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FUNDAMENTALS OF MANAGEMENT SYSTEMS

TERM PAPER

ON

e Choupal- ANALYSIS USING SAP LAP FRAMEWORK


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F U N D A M E N T A L S O F M A N A G E M E N T S Y S T E M T E R M P A P E R

2 e Choupal - Analysis using SAP LAP Framework

Contents

Objectives of the study ............................................................................................................... 3

Introduction SAP LAP Framework ............................................................................................. 3

SAP Framework ........................................................................................................................... 3

SITUATION: ............................................................................................................................. 4

ACTOR: .................................................................................................................................... 4

PROCESS: ................................................................................................................................. 5

LAP Framework ....................................................................................................................... 5

Agriculture in India-Overview...................................................................................................... 6

THE PARADOX OF INDIAN AGRICULTURE ............................................................................. 6

Introduction to e Choupal ........................................................................................................ 7

Operation of Mandi ............................................................................................................. 8

Figure 3. MandiOperation Process ...................................................................................... 9

SAP LAP Analysis of e-Choupal initiative of ITC .......................................................................... 11

SAP (Situation-Actor-Process) ................................................................................................ 11

e-Choupals Presence Across States in India .......................................................................... 12

LAP (Learning-Action-Performance)....................................................................................... 14

Efficiencies in e- Choupal Model ............................................................................................... 16

KEY LEARNINGS OF ANALYSIS .................................................................................................... 16

References ................................................................................................................................ 19


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Objectivesofthestudy

y Understanding and analysing e-Choupal concept that is implemented in practicalmarkets by ITC Ltd.

y Understand all activities as well as challenges, problems and possible solutions in ITCsbusiness.

Introduction SAP LAP Framework

SAP-LAP is a holistic framework that aids the process of analysis to generate models for

managerial enquiry and problem solving. (Sushil, 2001). The Situation, Actor, and Process

comprise of the SAP framework where the freedom of choice lies with the Actor. The situation

to be dealt with, the actor or actors who deal with the situation, and a process or processes

that recreate the situation are all analyzed in the SAP framework.

A synthesis of SAP leads to LAP which deals with Learning, Action, and Performance. The

analysis carried out in SAP framework highlight the key learning issues for the context based on

which actions are suggested to address the concerns or problems. Finally, the impact of

suggested actions on performance is assessed so as to justify the actions.

SAP and LAP frameworks are explained below.

SAP Framework

Any managerial context basically consists of a "situation" to be managed, an "actor" or a group

of actors to deal with the situation and a "process" or a set of processes that respond to the

situation and recreate it.

Situation, Actor, Process and their interplay comprise of SAP framework


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If the actors have more freedom, the processes will become flexible and adaptive to cope with

the changing situation. Lack of freedom of choice to the actors will restrict their options, limit

their movement ultimately making the process rigid and static and thereby failing to cope with

the problems in the situation.

SITUATION:

"Situation" is external and internal environment of the organization and its performance. It can

be of either.

1. External Situationwhere key components are competitive potential, economic policy,new technologies, type of supplies, infrastructure, industry performance etc.

2. Internal Situation where components comprises of financial performance, marketshare, corporate image, resources, capabilities and competencies, plant and machinery,

core values etc.

ACTOR:

"Actor" can be individual managers, groups, departments or class of actors.

Actors constitutes of suppliers, competitors, government, consultants, management,

employees, etc.

Important variables in the "actor" domain are motivation, morale, attitude, actor performance,

roles, capabilities, world-views, freedom of choice, communication, knowledge, skills etc.

The interface of "actor" and "situation" defines the organizational climate and culture that is

important for the evolution of the business processes.


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PROCESS:

The "process" is the overall transformation process that converts a set of inputs into outputs to

recreate the situation. The processes could be of various types, such as, supply chain process,

customer interface process, performance management process, technology transfer process,

innovation process, investment process, distribution process and so on. Depending upon the

situation, one or more processes are to be studied and improved for higher flexibility.

The interface of "actor" and "process" defines the strategy, structure and systems that need to

be transformed for organizational change.

The interface of "process" and "situation" defines the contingency to be taken care of (e.g.

contingency planning) and adaptation and response of the process to the changing situation.

LAP Framework

The interplay and synthesis of SAP leads to Learning-Action-Performance (LAP).

