Guest Post by Professor Sourav Mukherji: Inclusive Businesses can Solve Tough Social Problems

[Sourav Mukherji is my colleague in the Organizational Behaviour at IIM Bangalore. He has been taking a close look at Inclusive Businesses in the last few years.]

For the past four years, I have been researching the domain of inclusive business – businesses that address the needs of the poor in a financially sustainable manner. More than half a billion Indians are economically underprivileged having limited sources of livelihood. This results in their living in squalid conditions, with little or no access to healthcare, education, sources of energy, clean water or sanitation facilities, all of which contribute to a vicious cycle of poverty from which they are unable to extricate themselves. Acts of oppression, discrimination and exploitation make things worse.

Eradication of poverty was traditionally thought to be the responsibility of the government. Over a period of time, several not-for-profit organizations have complemented government’s efforts by delivering products and rendering services that cater to the needs of the poor. Such organizations often raise money from philanthropists and donor organizations to sustain their efforts. However, such efforts have not been enough – data from post liberalized India indicates that levels of inequality have gone up, rural indebtedness has increased and a lot more needs to be done if the fruits of India’s economic progress is to touch its billion plus population. Who will do this? The answer probably lies in looking at the world of business.

The Potential of Business to solve Tough Problems

Businesses have been able to solve some of the toughest problems facing mankind through various innovations and efficient deployment of resources. They are also able to attract good talent because of their ability to pay powerful financial incentives. This led economists and management thinkers like Muhammad Yunus and C K Prahlad to hypothesize that if one is able to deploy business principles of innovation, efficiency and financial incentivization (not philanthropy) to solve problems of the poor, we might be able to come up with solutions that are both sustainable and scalable. Indeed, work of several organizations worldwide and in India such as Selco, Narayana Hrudayalaya, Grameen Bank shows that it is possible to build inclusive businesses that can manage the duality of meeting the needs of the poor as well as being profitable themselves.

At the heart of such inclusive business models are one or several innovations that enable these businesses to overcome various tradeoffs that cause market failures as well as noble intentions of the innovators and entrepreneurs who want to maximize social returns rather than profitability.

The Case of RuralShores

One such innovative business model with potentially far reaching efforts is that of RuralShores – a business process outsourcing (BPO) organization setup in rural India. Founded by Mr. Murali Vullaganti, RuralShores has fundamentally changed the theory of business prevalent in the BPO industry by creating multiple small BPO centres all across rural India that provide high quality transaction processing and vernacular voice services to domestic clients. It employs village youth from neighborhood who have high school education and provide them intense training so that they become familiar with business rules of their clients and professional conduct that is expected from them. Apart from being innovative in providing such training, RuralShores had to ensure that it was not handicapped by poor infrastructure that is endemic in rural India. Therefore, it built redundancies in electricity supply and telecommunication links. All of RuralShores centres are certified in terms of security and it relentlessly focusses on cost control without making compromises on quality.

The result has been impressive. RuralShores is able to deliver quality of service that is equal to, if not better than its urban counterparts at a price that is 30% lower than the urban BPOs. Many of the large urban BPOs are now outsourcing some of their jobs to RuralShores simply because of the superiority of its model compared to theirs. And the social impact has been significant. One of India’s biggest structural problems is the fact that more than 60% of its population lives in villages, with less than 25% of livelihood opportunities being generated in villages. This causes large scale migration to cities or disguised unemployment in villages. The poor quality of lives that migrant employees lead and lack of livelihood opportunities act as dampener to the village youth in terms of being educated. This is especially true for girls for most of whom, migrating to cities in search of jobs after education is not an option.

By creating jobs in rural India, RuralShores is obviating the need for migration, creating livelihood opportunities for village women that in turn is resulting in giving economic independence, voice and empowerment to these women. Many of RuralShores women employees are now able to convince their parents that they should not be married off early, that they too can take care of their parents (and hence they are not paraya dhan) and thus acting as role models for the future generation.

RuralShores today employs about 1200 rural youth in its ten centres. There is no denying that it has several challenges in terms of sustainability and scalability. We need RuralShores to scale up ten times (they have ambition of setting up 500 centres) and several other organizations to create similar inclusive models if one is to solve the problem of rural poverty.

Lessons from RuralShores

From the success that RuralShores has had so far, one can learn the following:

1.       For making an inclusive business sustainable and scalable, it must be run as true business. RuralShores is getting business and winning against its competitors because it is able to deliver good quality service at low prices, and not because it employs people from the economically challenged background

2.       Even while RuralShores has created this new livelihood opportunity for the village youth, it has tried its best to blend in with, rather than disrupt the socio-economic fabric of rural India. While urban BPOs are likely to insist interaction among its employees across gender, such interaction among unmarried men and women would be frowned upon in most Indian villages. Thus, it is not uncommon in RuralShores to see male and female employees sitting in separate clusters and interacting only within themselves. RuralShores often talks to village elders and parents of employees to gain their confidence in the kind of work that their sons and daughters would be involved with. It also ensures that all its women employees are back home before sunset

3.       The BPO market in India as well as across the world is intensely competitive. The rural BPO model does not have high entry barriers, especially for large incumbent urban BPOs. Thus, it is not inconceivable that once RuralShores established a viable business model operating from rural India, the incumbents could have setup centres on their own and driven RuralShores out of business. However, because RuralShores decided to offer complementary services and got into alliances with them, this seems unlikely to happen. This would overcome one of the scalability challenges of such innovative business models, which are often viable at low scale, but are driven out of market by powerful incumbents if they scale and start to act as a threat to the incumbents.

I am very hopeful that RuralShores will be able to achieve its target of scalability even while remaining ideologically committed to helping the economically underprivileged. It will thus inspire many more entrepreneurs and innovators to leverage the power of business to solve problems of poverty.