This is the first in a series of posts by SustainAbility about business-model innovations that accelerate social and environmental impact.
More than a decade ago, the Indian conglomerate ITC created a new model for sourcing agricultural commodities from rural villages. It brought internet terminals – called e-Choupals – into farming villages, which gave local farmers access to market information they hadn't had before. The innovation created business value for ITC by strengthening its supply chain, and provided social value by delivering benefits to farmers. But it did something else, too: it also disrupted the marketplace.
The terminals ended the information asymmetry that had long hindered rural farmers, who had little negotiating power at the government-mandated marketplace, called a mandi. The e-Choupal enabled access to market pricing information for crops, giving farmers the choice of when to sell and for how much. ITC has since placed 6,500 e-Choupals, serving more than 4 million families, in 40,000 villages.
The model has strengthened ITC's agribusiness' supply chain and its relationships with farmer communities – e-Choupal brings in 40% of agribusiness revenues – and increased growth for the packaged foods side of the business. It also has offered farmers more choices, increasing the prosperity of base-of-the-pyramid farmers, and reformed the mandi system.
E-Choupal is one of several examples of companies using a new business model – the alternative marketplace – to connect supply and demand in a way intended to boost social and environmental benefits. The alternative marketplace was one of the most popular types of business-model innovations among the 87 companies that SustainAbility reviewed this year. A full report, which will identify and analyze more than a dozen business model innovations for sustainability, is scheduled for release in January.
Variations on a theme
A number of businesses, large and small, are using alternative marketplaces. These marketplaces circumvent a traditional method of transaction – or invent a new type of transaction – to create a new marketplace and new value. Alternative marketplaces can reveal unused resources, flatten hierarchical systems and, in unique cases, create new channels for exchange. The model often, but not always, manifests through technology.
Whereas ITC e-Choupal has focused more on social outcomes, other alternative marketplaces yield environmental efficiencies. OneMorePallet, a small and growing business based in Ohio, offers "name your price" shipping to small businesses that don't need their own trucks to ship their products. According to OneMorePallet, nearly 30% of each freight truck on the road runs empty. The company enables their clients to bid on empty truck space and for trucking companies to fill the empty spaces in their loads and increase profits. As a result, the shipping system becomes more efficient and the number of trucks on the road decreases.
More often than not, the alternative marketplace is used by companies, but one unique nonprofit, Sirum, is also employing the model to reduce medical waste – and help increase access to these drugs among the poor – by matching unused drug supply to those in need.
Every year, the US discards nearly $5b worth of prescription drugs. Much of this medicine could be reused, but most of it is incinerated or flushed away, sometimes causing damage to rivers and lakes. On the flip side, one in four Americans cannot afford the prescriptions they need. The Sirum team saw an opportunity to connect the dots.
It wasn't easy; the founders had to activate a California law to allow the reuse of medicines. Then it built its own online marketplace – it bills itself as the Match.com of unused medicine – to connect drug donors, such as nursing homes and assisted living centers, with clinics and pharmacies that serve low-income patients.
Sirum, now funded by grants, hopes to become financially solvent over the next several years by charging a membership fee to the recipient institutions that gain access to free, unused medicine through its site. And its experience so far provides a case study of how new marketplaces can arise and add value, in this case by extending the usability of prescription drugs.
Building alternatives
As these three examples illustrate, the alternative marketplace idea applies to a wide variety of business – and companies in many different sectors are employing new marketplaces to further their values. The concept also, of course, comes with some risks and challenges.
Because alternative marketplaces circumvent traditional transaction channels or create new ones, they run the risk of raising the hackles of those who depend on current systems. There are also inherent challenges in creating an entirely new infrastructure for exchange, such as educating customers about how or why to use an alternative marketplace.
To be clear, we do not view alternative marketplaces as inherently more sustainable. For example, the online illegal drug marketplace Silk Road, whose customers used the alternative currency Bitcoin to circumvent the scrutiny of authorities, is an alternative marketplace being used for less than desirous effect.
But marketplaces like those outlined here are increasingly being used to advance sustainability and provide more value to more stakeholders in a company's ecosystem. Perhaps these examples can provide other companies with inspiration to find new ways to make greater social and environmental impact.
Lindsay Clinton is a senior manager at SustainAbility in New York and co-author of the forthcoming report on business model innovation for sustainability
Comments (…)
Sign in or create your Guardian account to join the discussion