A centralised model has its advantages, but a distributed business model is necessary for an India that needs to actively engage with questions of equity and access along with scale, speed and sustainability
Speed, scale and sustainability. To lift a country of 1.2 billion people to a better quality of life requires a massive dose of all three. China has clearly shown the way for what speed and scale can do to lift millions out of poverty. In 15 years, between 1990 and 2005, the Asian giant pulled 470 million people out of extreme poverty. But there has been a cost: overheating economy, dense smog that last for weeks and danger signs of an environmental meltdown that range from disappearing sparrows to strange algae blooms.
India has a similar task cut out for itself, but unlike China it has to contend with sustainability. Sustainability has always been a tough nut to crack, and it is a critical one for India if it needs to lift its millions out of extreme poverty without getting into, well, the Chinese trap. It’s important to remember that India is a signatory to the Sustainable Development Goals (SDGs) of the United Nations. The holy grail of sustainability is for an activity to have an inherent ability for continuous and self-perpetuating renewal from resources that are local and generated from the activity itself. In such a scenario, sustainability appears to fly in the face of scale and speed.
Can sustainability become the engine for speed and scale? It is a counterintuitive 21st century question and disrupts the usual ways of thinking. It’s also a relevant question for a government that wants to power the country ahead by investing heavily in initiatives like Make in India, Digital India and Startup India. The boundary conditions governing scale and speed are still predominantly drawn using mental models derived from the early 19th century industrial economy. The conditions predetermine the answers to questions of scale and speed to eventually favour a centralised model of production. Or variants of it. It’s classic factory-floor thinking where multiple conveyer belts bring in various parts and it’s all put together in one place. It gets executed downstream in the form of large factories, big central warehouses, complex logistics and distribution networks, retail stores and branding exercises to serve market segments that run into millions. Think automobiles.
The seeming incompatibility between the three is not as much a function of their definitions as it is a result of their location. Remove the 19th century mental model and its boundary conditions, and answers to questions of scale and speed aren’t always size and reach, the bread and butter of a centralised model. Bring in boundary conditions of a 21st century peer-to-peer network economy, and suddenly the questions of speed, scale and sustainability not only acquire nuances but also interconnect with each other as distributed models of emergent possibilities rather than a set of cookie-cutter solutions. These conditions also provide an opportunity to flip the conventional logic and cut loose scale, size and sustainability as anchors of a business model and locate them as autonomous platforms requiring foundational investments.
In simple terms, speed, scale and sustainability are a by-product of a network effect that’s more dependent on the flexibility of a business model to allow engaging social connections and transactions to develop organically, rather than on traditional methods tied to marketing, branding and financial resources. This unconventional logic gets executed downstream in the form of a non-proprietary, open source and open standard platform that is available to anyone who wants to build business layers upon it. Think Facebook and Twitter, the platform, and media products and services, the business layer. Now, if this logic were to be extended to the domain of public goods, then think Aadhaar, the platform whose full potential is yet to be explored, and the BHIM app, the business layer whose possibilities, again, are immense.
A platform comes embedded with four advantages. First, it makes some of the known unknowns into known knowns by unpacking them and creating a set of business rules to navigate them. So, Aadhaar makes identity and authentication from a known unknown into a known known for several businesses that otherwise would have been able to invest resources to that end. This ‘act of knowing’ allows robustness of execution to be determined more by its detailing and consumer connect and less by random variables. In short, platforms provide a standard set of basic infrastructure, a level-playing field, for everyone. Second, platforms are open to anyone who wants to use it, often without identity and documentation. The open architecture is deliberately designed to have a near zero entry barrier for people and ideas. In short, platforms inject a massive dose of equitable access, a fundamental principle of democracy, into market and social dynamics that are often skewed in bizarre ways at the bottom of the pyramid.
