Tag: distribution

Boids, Integrated Structures, and Renewable Energy

About 20 years ago, Craig Reynolds, developed an artificial life program entitled, Boids, that simulates the flocking patterns of birds. One of the compelling features of Boids is that despite random starting points and infinite range of action enjoyed by each boid, through adherence to three simple rules a consistent behavior pattern among the boids is quickly established and maintained.

Boids exemplifies a principle in complex adaptive systems termed “emergence.” Emergence is a key concept in organization design. It has particular relevance when the issues of control, dependence, and autonomy in centralized and decentralized structures are recast into integrated structures such as networks, communities, and teams.

My previous posting, “Lessons from the Grid,” focuses on distribution of responsibility and authority to generate electricity, by whatever type of renewable energy source, to individual homeowners and business owners. Net metering connections to the grid enable owners to sell excess electricity generated to the utility company and draw from the grid as necessary during times of insufficient electricity generated locally. This is a win-win solution: an expanding network of home and business owners, representing multiple families, neighborhoods, and communities, are actively involved; participants meet their individual and local needs, first, then, sell their surplus to meet regional and global demand; and, the localization of electric power generation through “green energy” is more efficient and consumes less “brown energy.”

Distribution of electricity generation among the masses and the resulting win-win solution for the majority is an example of emergent behavior and the formation of integrated structures. Like “Boids,” this phenomenon is driven by three simple “rules” that define the social system in which emergence and integrated structures occur:

1) Universal participation.

The point of rapid development and deployment of information and communication technology (ICT) capabilities is to get everyone connected at a basic level. One need look no further than the geometric increase in the number of cell phones, Internet service providers, email addresses, blogs, videos, web-based services, etc. to see that the world is getting “wired!”

Every uptick in participation only heightens the number of advocates, providers, customers, buyers, and sellers available. Each has different experiences, perspectives, and ways of describing and meeting needs and wants. It is beyond the capability of highly centralized organizations to respond to the needs of so many independent agents. And it is beyond the capability of any one, “decentralized” individual to be both autonomous AND disconnected and expect to have needs and wants met while enjoying a respectable quality of life.

2) Meet individual and local needs, first; then, sell any surplus.

On its way to “human equivalence,” technology gets faster, smaller, stronger, more embedded, more integrated, and more intelligent with each turn in development. This has the effect of putting capabilities and capacities into the hands of the individual what was heretofore only available to the wealthiest or those with the largest assets to underwrite substantial ventures. The entirety of the Industrial Age is characterized by “managing” monopolistic interests dictating what was in vogue, what was available, and what was affordable. Now, with the Information (Digital) Age evolving into the Knowledge Economy and the “Relationship Age,” it is increasingly possible to dismantle the hulking centralized structures in the public and private sectors and distribute their power and authority to individuals and groups working in concert with one another at the grassroots. People at the local level can pull from vast global networks of “virtualized” information, knowledge, and resources and “materialize” them in local applications.

The result is people now have the means to meet their needs for fundamentals like food, energy, clothing, shelter, and safety without having to depend on others. It also creates the opportunity for them to produce MORE than they need so that the excess can be sold in further markets. This challenges the authority of comparative advantage when it comes to life-sustaining basics. Each day, advances in technology give more people the opportunity to produce sufficient renewable energy to feed, clothe, and house themselves – to meet their basic needs. And when people have their basic needs met, challenges to their security and safety are reduced; they can speculate, take risks, learn, and contribute their learning more broadly into global networks.

3) Consume what is produced locally, convert / process excess to standardized / higher value form, and ship to nearest point of use.

Unchecked globalization encourages people at local levels to compromise their buying power by sending raw or first-stage processed materials to worldwide destinations or further value-add processing. Because materials at this stage have their lowest value, the compensation for them is least. However, when finished products return from where further value is added their prices are out of reach. The net effect is the local economy is depleted of its resources and the people are unable to care for themselves. Of course, some corporations invest in facilities located closer to the raw or rough finished materials to take advantage of lower cost labor in subsequent value-add processes and stages. The finished goods are priced beyond the reach of employees and their compensation is insufficient to afford necessities. Once again, they are unable to care for themselves at a local level. Worse yet, the cost in use of fossil fuels to transport raw materials, work-in-process, and finished inventory from one part of the world to another only exacerbates the problems besetting local economies mentioned previously.

The “localization-to-globalization” model operates in reverse. It encourages people to consume what they produce rather than sending it elsewhere only to have to buy it back later. Also, it fosters the conversion of excess into standardized form of higher value in order to have a broader market which is easily accessed. Using renewable energy sources like solar, wind, biogas, etc, to generate electricity has more efficiency than the individual sources of energy because the energy is converted from a more difficult to use form to a standardized form. As an example, everyone can use electricity pulled from the power grid. Not everyone can use DC current from a photovoltaic array or a tank of biogas, although each can be used to generate electrical power for the grid.

These three “rules” drive the formation of many different integrated structures as localization takes root and globalization builds from it. How well these rules are followed in the development of business cases and plans is an indicator of the viability of the business under consideration.

