there were no new drugs that they used or a new human race. It was purely a new mental model.They realised that it can be done and they did it.
I am convinced in the example we have heard, that given the success of entering the rural part of India introducing internet - there would be tons of other people who say - wow, there are great opportunities. Their fortunes are at the bottom of the pyramid. There are great opportunities in the villages. So the question for everyone is - how many mental barriers for a 4 minute / mile do we have? It reflects our activities and the third conclusion - given these two is that change your thinking and you can transform you work and your life.
Anuradha Sengupta: Jerry Wind, I hope we managed to do a bit of that and if nothing else, recognize the fact that we have these mental models which we take for granted and don't isolate and manage to transform little bit of our lives if not. Thank you very much for doing this with us and thank you very much for watching Lessons in Excellence.
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