Third, platforms are amenable to all spectrums of capital: from philanthropic and patient capital to high risk, high return corporate loans. This agnosticism allows a diversity of business models to coexist which, nevertheless, derive their master codes from a single fount. In short, a platform gives full play to the first principle of organic aggregation: the sum of the parts is always greater than the whole. Fourth, and arguably the most important, the architecture of a platform is finely tuned to different degrees and notions of scale, speed and sustainability, bringing into sharper focus local communities, indigenous talent, hyperlocal markets and thought process that’s a more value proposition than return on investment. This quality decisively breaks the existing mental models of centralisation that favour a one-size-fits-all approach. In short, platforms are extremely malleable and ductile, taking on the role of a common service rather than a market place, making it appropriate for a variety of business models.
Power of distributed models
So, is it possible to serve highly personalised and customised markets, at price points that make it viable for everyone and in an ecologically sensitive manner? A qualified yes, but only if there is a distributed model anchored to a platform that takes advantage of technology, local communities, existing talent and common resources. A business model has three components: production, distribution and consumption. Centralised models are fairly well understood, predicated as they are on volumes, economies of scale and mass consumption. There is, however, an increasing realisation of the relevance and need for decentralised systems and processes, which is a step removed from a distributed model, even within a centralised model. The auto ancillary parts sector is a good example of a decentralised procurement process feeding into a centralised production system.
There are also proven models around procurement that’s part decentralised and part distributed. Amul is a good example where milk procurement from the community is completely distributed. One part of the initial procurement, chilling and standardisation, is decentralised, while the later part of the procurement for value-added products like ice creams and ghee is centralised. There are also emerging pure play platform-based distribution models that have leveraged advances in digital technology and location-based services to aggregate supply and demand dynamics into an application. Cab hailing services like Uber and Ola are a good fit, and in fact do cater to a market of 1. Platform-based media companies have also cracked decentralised consumption models, some bordering on pure distributed logic, where the potential offering to a market of 1 is highly customised. Netflix is a good example, though some of the prototypes being tested in the MIT Media Lab are firmly in the territory of distributed models.
It’s one thing to architect a platform-based, technology-enabled decentralised and distributed model around retail and niche services and products for mature urban markets where the logic and mechanics behind transactions and value propositions is more or less established. It’s another thing to execute it for a semi-rural and rural India where the two primary needs are to get connected to the existing production and distribution ecosystem and equitable access to core resources, from financial capital to social capital. The philosophical need for a distributed model is well established. It has the potential to create a more equitable and empowered system of transactions and compensations that can be owned and driven by the community. The socioeconomic need for such a model is also getting clearer. It clearly ties in with a model of governance that is based more on regulatory frameworks and empowered citizens rather than on licensing rules. The ecological and environmental need for such a model cannot be overstated. A distributed model will always have a considerably lower carbon footprint making it sustainable in the truest sense of the term.
Customise for India
With the Make in India, Startup India and Digital India initiatives, India has a unique opportunity to adopt and adapt a model that will help it leapfrog to a less carbon intensive growth trajectory. The aggregate and long-term socioeconomic costs saved can only be imagined. The case for a decentralised and distributed model, however, should not be a seen as an ‘either-or’ binary issue. A centralised model is required for India to power its economy ahead. A technology intensive electronics manufacturing plant, for instance, can only survive by anchoring itself to economies of scale that can only be provided by a centralised model. The questions thereof are more in the nature of using less polluting sources of power, stricter enforcement of environmental rules and laws and a concerted and integrated effort to reduce, reuse and recycle. In that context, Sweden’s waste-to-energy model is the gold standard to follow, where 99% of the household waste is recycled and over 50% of it is used to produce electricity.
The case for a platform-anchored distributed model is its immense potential to bring in millions of poor Indians and marginalised communities into the emancipatory framework of development that is local, contextual, indigenous and sustainable, yet leverages platforms and technologies to reach out to global markets to create a shared value that goes beyond revenue streams and bottom-lines. It’s also good to remind ourselves that we, as a nation, are also signatories to achieve the Sustainable Development Goals. Now, imagine millions of Indian women artisans who are weaving fine fabrics and chiselling intricate art forms, becoming mini-entrepreneurs in their own right, while creating a shared collective valuation that would trump the valuation of the top three Indian companies put together? That’s the power of a platform. That’s the power of a distributed model.
Swaminathan is a digital native and has lived through three dotcom bubbles and busts.
(The article appears in April 1-15, 2017 edition of Governance Now)