The Wisdom of the Crowds – Untapped wisdom for Indian Retail

"It was the best of times, it was the worst of times; it ws the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way."  
-         Charles Dickens – A Tale of Two Cities

These famous lines sum up our ambivalent reaction towards the Indian Retail. Be it the stratospheric retail growth forecasts amidst hard-hitting earnings or the organized retailing’s growth potential in the face of the challenges imposed by traditional retail (it would be a disservice to call it unorganized) and stiff regulatory environment, 

Indian Retail sector has been grappling with these paradoxes amidst the clarion calls of Carpe Diem by the Retail pundits to leverage the boom in consumption post globalization.

Often, the voice of wisdom gets muffled amidst the loud, inspiring stories of growth and potential. In the maddening race to conquer untapped markets, innovation often takes a backseat. Although the growth of Indian Retail despite the stumbling blocks cannot be discredited, I curiously wonder if there is a larger scope for innovation in the grand scheme of things. I admit, this might sound like an anomaly, considering how several writers have eulogized  our Jugaad attitude. Its indeed an  interesting case of an inevitable necessity owing to our minimal resources, turned into yet another management jargon of our times, characterizing the Indian ethos. Let me explain further.

The much hyped growth story of the Indian Retail stems from the belief that the Indian growth story will create the familiar environment most of the high-flying executives had seen in Western Retail World. While the Western market has been characterized by homogeneity, it is infact now a cliché to talk about our heterogeneity, given the reams of literature available on the unique nature of the Indian Market. However, when we look at the Indian Retail sector, barring a few, it is difficult to see true, blue blood innovations . Most of the innovations are often transplanted ideas from the West, brought in recklessly with less thought on its  applicability in the strange Indian context. 
Gourmet Stores: Yet another interesting experiment

Of late, I have been quite fascinated by the intriguing mix of challenges and opportunities in Indian Retail  . At a time when the Indian Retail wave was at the fore, two major players, Subhiksha and Vishal Mart suffered major blows. 
While Subhiksha ignominiously underwent Corporate Debt Restructuring, Vishal Mart had closed down all its stores and  sold off its assets, amidst notices.  

Several pundits have performed autopsy on these once-promising players of Indian Retail and have prescribed their set of diagnosis. If these failures have taught one lesson, it is the need to have unrelenting focus on Profitability while companies are going on an ambitious expansion spree once they have tasted the initial fruit of success. 

Demand forecasting is a critical driver in determining this  profitability. The traditional forecasting methods used have always been characterised by historical data and its inability to capture the dynamic nature of market. It is often set by a panel of experts at the top management whose access to information is restricted to the ones that get captured in corporate reporting system. 

Its surprising to see why nobody is examining  the relevance of these traditional methods, especially in the Indian context, when the markets across various regions are so dynamic in their nature. As several researchers have pointed out, these techniques cannot address the challenges due to volatile prices, introduction of new goods and  erratic demands.  So what do we do?

I have been quite fascinated by the idea of 
Prediction Markets in the popular book "The Wisdom of the Crowds" by James Suroweicki. Its surprising to see why no body has taken  initiatives to implement these Prediction Markets for Corporations in India. Prediction Markets, in a nutshell,  uses the market mechanism to arrive at sales forecast by aggregating  the information which never shows up in formal report from employees across the supply chain. I think this prediction market can be implemented successfully in Indian Retail to achieve high payoff through accuracy of demand forecasts.  

I am not the first person to think about this possibility. Ajay Shah wrote about it in his blog , where he discussed the legal implications of creating such a market, as it is often considered gambling. He writes that although the legal framework doesnt prohibit it, there are few complications in setting these markets.  

While perusing the comments in his blog, I came across Public Gyan, which was set up as an prediction futures market in India's social and political space.   The owner of the site had written in the blog about some of the challenges they have faced in implementing these futures markets.  When I visited the site, it looked quite deserted, with the popular question traded in the market being, "Rahul Gandhi, India's PM: 2010".

I think these challenges can be addressed very well. I have been exploring about these Prediction Markets and I shall be writing further about them in the coming weeks. Best Buy, HP and several corporations have implemented these markets. 

It will be interesting to see if any Indian Retail Major ventures out to implement this Prediction Market in their demand forecasting. I have come across several Supply Chain Case studies on these Prediction Markets. I shall be discussing them further too.