For example, earlier this month, Biopact announced the headline, “Green giant Russia to produce 1 billion tons of biomass for exports.” That’s a lot of raw material! Now, will Russia process it into fuel or ship it elsewhere for processing? The article is unclear which direction this will go. However, it would seem that the environmental advantage of growing biomass material for fuel would be offset by the amount of fuel required to transport the raw material to a remote point for processing. In addition to the logistics issues, a business plan built on the comparative advantage Russia apparently has to grow biomass but not to process it into usable fuel is risky. Expecting another region or country to invest in the processing facilities yet not have control over the flow of raw material from considerable distance away is…well…dicey.

In contrast, Iowa grows more corn1 ethanol than any other state. It could ship corn to other states to process ethanol. However, the approach is to localize ethanol production from corn2 and keep the value in the hands of the producer while reducing transportation costs. Maybe there’s another lesson in here from the Iowan farmers?!

More business possibilities will be analyzed according to these three rules in subsequent postings…stay tuned!

Originally posted to New Media Explorer by Steve Bosserman on Monday, February 12 2007

  1. Original link no longer available. ↩
  2. Original link no longer available ↩

Distribution Channels for Agriculture Equipment Systems in India

Overview

The long run of substantial growth in the Indian economy since liberalization in 1991 spread opportunities for business expansion and entrepreneurial start-ups in all commercial sectors, including agriculture. During the past decade and a half, noticeable gains in the purchasing power occurred for some Indian farmers. Their economic circumstances improved through the expansion and strengthening of infrastructure, rapid farm consolidation to take advantage of economies of scale, adoption of genetically modified cropping, and utilization of more productive agriculture equipment systems. However, there are 700 million farmers in India – the second largest block in the world behind China – and clearly, not all enjoyed the same level of benefit from the blistering economy as evidenced by the article, “India on Fire” in the current issue of The Economist.

Regardless of economic strata and chosen agricultural practices, all farmers are dependent on some type of agriculture equipment system to conduct their farming operations. The range of different equipment systems is quite broad, extending from low-investment handheld tools moved by draft animals to extensive, high-investment “packages” of machinery, computer systems, integrated software, and global communication networks. As with any complex marketing landscape, matching solutions with opportunities to make a difference for the customer and the company is essential.

The following graphic illustrates the interrelationships of the number of farmers, farm size, and market potential for sales of agriculture equipment systems.

The distribution clearly shows that 695 million farmers hold 80% of the arable land in India on farm sizes that are less than 2 hectares, approximately 5 acres, each. In fact, estimates suggest that 600 million farmers work on lot sizes that are each less than 1.5 hectares, or slightly less than 4 acres. This distribution is significant for several reasons, but one that features prominently when considering a marketing distribution channel strategy in India is population, both in terms of density and migration. As evident by the sheer number of people involved, unchecked farm consolidation, such as what occurred in North America and Europe since WWII, is not a viable course.

The infrastructures of urban areas in India would be quickly overwhelmed if even 25-30 % of the 700 million farmers scattered across India abandoned their rural homes in hopes of brighter futures in the cities. The challenge facing India, then, is to improve agriculture practices, increase output, and raise the quality of life for 700 million farmers so they choose to stay put. Not an easy mandate to meet.

Such distribution coupled with a wide variance in farming conditions within India’s agricultural regions and a diversity of farming methods and crop portfolios in each creates a complex marketing space that is anything but homogeneous. Developing a distribution channel strategy under these circumstances is problematic unless due consideration is given to the segmentation scheme and the value propositions for those segments.

Channel Design and Infrastructure

Regardless of segment, the design of distribution channels is dictated by the reach, capability, and capacity of three fundamental systems of infrastructure: information / communication technologies, electrical power, and roadways / waterways.

1) Farmers, no matter how remote, have to communicate: among themselves, with suppliers, downstream processors and retailers, government agencies, and financiers. The more direct the connections without brokers and middlemen the better. ITC has carried this point further than many through the implementation of their trademarked e-Choupal system. Comprised of self-contained solar-powered kiosks, satellite downlink stations and cellular microwave towers, and computers, nearly 4 million farmers throughout India are able to communicate by phone, access the information from the Internet, conduct online transactions, and make daily decisions about their farming operations.

A successful channel strategy begins with the virtualization of the products, services, and solutions so they flow through the information and communication networks to current and prospective customers. This constitutes a clear value proposition through improved decision making. It also establishes the first level of trust that the relationship between provider and customer is not exploitative, but mutually beneficial.

2) It takes electrical power for a farming operation to function, despite where it is located or what is in its business portfolio. Currently, India imports 100 million tonnes of crude oil per annum and is projected to import 300 million tonnes per year by 2030. In addition, India possesses the fourth largest coal reserves in the world. However, consuming it to generate electrical power in an environmentally sound manner is problematic and costly to resolve. To continue aggressive economic growth while not compromising the environment or being held hostage, politically, by unfriendly, oil-rich nations, India must develop alternative energy sources. In a press release earlier this week, Indian president, Dr. A.P.J. Abdul Kalam, committed to put India on the path toward energy independence by 2030. Furthering the use of electrical power generated through renewable energy sources like wind, solar, geo-thermal, and biomass / methane is central to India meeting this long-term energy goal.

