Business Today

It's now the era of micro-innovators: C.K. Prahalad

For more than a decade now, Coimbatore Krishnarao Prahalad has been the best-known management guru from India. Professor of Strategy at the Ross School of Business, University of Michigan, Prahalad shot to fame with his book Competing for the Future, which he co-authored with Gary Hamel. He spoke to Business Today's R. Sridharan on innovation and his own intellectual journey over the years.

Team BT |Print Edition: May 18, 2008

For more than a decade now, Coimbatore Krishnarao Prahalad, or C. K. Prahalad, has been the best-known management guru from India. Professor of Strategy at the Ross School of Business, University of Michigan, Prahalad shot to fame with his book Competing for the Future, which he co-authored with Gary Hamel. Since then, Prahalad, who studied and taught at IIM Ahmedabad before moving (back) to the US to join the University of Michigan as Assistant Professor, has written four more books, including the latest The New Age of Innovation, whose global release took place on April 17 in Delhi. In the book, co-authored with colleague M. S. Krishnan (he's Professor of Business Information and Technology), Prahalad, 57, argues that "we have finally reached the point where the confluence of connectivity, digitization, and the convergence of industry and technology boundaries are creating a new dynamic between consumers and the firm". "Traditionally," Prahalad and Krishnan write, "we have assumed that the firm creates value and exchanges it with its consumers. This firm- and product-centric view is being rapidly replaced by a personalised experience and a cocreation view of value." The authors use a shorthand ("it's not an equation," Krishnan clarifies) N=1 and R=G to drive home what they call the two pillars of the next generation of innovations, where N=1 stands for one consumer experience at a time, and R=G for all the resources that need to be tapped from multiple vendors and around the world to satisfy the experiences of one consumer at a time. A day before the book was launched in Delhi, Prahalad spoke to BT'sR. Sridharan on innovation and his own intellectual journey over the years. Excerpts:

C. K. Prahalad, Professor, Ross School of Business, University of Michigan
C. K. Prahalad
What is C. K. Prahalad really about? If one looks at, say, Michael Porter, one knows that he's about strategy. Philip Kotler is about marketing, Noel Tichy is about leadership, and Clayton Christensen is about innovation. What is C. K. Prahalad about?
In 1987, I co-authored (with Yves L. Doz) a book called The Multinational Mission: Balancing Local Demands and Global Vision, arguing that global and local are essential parts of being a multinational. That has endured. That sparked a whole line of research. My sense is it's an attitude of mind that you want to focus on the next practice and not the best practice. You never know fully whether what you are saying will happen or not because you're amplifying weak signals and connecting the dots and trying to see a pattern, when the pattern is not fully evolved. So, whether it is the Multinational Mission book or Competing for the Future or Future of Competition or The Bottom of the Pyramid or this book, I've taken the same attitude.

But each of your books also builds on the previous one. To that extent innovation, in a broad sense, emerges as the connecting theme.
From Day One, my work has been about strategy, so it's not that I've strayed too much. And the work has been about innovation, it's been about value creation or wealth creation, if you want to talk about it that way. But I've always strived to look at perspective that is somewhat different. So (in this book), the starting point for me is, if cocreation is taking root, if bottom of the pyramid is becoming a reality, on top of it you have connectivity, which eliminates asymmetry of information, digitization, which reduces dramatically the costs so that hi-tech is no longer the privilege of only the rich, if industry boundaries are cracking up, and then social networks are emerging, it must have something to do with value creation. And it must change the very locus and the sources of innovation because, today, instead of a small group of people sitting and thinking about innovation, you can have three billion people not only being micro-producers and micro-consumers, but micro-innovators. Will it happen overnight? Of course not. But everybody has an opportunity to contribute to innovation.

Not every consumer may want to be a co-creator…
Co-creation by definition is voluntary. You can't force a person to co-create with you. And co-creation is about experience and experience is always contextual and personal. You have this experience and you have your own reference group to give meaning to that experience.

If co-creation is voluntary, then a company may or may not tap its potential value fully. Is there some way in which companies can engage this important consumer segment in co-creation?
There are ways in which you can engage them. One is, put the beta version out there. That's what all the software companies do. The other one is active blogging, when people start talking about what are and what are the things that they want to see and bother them. That is another way of mining that information. Third is to pose a question and move it out.

If you look at it, co-creation has been happening after a fashion ever since modern management has been around. For example, market research and capturing customer voice, it's all an attempt at co-creation. What's different about co-creation this time around?
Market research is about asking your questions and getting responses from, say, focus groups. But co-creation is not about asking your questions. It's trying to understand their questions. That's very different. Even CRM, which is supposed to be customer-focussed, is a very firm-centric view of the consumer. I am trying to understand you better so that I can take more money out of your wallet. It is not creating something together.

But what we are really talking about is co-creation, which takes it one step further, where you have to have access, transparency, dialogue and a deep understanding of risk and benefit.

Toyota allows its customers to design their own cars. Would you call that co-creation?

