Purely Prahalad Business Wisdom from the Late Dr. C. K. Prahalad’s Thoughts EDITED BY B. N. Dastoor i February 2011 Purely Prahalad: Business Wisdom from the Late Dr. C. K. Prahalad’s Thoughts Edited by B. N. Dastoor Published by Ahmedabad Management Association Core-AMA Management House • Torrent-AMA Management Centre ATIRA-AMA Centre for Textile Studies Dr. Vikram Sarabhai Marg, Ahmedabad 380 015, India [email protected] org, www. amaindia. org Shilp Gravures-AMA Media Outlet Printed by N. K. Printers, Rakhial, Ahmedabad 2 Purely Prahalad Dedicated to the fond memory of late Dr. C. K. Prahalad AMA iii Foreword
Every January, as we welcomed a new year, we at AMA would eagerly await the visit of Management Guru Dr. C. K. Prahalad. Most unfortunately, he left us suddenly for his heavenly abode, and AMA will never be the same again without his great contribution to the overall growth of management education. This book is published as a mark of respect, love and gratitude for Dr. Prahalad. I am sure, this collection will greatly benefit entrepreneurs, business leaders, managers, as also teachers and students of management. I thank our own Shri B. N. Dastoor for his skill and speed in preparing this very useful book.
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January 2011 Pankaj R. Patel President, AMA 4 Purely Prahalad Preface During his visits to Ahmedabad, for fourteen long years, Dr. C. K. Prahalad had enlightened us with his lectures, seminars, workshops, free-flowing discussions, and interviews. This attempt to collect the important glimpses of Dr. Prahalad’s business wisdom, expresses Ahmedabad Management Association’s deep gratitude for his salutary contribution in the exciting and dynamic field of management. I consider myself very fortunate to be assigned the task of presenting Dr. Prahalad’s thoughts in a concise form. B. N. Dastoor
The author is a Motivational Trainer specialising in Sales and Marketing. He is an author and columnist and presently involved in several social and educational assignments. Email: [email protected] com 6 Purely Prahalad Contents Foreword Preface 1. Next Practices and Not Best Practices 2. Leveraging India 3. Fortune At the Bottom of the Pyramid 4. Quotable Quotes Leaders of India Inc. Speak Next Practices and Not Best Practices 1 8 Best practices lead to agreement on mediocrity. I do not have much interest in best practices. Because all of us benchmark each other, we gravitate toward mediocrity in a hurry.
What we really need to ask is “What is the next practice? ” so that we can become the benchmark companies and benchmark institutions around the world. 8 Purely Prahalad Inauguration of Golden Jubilee Management Convention. Seen are M/s. Janak Parikh, Rajiv Vastupal, Dr. Prahalad and Venkat Chengavalli 9 NEXT PRACTICES AND NOT BEST PRACTICES Quality-Cost Equation There was a lot of debate about whether quality will increase cost. What did we find? That if you deeply understand quality and you put methodology in place, costs automatically come down. Sustainability Sustainability can be the next quality challenge.
It’s going to drastically reduce cost and increase consumer acceptance. Don’t look at sustainability as compliance and regulation, but an opportunity for breakthrough innovation. Sustainability and Inclusiveness You can design a product, service or supply chain with sustainability and inclusiveness together. You do not do it as an afterthought. Customers Research Companies We always assume that we are researching the customer… But it is the customer who is researching the brands and companies… Disruptive Business Models There are five criteria for “disruptive business models” 1. Does it radically lter the economics of the industry? 10 Purely Prahalad Next Practices and Not Best Practices 10 2. Does it maintain and improve functionality? It is not just about lower cost. In fact, both of them together 3. Does it make it difficult for incumbents to react? In other words, you do not want other people to be able to copy what you have done rapidly. 4. Is it sustainable? Is it based on logical internally consistent business principles? 5. Does it enlarge the size of the market? Change the Game Once you establish an aspiration level wanting to be a global leader, wanting to be No. , wanting to pursue excellence, then you can only do it one of the two ways: leverage the resources that we have, or alternatively, change the game to your advantage. Thinking Differently Going there is about thinking differently, not being just efficient. We have to be efficient, but we have to develop a distinct point of view about opportunities and disruptive business models. We cannot play the game by other people’s rules, we have to invent our own rules. Customers Switch Brands In many products, because the unit packs are small and even expenditures are small, if people are not satisfied, they can now switch brands.
They will switch either if they are not satisfied or better value is available. Staying Afloat My one mantra to stay afloat during the manufacturing slowdown is that this is the good time to become even more efficient. I always say that the only trees that don’t fall during the storm are those that have seen the drought, because their roots go very deep. Making Globalization Work Globalization is like gravity. There is no point in denying gravity. We should defy gravity and build an airplane… I am often asked whether globalisation is good or bad for the poor.
To this I say that, this is a wrong question. The question that we need to ask is how to make globalization work for all. Creative Solutions There is no challenge which is impossible. The more ingrained the thought process, the more creative solution it demands. So, the real trick lies in finding out such thought processes and then dealing with them. Helping People If you are honest about helping others, rather than showing how smart you are, things are very easy. But the important thing is that people should realize that you care about them, you want them to 12 Purely Prahalad
Next Practices and Not Best Practices 12 succeed. As long as they understand that, people will accept innovative approach. Problems Vs Trajectory You need to differentiate between problems of the moment with the long term trajectory… The most important challenges are, how can we become technically agile and directionally consistent. No economy goes uninterrupted. Managing Volatility The world will be witnessing extreme volatility, be it in the political, economic or the regulatory environment. For example, the price of oil went from $60 to $145 to $45 in one year; same with commodities.
We need to have the capacity to manage volatility in addition to quality, cost, scale and speed as sources of competitive advantage. It requires the capacity to scale up and scale down quickly and the ability to anticipate… we also need to learn to shift people rapidly to new opportunities. Constraints Create Opportunities When resources are low and aspirations are high, innovations take place and not when the condition is the other way round. Constraints create opportunity for creation of innovation. Creating a Surplus If you don’t make a surplus, how will you have the money to do anything for others?
So, it is important to be profitable and successful to be able to do good. Innovation is the Key If you are not profitable, you cannot afford the future, and if you are not innovative, you have no future… The key is innovation. It is about creating awareness, accessibility, affordability and availability. Allow People to Co-create Consumers will get informed through dialogue and relationship with the community. When you allow people to co-create, you get a lot of inputs. The process does not only benefit companies to learn what people do and how they use products, but it also informs consumers better.
Continuous Change I am not interested in a “charismatic leader” approach to innovation. Companies need continuous changes – not just episodic breakthroughs. Point of View on the Future Top managers must ask the question: how will the world would be and not how the world is. They must have a point of view on where we are, what we want, what are the gaps to reach, where we want to be. 14 Purely Prahalad Next Practices and Not Best Practices 14 Need for Excited Employees Make sure that people are energized enough. You don’t need satisfied employees, you need excited employees. Customers Are Not Stupid
The key point is, don’t treat your customers as stupid… Consumers can dump you because of lower switching costs… I think CEOs must behave like callcentre executives. Instant response is the key or it may be too late. Organizational Legacies Organizational legacies can erode the capacity of a company to innovate and create value. Even mergers and acquisitions bring with them disparate systems. Don’t Wait Too Long Finding the motivation to affect change is very difficult when the existing business models seem to be working well. But the question to ask is: “Will their zone of comfort force them to wait too long before they make the ransition? ” People Participation Co-creation reduces risk because consumers are already involved in thinking through what they want. But that doesn’t mean that you don’t have ideas of your own. You got to check the prototypes. It also reduces time and investment because more people and suppliers participate in development. Being Flexible Raw materials may still be important in some industries like oil, but in most industries you can get raw materials. Technology and capital is freely available… now it is becoming possible to hire global talent. The real differentiating factor is the ability to be flexible to change.
We need resilient, flexible processes… we need analytics. I need to be able to understand the behaviour of a customer among 100 million. I need large database and analytics to focus on the behaviour and needs of an individual. Value-based Pricing Value-based pricing is a strategy under which price is set depending on how much the product or service being offered is worth to the customer. This obviously differs from the conventional cost-plus pricing model where things like the actual cost of product, competitor’s prices, or the historical price, are taken into account. Organizational Orphan
The change to value-based pricing needs changes to the underlying structure of business processes as well as changes in the way managers in the industry are socialized, and in the way they keep score of personal success. That is not happening because it is one thing understanding the need to 16 Purely Prahalad Next Practices and Not Best Practices 16 change and another implementing it … Business processes are not easy in any company… few managers want to be responsible for it, much less pay attention to it. It is often an organizational orphan. Next Vs Best Best practices lead to agreement on mediocrity.
I do not have much interest in best practices. Because all of us benchmark each other, we gravitate toward mediocrity in a hurry. What we really need is to ask what is the next practice, so that we can become the benchmark companies, benchmark institutions around the world. Human Currency People and employers are changing their relationships to meet the new economy. Human beings are the new form of currency and valuation in companies. Excitement Vs Satisfaction Satisfied employees don’t mean anything. Excitement is what creates energy and innovation. Democratise information, change the game, and leverage the resources.
Five year budgets do not equal strategy. We can imagine the future we want to create. Aspirations excite people. Talent Management Talent management connects social and technical business processes. Without understanding who is doing what, without having the business processes in place to understand the social aspects and focus on the individual, talent management cannot occur. Building Global Teams Talent is about competitiveness, so we should focus on importing great talent rather than losing jobs. The global search for talent changes the way we manage companies.
Cultural differences between countries change corporate approaches to building seamless global teams. Intellectual diversity requires ways to train for collaboration. Attitudes and Skills It is important to test for attitudes as well as skill. It is important to have diverse people and not put lemons together. (It is) important to balance intellectual needs with interpersonal demands. It is also important to have methodologies in place to get rid of friction and posturing between cultures. Discontinuous Change We are in an era of discontinuous change. We are no longer talking about fine tuning or improving the organization’s efficiency.
We are talking about nothing less than reinvention – reinventing the business in fundamental ways. 18 Purely Prahalad Next Practices and Not Best Practices 18 Reinventing Business Reinventing (the business) requires a new skill mix and new ways of approaching the business. It may require different business models. It may also require different people. Looking Outside The same people who are socialized with the standard way of doing business, and who understand a certain recipe for how to manage, cannot change very quickly and become the inventors of the new business models.
Look outside your basic industry for people who can thrive in the new environment. Experimental Learning (To see the big picture and their place in it) you train people. You do it by getting people with different functional background to work together on common tasks under time pressure. You do it by getting them to achieve goals, where they must understand what the other person can contribute and why the other person’s contribution is important. The learning has to be experimental, not intellectual. Quality-Speed-Innovation … the search for talent has gone well beyond cost arbitrage.
Lowering costs is still a concern but it should be coupled with the need for better quality, speed and innovation. Freeing Talent Companies (should) pull together teams of people from all around the globe based on their skills, attitudes and experiences to work on specific projects. (There should be) a breakdown of the traditional hierarchial systems in which business, functional and geographical groups owned people. Focusing On Next Practices It is an attitude of the mind that you meant to focus on the next practice and not on the best practice.
You never know fully whether what you are saying will happen or not, because you are amplifying weak signals and connecting the dots and trying to see a pattern when the pattern is not fully evolved. Creating Values Hi-tech is no longer the privilege of only the rich. If industry boundaries are cracking up, and social networks are emerging, it must have something to do with value creation. And it must change the very locus as well as sources of innovation. Micro-innovators Instead of a small group of people thinking about innovation, you can have three billion people not only being micro-producers and micro-consumers, but micro-innovators.
This cannot happen overnight. But everybody has an opportunity to contribute to innovation. 20 Purely Prahalad Next Practices and Not Best Practices 20 Co-creation Co-creation by definition is voluntary. You can’t force a person to co-create with you. And cocreation is about experience and experience is always contextual and personal. You have this experience and you have your own reference groups to give meaning to that experience. New Look Market Research Market research is about asking your questions and getting responses from, say, focus groups.
But cocreation is not about asking your questions. It’s trying to understand their questions. That’s very different … you have to have access, transparency, dialogue and a deep understanding of risk and benefit. Getting to the Future First Substantial challenges face any organization intent on getting to the future first. The first challenge … arises as both public and private institutions struggle to plot a course through an increasingly inconstant environment… The second … is how to oppose the forces of institutional entropy… The third is … how to stem the tide of individual estrangement.
