Featured Post

Trust: Missing in action where it counts

Whom do you trust? That's a big, loaded question. And at least one organisation has been putting out a Trust Barometer for 14 years now...

Friday, July 28, 2006

Engage in active experimentation: Wind

A changing environment is important to continuously experiment as sticking with the same thing will not be beneficial in the long run. Professor of Marketing, Wharton School, Yoram Jerry Wind told CNBC-TV18, "We have to experiment whether it is a planned experiment like it is in the sciences, whether it is an 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."

He explains, "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 videogame for recruiting. Suddenly someone realized that there have been 10's of millions of games that have been played and said - why don't we analyze what all these recruits did in terms of the game and they got enormous amounts of insight into strategy - into what works, what doesn’t work based on mining this enormous amount of data."

"So the idea here is - not that always 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 dotcom 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 I should 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'."

CEO of ITC's Agribusiness, S Sivakumar agrees with Wind. He said, "Unless you look at things very differently. If you continue doing things the same old way, there can be a whole lot of inefficiency in the way you are doing things. The basic reason to start something new could be reaction - it could be many other things also. But the very way you look at it differently means that it is not reactive thinking."

"For example in e-choupal, 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 mandis 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. But when e-choupal started, we said - 'think of it very differently'."

When e-choupals was a mere thought in his mind, Sivakumar decided to go into uncharted waters. 'At one level, obviously when you say, I want to put internet in the village and the farmer will look at it and transact, and obviously the first reaction is - ok, can a farmer actually access the internet and we remember in 2000, even in urban India, telecom did not fully take shape.' Chairman, ITC, YC Deveshwar initially wanted to do a pilot but the moment it made enormous sense to him, he sanctioned Rs 10 crore to plunge right in and get the concept working.

Wind applauds the idea and says, '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. 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.' It also helped that the management was an enlightened one and they were able to carry the experiment to a successful fruition.

Next up was convincing the farmers to engage with the new model and learn to use a computer for information. Until then, farmers took their produce to mandis and there the agents would weigh the produce and then pay them. This method has endured for years but farmers were frequently cheated. Sivakumar elaborated, 'So proof of actual execution was always sought for and pestered for by the villagers until someone said, 'Here is someone who is doing it right, let's now adapt to it'. So this infrastructure was put into place to deliver information independent of transactions, so that agricultural commodity buying became more efficient.'

'We did realize that some fundamental issues of rural India are, fragmented farmers disbursed across 600,000 villages as well as the weak infrastructure. So we realised that the e-choupal system could 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. So today, ITC's consumer goods are going back into villages, but a whole lot of other companies whether it is agricultural inputs, farm equipment, consumer goods, consumer durables, financial products are all going back into the villages, using the same infrastructure.'

He added, 'This also changes its own paradigm, in the sense that, when you looked at selling consumer goods to low income consumers, earlier the concern was, 'how do I cut costs, how do I cut the size of the pack so that I am able to give them value at that price and so on'. But the e-choupal also put more money in their (farmers) pocket so that they were able to spend more and improve the quality of their life. This has created a virtual cycle.' What's more, now other companies have begun to use the network and the system ITC has put in place, to supply goods into the village and not just to buy goods from the village.

As Wind puts it succintly, 'Change your thinking and you can transform your work and your life.'

Written for www.moneycontrol.com

No comments: