Open Distribution

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John Hagel at the Edge Perspectives blog, explains Open Distribution.



John Hagel:

"Looked at through an innovation lens, Grameen Bank represents one of the earliest examples of a powerful form of business innovation that I have described as open distribution. This innovation is being pioneered by a range of companies in South Asia (primarily India) to deal with the challenges of cost effectively reaching dispersed populations of low income, rural customers. Early pioneers of this model in India include ICICI Bank, ITC with their e-chaupal network, Tata Motors and Cummins (a US company pursuing these innovations through their Indian subsidiary). (For great summaries of the first two pioneers, see C.K. Prahalad's The Fortune at the Bottom of the Pyramid, for a brief discussion of Tata Motors, see Manjeet Kripalani's article in Business Week "Asking the Right Questions" and for the Cummins Story, see my article (with JSB) on "Innovation Blowback" .)

As I indicated in the earlier blog posting, this open distribution model has several key components:

  • increased modularity (both in products and processes)

  • aggressive leveraging of existing third party (and often non-commercial) institutions in rural areas to more effectively reach target customers

  • creative use of information technology carefully integrated with social institutions to encourage usage and deliver even greater value

This open distribution model stands in sharp contrast to Western forms of innovation in retail distribution by companies like Wal-Mart, Tesco and Metro. Rather than leveraging economies of scale and scope in the branches and regional distribution centers as these Western companies have done, the pioneers of the open distribution model seek to tailor the value delivered to customers through creative leveraging of third party institutions and social networks.

Western distribution models work great if the customers know exactly what they want or are prepared to invest in the search through endless aisles of products (and not a salesperson in sight!) to find what they need. In contrast, the open distribution models represent a promising cost-effective approach to help customers find products that are most relevant to them and then help them to get the most value out of the use of the products." (