We need to learn about the situation, actor and process and bring out key learning issues of

interest. Based on the learnings, the action is to be taken on the fronts of situation, actor or

process or the relevant interfaces.

Depending upon the effectiveness of actions, performance is generated in terms of improved

processes/actors and better situational parameters. In a business situation, the performance

parameters could be market share, profitability, quality, productivity, competitive advantage,

core competence and so on. SAP-LAP framework can be used effectively for case analysis,

managerial inquiry and problem solving. The steps for case analysis using SAP-LAP framework

are: understanding situation, actors and roles, evolving process, learning issues, suggested

actions, and expected performance.


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Introductiontoe Choupal

Today in 21 century, e-business & e-commerce initiatives have become popular but it may be

rather difficult to think of poor illiterate farmers of India to use e-business as a part of their

daily lives.

Most of the Indian villages do not have basic facilities such as electricity, telephone, &

transportation. However large number of illiterate farmer groups started conducting e-

commerce transactions easily in the year of 2002 with the help of innovative & revolutionary

concept of e-Choupal which was introduced by ITC Ltd. The purpose of implementing e-Choupal

is to connect the villages in a network via internet and then procure agriculture products from

farmers. ITC started the program with just six e-Choupals in June 2000 and has managed to

expand them to 6500 e-Choupal centres in approximately 6500 village across 14 states. ITC

Limited plans to scale up to 20,000 eChoupals by 2012 covering 100,000 villages in 15 states,

servicing 15 million farmers. The company started e-Choupal with modest & focused valueproportion which is that the farmer should get better price for crops.ITC gained immense

credibility through the early success of e-Choupal.


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The ValueChain- Farmto Factory Gate

OperationofMandi

The operation of the Mandiconsists of a number of different stages, from the logistics of

transporting grain to the market to quality inspection, auction, bagging and weighing, and

payment. Based upon local information within the village, farmers decide in which of the

nearby mandis to sell. They transport their crops to the mandis in carts drawn by animals or

tractors. Very often, to avoid peak-time crowds, farmers will arrive at the mandithe night

before they intend to sell. When the mandiopens in the morning, farmers bring their carts todisplay areas within the mandi.


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The inspection by buyers is by sight. There is no formal method of grading the produce and the

only instrument used is the moisture meter; the crop is not tested for oil content.

Figure3.MandiOperation Process

Once potential buyers have inspected the produce, a mandiemployee conducts the auction,

where commission agents place bids. The auctions are typically open oral auctions with

incremental bidding. The auction represents a stark contrast from the buyers and sellers

perspectives. For the farmer, the moment is pivotal: a scant 30 seconds assesses the results of

six months of investment and hard work and establishes the value of one of only two or three

paydays he will have in the year. For the commission agent, on the other hand, the moment is

routine; he has many more carts of produce to buy and his margin is assured irrespective of the

price. Once the price has been established by the auction, the farmer moves the cart to the

weighing area run by the buying commission agent. In most cases, the weighing area is in the

mandicomplex. In some cases, especially if the mandiis small, the weighing area may be at the

commission agents home near the mandi. Here, the produce is transferred from the cart into

individual sacks. The sacks are then weighed, one at a time, on a manual scale. After weighing,

the full value of the grain is calculated. The farmer goes to the agents office to collect a cash

payment. The agent pays a mandifee (1% of purchase value in Madhya Pradesh) to the mandi.

The bagged produce is then loaded on to the buyers trucks and transported to the processing

plant.

E-Choupal Supply chain

The re-engineered supply chain looks very different from the existing system and has the

following stages:


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Transaction Costs

In the mandisystem, there was a mark up of 7-8% on the price of soybean from the farm gate

to the factory gate. Of this mark up, 2.5% was borne by the farmer while 5% was borne by ITC.

With e- Choupal, ITCs costs are now down to 2.5%. Figure 4 shows transaction costs incurred

by the farmer and ITC per metric ton of soy procured in the mandiand e-Choupal. In absolute

numbers, both the farmers and ITC save about US$6 (Rs 270) per metric ton.


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SAP LAP Analysisofe-ChoupalinitiativeofITC

SAP (Situation-Actor-Process)

Whatisthepresentandpast Situation?

The situation is understood by framing some questions and providing explanation for these.

WhatisEChoupalproject?

eChoupal is an initiative of ITC Limited (a large multi business conglomerate in India) to link

directly with rural farmers for procurement of agricultural / aquaculture produce like soybeans,

wheat, coffee, and prawns. E Choupal was conceived to tackle the challenges posed by the

unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure

and the involvement of numerous intermediaries

WhywasEChoupalrequired?

India has 600,000+ villages with 1000+ million people. In this large population Agriculture is the

primary occupation for about 80 % of rural population.

Traditionally, the commodities were procured in "mandis" (major agricultural marketing centres

in rural areas of India), where the middleman used to make most of the profit. These

middlemen used unscientific and sometimes outright unfair means to judge the quality of the

product to set the price. Difference in price for good quality and inferior quality was less, and

hence there was no incentive for the farmers to invest and produce good quality output. With E

Choupal, the farmers have a choice and the exploitative power of the middleman is neutralised.


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Primary Stakeholders Interest

Farmer Community

y Access to information Empowered decisions Improved agriculture

y Economic benefits through lower transaction costs and procesefficiencies

y Served with dignityy Knowledge bundled sale of goods and servicesy Co-opted in product designy Hope for a brighter future

ITC

y Lower procurement costsy Direct interaction with farmers - Control on quality & supply

security

y Low cost distribution channely Access to market intelligence

Commission Agents

(Kachha & Pakka Adatiyas)

y Gain access to global markets through ITC and commission tocompensate some of the loss revenue

e-Choupals Presence Across StatesinIndia


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WhatistheachievementofEChoupal?

E Choupalhas extracted value in four steps to make the model sustainable and scalable:

1. elimination of non-value added activities2. differentiated product through identity preserved supply chains3. value added products traceable to farm practices4. e-market place for spot transactions and support services to futures exchange5. Farmers can get real-time information despite their physical distance from the

"mandis"

6. Rise in yields, improvement in quality of output and a fall in transaction costs.

Whychanges were needed?

y Creation of employment opportunities to village enterprisingy Large base of Indian villages needs the initiatives like e Choupal to encourage

agricultural production in India by seeing that the farmer gets the fair share of profit.

y Introduction of Technology at the grassroots level of Agriculture viz., Farmers.y Role model for other states.y Public private partnership

ACTORS

Who are the Actors?

Government can be an actor which can implement the successful project throughout the

country.

Purchasers of commodities

Kiosk Operators

Farmers and Villagers


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What are the Processes in evolution?What is being done?

ITC has established computers and Internet access in rural areas across several

agricultural regions of the country, where the farmers can directly negotiate the sale of

their produce with ITC Limited. The PCs and Internet access at these centres enable the

farmers to obtain information on mandi prices, good farming practices and place orders for

agricultural inputs like seeds and fertilizers. This helps farmers in improving the quality of

produce, and also helps in realizing a better price. Each ITC Limited kiosk having an access to

Internet is run by a sanchalak a trained farmer. The computer housed in the sanchalaks

house is linked to the Internet via phone lines or by a VSAT connection and serves an average of

600 farmers in the surrounding ten villages within about a 5 km radius. The sanchalak bears

some operating cost but in return earns service fee for the e-transactions done through his e

Choupal. The warehouse hub is managed by the same traditional middle-men, now called

samyojaks, but with no exploitative power due to the reorganised role. Indeed these

middlemen make up for the lack of infrastructure and fulfil critical jobs like cash disbursement,

quantity aggregation and transportation.

Whyit is being done?

It is being done to cover

o 40000 villageso 4 million farmerso To pass the benefits of profit earned on the commodities to the farmer.

LAP (Learning-Action-Performance)

Whatisthe Learning?

ITC chose to operate the platform on the "three business principles" of "free information and

knowledge,freedom of choice in transactions, and transaction-based income-stream" for

the sanchalak or person manning the internet-enabled e-Choupal booths.


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How ITC used the extensive network to procure farm produce for its own business needs while

pushing products down the chain for third parties.

What are the keyissues related to the situation, actors and performance?

The key factors in the situation are the:

y Limitations of e Choupal project-Poor telecom and transport infrastructure in villagesy Rate of change of technology and its updating in the processy

Scope of errors and maintenance issues with the Technology products especiallySoftware issues

y Rigidity of the farmers to accept the new things predominantly due to illiteracy levels inrural population

What are the Actions?

What is being done to improve the situation?

E Choupal is further now trying to be used by ITC to provide healthcare and other services like

weather forecast etc for rural population through its established network. Also studies were

put forward before government to implement the e Choupal model across rural India so that

the benefits are passed over till the producer.

What are the keyPerformance Parameters?

y Benefits passed on to the Farmersy Improvement in Rural GDP and increase in the Gross agricultural productivityy Accurate pricing which eliminates the menace of middleman in the transaction

of commodities.

y Role model for other states


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y Public private partnershipy CSR initiatives by corporate world

Efficienciesine-Choupal Model

y Last mile low cost solutiony Full Service approachy Demand aggregationy Third party sellery Extensive use of technologyy Access to information about customersy Pull based strategy

KEY LEARNINGS OF ANALYSIS

The e-Choupal model demonstrates that a large corporation can play a major role in

recognizing markets and increasing the efficiency of an agricultural system, while doing so in

ways that benefit farmers and rural communities as well as shareholders.

This analysis also shows the key role of information technology, in this case provided and

maintained by a corporation, but used by local farmers, in helping bring about transparency,

increased access to information, and rural transformation.

Critical factors in the apparent success of the venture are ITCs extensive knowledge of

agriculture, the effort ITC has made to retain many aspects of the existing production system,

including respect and fairness with which both farmers and local partners are treated.


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Challenges

The e-Choupal system faces multiple continuing challenges. The first is the possibility that

radical shifts in computing access could fundamentally alter community-based business models.

That is one of the reasons ITC seeks to build and control its own ICT infrastructure. Second, as

the number and power of the sanchalaks increase, there is a threat that they will unionize and

extract rents unwarranted additional payments based on their increasing influence on the

system. Third, ITCs relationship with the samyojaks seems to be uneasy, and competitors with

the financial muscle to invest for scale could conceivably use discontented samyojaks as the

base to obtain market share. Fourth, the scope of the e- Choupal operation, the diversity of

activities required of every operative, and the speed of expansion create real threats to

execution management.

ITC has awakened the aspirations of farmers. If ITC fails to fulfil these aspirations, the farmers

will look elsewhere for satisfaction. As an example, in our conversation with a sanchalakabout

the potential for Indian onions to succeed in the global market, he also understood what the

key to success was better seeds. He half-complained that he had told ITC several times to

begin selling better onion seeds, but he had not heard back from them. In a competitive

environment, ITC would have to provide faster and more responsive customer service to

maintain its distribution system.The computer in the village is no doubt revolutionary, but there is also no doubt that the

villages we saw were stratified to the point where not everybody can walk up to the sanchalak

and ask to be shown the computer. There are clearly some segments of village society,

including the entire adult female population, that does not have access to the computer

although this may not be true in all regions. The presence of the computer by itself will not

transcend this barrier unaided. This is not a reflection on ITC, but rather the nature of society in

rural Madhya Pradesh. The solution might lie in observing where the system has driven socialchange. Village farmers belong to many social and economic strata. Yet the sanchalaks are

servicing all of them equally. In this case, the potential for commerce has broken a barrier

that society has built. Similarly, engagement with poorer segments of society and women may

be possible through the active distribution of products tailored specifically to them.


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Conclusion

The e-Choupal model shows that a large corporation can combine a social mission and an

ambitious commercial venture; that it can play a major role in rationalizing markets and

increasing the efficiency of an agricultural system, and do so in ways that benefit farmers and

rural communities as well as company shareholders. ITCs example also shows the key role of

information technologyin this case provided and maintained by a corporation, but used by

local farmersin helping to bring about transparency, to increase access to information, and to

catalyze rural transformation, while enabling efficiencies and low-cost distribution that make

the system profitable and sustainable. Critical factors in the apparent success of the venture are

ITCs extensive knowledge of agriculture, the effort ITC has made to retain many aspects of the

existing production system, including retaining the integral importance of local partners, the

companys commitment to transparency, and the respect and fairness with which both farmers

and local partners are treated.


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References

1. Sushil (1994) Flexible System Methodology, System Practice, 7(6), 633-651.2. What Works: ITCs E-CHOUPAL & Profitable Rural Transformation- A Michigan School

Report.

3. http://www.echoupal.com/4. http://en.wikipedia.org/wiki/Echoupal

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