Innovate by Numbers: Interview with C K Prahalad
Author C K Prahalad sees a future where the customer really is king, and businesses will be able to offer individuals just about anything. It's all explained in his latest book, "The New Age of Innovation", as much a practical manual as a manifesto for change.
It expands on ideas first laid out in previous books by Prahalad, a strategy professor at University of Michigan's Ross School of Business. Prahalad came to the business world's attention when he co-wrote "Competing for the Future" with Gary Hamel.
In 2004 he wrote "The Fortune at the Bottom of the Pyramid", which re-framed the world's poor as "resilient and creative entrepreneurs and value-conscious customers" for multinationals.
His latest outing expands on the idea of co-creation (or N=1) and global resourcing (R=G), first raised in "The Future of Competition" with Venkat Ramaswamy.
I ask him what it means and how it applies to established businesses.
What do you mean by co-creation or N=1?
The individual is at the centre of the buying experience, whether it's iTunes, tyres or insurance -- Norwich Union applies N=1. It uses driving patterns, not just age-led assumptions, to build up an idea of behaviours, then sets premiums accordingly.
It creates a virtuous circle: the customer gives you feedback about they want from the products. No need to do market research -- you get real-time product information.
What's driving it?
Four underlying forces have changed business over the past five years:
- Ubiquitous connectivity -- three billion people connected in some fashion must make a difference to the relationship between the consumer and the company.
- Dramatic reduction in the cost of technology -- I can put everything I know on a small stick, for less than $20. It's very humbling! So technology is not the private privilege of the rich. Everyone can access it.
- The convergence of technology on industry boundaries, which is taking place everywhere, not just in technology. Look at face cream: it's a pharma product and a fashion/beauty product.
- Most important, the tremendous success of social networks.
Can traditional businesses migrate to this new process? Established businesses may be doing it without knowing it. Take General Motors's telematics network, On Star: it monitors what's going on in the car and, with your permission, can make an appointment with the dealer and ensure parts are available. But I can also use it to look up restaurants, check stock prices.
It converts the car into a node in the global network and it is very personalised, down to the human voice it uses. GM still thinks of itself as being in the car business, not in the connectivity business.
How does this fit with your idea of global resourcing, or R=G?
On Star doesn't produce any content -- the emergency service contacts, stock prices restaurants -- so GM has to form a number of partnerships to deliver these services.
With your permission, On Star can become the distribution channel for information about you. As a service provider to On Star, I don't have to have a long-term relationship with GM. I just need access to the infrastructure that collects information. The underlying structure is the same: it's using information technology to create a new business model of N=1 and R=G.
It is a perfect example of transforming a traditional, transaction-oriented business into one where there is continuous interaction.
If there is no basic transparency between suppliers and you, R=G won't work, because it's not a joint venture relationship, it's not an alliance. It's a relationship where everybody accepts the broad intellectual framework, everybody believes they can make a little bit of money.
Next: how to make it work
(Photo of C K Prahalad courtesy of McGraw Hill)