 "If co-creation is taking root, if bottom of the pyramid is becoming a reality, (if) you have connectivity, which eliminates asymmetry of information, digitization, which reduces dramatically the costs... it must change the very locus and the sources of innovation"
I think that is very close to co-creation. But it's only while buying the car-the question is, what happens after? And if you look at what Toyota is doing, or what BMW is doing and add to it what GM is doing with OnStar, it's completely different. Think about this: I spent $30,000 to buy a car. You are nice to me till I buy the car. Once the transaction is over, you forget me for the next five years. Except when I come to the dealer for service- and the dealer does not necessarily transfer the information back to the company. What can OnStar do? I can establish a daily relationship with the customer. I'm travelling with a small baby to school every day. I live in Pikes Peak (Colorado). I can now tell you weather information, I have your car information, I know where you are because of GPS, I can help you with your child to be safe. Now, that is building a relationship.

Is co-creation easier in certain kinds of industries or would you argue that it's possible across industries?
It is possible across industries, that's the spirit of the book. In some, it is so obvious. Financial services, it is so obvious. FMCG, it's not that obvious, unless you think about it. For example, we talk about Pond's Institute (in the book). Pond's Institute can now come and measure your skin texture, moisture content, all of that. Then they can sit with you, either remotely or face-to-face, and then say "okay, this is how you want to look. If you want to look this way, these are the products that we suggest. We can modify the products to suit your condition. This is how much it will cost". Then you can say "No, I can't afford this" or "It's okay" and then you get a different set of products.

Is information technology the centrepiece to all this co-creation activity? If that is the case, what happens to an economy like India where IT isn't that pervasive? We have only 50 million internet users.
No, but I think cellphones, we have 250 million. And it's going to be 500 million. So the question is, how do you get cellphone as your device of choice and not necessarily the internet and the PC. I'll give you a very simple example. We assume PC-based banking is key, so someone in the Philippines invents text-based management, small transactions and also remittances based on text messaging. I can send money from the Philippines or the Gulf, to my grandmother in the village. So it happened in the Philippines first. Now we are going to do the same… now we are going one step further, you don't have to have an account number or an ATM understanding. I'll send you an SMS message with an encrypted code, with an amount of money. You take that cellphone with that encrypted code to an ATM machine and you'll be able to withdraw that money. So the machine would know the amount to be withdrawn because it is encrypted.

Now, think about this: this is something that's happening in emerging markets sooner than in developed markets, because there everybody has access to ATMs,everybody is literate and, therefore, nine-digit code is perfectly fine. We had to invent the biometric ID because most people in our villages cannot read or write. So, all our disadvantages can be converted into an advantage and India can become a huge laboratory for the next business model innovation.

For a market like India, would you say that co-creation is an even bigger necessity for innovation than it is, say, for a developed country?
Exactly, it is a bigger necessity because you want the people you're aiming to serve to help you understand, what it is that they want. We don't want to assume that people in the villages want to do this, they may want something else. And I've been working on a project with BP on building chulhas. We went to the villagers and asked them. And they gave us lots of input. They told us how to put the fan, how to make it battery operated. Two, we worked with the Indian Institute of Science to build the chulha-stainless steel with ceramic coating inside-and we worked with village entrepreneurs to pelletise biomass, so it increases the efficiency from 10 per cent to 45 per cent. And 250,000 units have been sold commercially at Rs 675 (apiece).

To me, the real issue in India is not technology. We have the best IT companies here, we have analytical skills here. We have to just embrace them and use them. But in order to build the bottom of the house and the basement, we have to worry about the structure at the top-of skills, attitudes, opinions, preferences of managers and their values. Ultimately, if you think about it, what is the book about? The centrality of the individual as a consumer. That's all there is.

What do you think are the factors that have come together to spur innovation in India at this stage?
I think all the negatives we talked about in India are becoming positives. Let me give you some examples. No country had 17,000 pharma companies or whatever the number is. Now, what's the advantage? At least there are 17,000 people who understand chemistry and fine chemicals and pharma manufacture. So, it was a negative policy which created a positive outcome. Drug control, price control, and not having patent protection for products… what happened? We ended up with the lowest cost and an extreme understanding of reverse engineering that has created the generic revolution worldwide. There is no IT market at home. So all the IT companies had to be global from Day One. They had to be globally-oriented, they had to build what I call micro-multinationals.

You could be a $25-million software company in India doing some specialised service and you're global; 100 per cent of your business is outside. So they had the same problem of foreign exchange management, cross-cultural management, market being somewhere else. We figured out how to do this, at $25 million.

How much of this would help Indian companies create markets globally?
Think about this, because it is very interesting. ICICI Bank says the average deposit in, say, Singapore may be $1,000 per person; here it's $100. So, if I want to provide the same quality of service (as elsewhere in the world), my IT cost should be one-tenth (of that globally). They've done that. Now I can go to Canada, and I can start a PCbased operation and I can give 1 percentage point more interest for my deposits because my costs are so low. Everybody is trying to bring the backend to India, my backend is already in India! All that I'm saying is, there's a lot of interesting things happening in India in innovation and none of them is what people are writing about. It's not product innovation, if you look at (low-cost) cataract operations at Aravind Eye Care in Madurai, it's process innovation. So, my job has been, in The Bottom of the Pyramid and also to some extent in this book, to identify those unique nuggets and highlight them and say: what if this pattern spreads? That's the question, and I hope the pattern spreads.

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