A successful channel strategy contributes to this in a two-fold manner. First, it discourages more dependence on oil by delivering agriculture equipment systems that do not require fossil fuels to operate. Second, it encourages the development, commercialization, and adoption of alternative energy sources to generate electrical power for agriculture. This enables farmers in rural areas where the electrical grid does not reach to have the technologies available to generate the electrical power they need. Also, as the grid becomes available they have the opportunity to draw from it as needed and transfer surplus power they generate onto it for revenue. This posits a value proposition that reduces the cost of farming operations and improves productivity and profitability. Furthermore, fostering an alignment of business interests with government intentions and policies establishes a second level of trust between the provider and customer.

3) As farm productivity increases so do variety and volume of inputs and outputs. Moving, storing, applying, and disposing of more and more material within the same block of time drives the food system to hit the limits of capability and capacity preventing it from working efficiently and effectively. India has a number of critical initiatives underway that target an overburdened infrastructure for receipt of more resources and assistance as evidenced in “Priorities for The New Millennium” by the Asian Development Bank. This is complemented by a continuing effort to setup Special Economic Zones (SEZ) that, in part, facilitates the building of critical infrastructure. It also has a dampening effect on population migration due to farm consolidation by creating jobs that can be filled by those who are displaced from farming operations. A speculative argument by Indian development economist, Atanu Dey, and Vinod Khosla advances a concept called Rural Infrastructure Services Common (RISC), that addresses rural population, infrastructure, and economic improvement. While not necessarily the answer, it does offer insight into the degree with which people of influence and power in India are aware of the issues and are searching for answers.

A successful channel strategy distributes information, methodologies, and capabilities to people engaged in agriculture so that they can work through or around infrastructure deficiencies or build-up the infrastructure so that it is no longer an impediment to growth. Of particular importance is the delivery of product and service packages primarily intended for agricultural operations but can serve a dual purpose in building, upgrading, or maintaining physical infrastructure such as roads and waterways. This establishes a value proposition based on multi-use applications for basic equipment systems thereby leveraging the investments by farmers and contributing to additional growth opportunities. Because such an approach does not place the farmer in a bad situation where the benefits promised by increased productivity are cancelled through losses due to infrastructure weaknesses, a third level of trust that speaks to a long term commitment by the provider to the customer.

To design a distribution channel strategy for agriculture equipment systems in India, it is a critical to first understand information / communication technology, electrical power, and roadway / waterway infrastructures then, respond to the business context established by them. As the graphic below suggests, the rate of adoption for various agriculture equipment systems varies from one segment to another depending on the size of the farming operation, the ability of farmers to take advantage of available opportunities, and the potential for sustaining the business. Projecting across a ten-year period, greater adoption, market share, and revenue will go to the provider of systems that span across the full landscape of Indian farming operations.

To try to sustain a growth strategy by ignoring the bottom-of-the-pyramid (BOP) representing the vast majority of farmers and tapping the upper-end who lead the adoption curve and have the most resources to invest will yield short-lived and unsatisfactory results. Accusations of exploitation of the masses will take its toll on reputation, incite resistance, and drag down sales performance as reflected in numerous press articles (“Farm Widows in India Fear Crop of Creditors,” by Aparna Pallavi and “The Tale of Three Widows,” by Jaideep Hardikar in India Together online magazine) and research papers (“Biotechnology and Suicide in India,” by Glenn Davis Stone) about increases in farmer suicides.

Moving Forward with a Distribution Channel

Given these dynamics, there are three steps in initiating, expanding, and sustaining a distribution channel for agriculture equipment systems in India:

  1. Take advantage of existing or supplement information and communication networks to disseminate valued information about agriculture in an Indian context to prospective customers. This is a low-price, high-value service with low entry barriers and costs that quickly establishes a first level of trust upon which additional value can be delivered.
  2. Expand upon the initial business information to include knowledge about the larger Indian economic and political “system” in relationship to technological developments and the realities of community life to deliver product and service packages that make a difference for the agricultural businesses, environmental conditions, and community stability. This is a moderately priced, high-value package of services and products from different providers that collectively leverages the investment of the customer while providing an acceptable return for the providers.
  3. Engage major players from industry, government, academe, and the community to affect larger, more capital-intensive projects that serve broader objectives to build more capacity and further improve productivity. This is a higher priced, high-value package of services, products, and solution management from a wide range of providers.

Essentially, this is an “infrastructure first” approach that endears the company to the people by putting in their hands the information, knowledge, and resources they need to be successful. This is the key differentiator among equals. It builds a trusting relationship based on the clarity of motive, integrity in deed, and delivery of what works for the majority before moving into more extensive and riskier endeavors that may exceed the customer’s boundaries of healthy speculation. This means that the marketers, the dealers, and the sales force must know their customers so they can keep them positioned for sustained success without overrunning their headlights. And this brings us back to best approach for partnering with the Indian farmer: focus on improving the infrastructure – it is THE winning strategy!

Originally posted to New Media Explorer by Steve Bosserman on Saturday, February 3, 2007