Inspiring Individuals Rather than calculating the number of people to fire in order to become competitive, companies should be asking “How can we create the sense of purpose, possibility and mutual commitment that will inspire ordinary individuals to feats of collective heroism! ” … reengineering individuals can do more for competitiveness than reengineering processes. The Goal The goal is to fundamentally reinvent existing competitive space or invent entirely new competitive space in ways that amaze customers and dismay competitors. Organizational Transformation
The organizational transformation challenge faced by so many companies today is, in many cases, the direct result of their failure to reinvent their industries and regenerate their own strategies of a decade or more. Invent and Reinvent To create future, a company must change in some fundamental way the rules of engagement in a longstanding industry, redraw the boundaries between industries and/or create entirely new industries. A capacity to invent new industries and reinvent old ones is a prerequisite for getting to the future first and a precondition for standing out.
Know What You Don’t Know Managers must realize that precedents often outlive the context that created them. Worse, they may not know what they don’t know and still worse, they don’t know that they don’t know. For any 22 Purely Prahalad Next Practices and Not Best Practices 22 organization, this is a great challenge. Traditionbound companies like Xerox and Sears suffered because they did not know about the perspectives, outlooks and goals of their competitors. Bottleneck At the Top The bottleneck is usually at the neck, at the top of the bottle.
Very conscious of their status in the organization, they believe that they know more about the industry, competitors, customers than those whom they manage. But more often than not, they know more about the past. As they climbed the corporate ladder, they failed to realize that rules of yesterdays’ success become obsolete quickly in the dynamic business environment. Questions Are Not Dumb There are no dumb questions if they challenge the present. Dr. Edward Land’s little daughter wanted to see… the photograph her father had snapped, ‘right now’. This question set Dr.
Land on a quest to invent instant photography – Polaroid. Remembering his daughter’s query, Land reflected, “We don’t invent new products… The best ones are already there, only invisible, just waiting to be discovered. ” Shouldering Blame Who takes the blame when a company suffers from competitive failure? When a leading Japanese company runs into financial difficulties, the top management takes the biggest pay cut, while the first line people take the smallest. This approach puts the blame on the people at the top who failed to anticipate and respond to the winds of change. Shared Pain – Shared Gain
If you want your people to rise to a particular challenge, they must benefit when the company succeeds. An atmosphere of “shared pain, shared gain” must prevail in the firm. Such an atmosphere is not possible when compensation levels between the top management and first-line employees is, say, 75 to 100 times higher at the top. Focusing On New Challenges The future is built on the ability of the entire organization to focus on key challenges which bridge the firm’s present with its strategic intent. Strategic intent must be supported by building new capabilities faster than the competitors.
This is possibly the ultimate competitive advantage. Reskill, Reshape, Redesign No company can escape the need to reskill its people, reshape its product portfolio, redesign the processes and redirect its resources. The real issue is whether transformation happens belatedly in a crisis atmosphere or with foresight in a calm and considered atmosphere, whether the transformation agenda is set by more prescient competitors or derived from one’s own point of view about the 24 Purely Prahalad Next Practices and Not Best Practices 24 future, whether transformation is spasmodic and brutal or continuous and peaceful.
Zero Tolerance Managers are critically concerned with the cost and speed of change, knowing that quality must never be compromised… A system supporting millions of users and collaborators requires zero tolerance for errors in matters of regulatory and financial compliance – these expectations won’t change methodologies used for developing new applications. Changes to existing applications must have six sigma quality built in. Competing for the Future To compete successfully for the future, senior managers must first understand just how competition for the future is different from competition for the present.
The differences are profound. They challenge the traditional perspectives on strategy and competition… Competing for the future requires not only a redefinition of strategy, but also a redefinition of top management role in creating strategy. Creating the Future Creating the future is more challenging than playing catch up, in that you have to create your own road map. The role is not simply to benchmark a competitor’s products and processes and imitate its methods, but to develop an independent point of view about tomorrow’s opportunities and how to exploit them. Corporate Challenges
These are: (a) Set the challenge in the context of the strategic intent. (b) Describe with honesty, the nature and magnitude of the challenge. (c) Specify precisely the improvements to be made within a time frame. (d) Establish procedures to measure and link every employee’s contribution to the overall challenge. (e) Encourage the employees to innovate and go beyond their usual roles in the organization. Need for Speed and Perseverance Today speed is of utmost essence. Product lifecycles are getting shorter, development times are getting tighter, and customers expect almost instantaneous service.
Yet the relevant timeframe for exploring and conquering a new opportunity arena may be ten years, twenty years or even longer. Leadership in fundamentally new industries is seldom built in anything less than 10 or 15 years, suggesting that perseverance may be just as important as speed in the battle for the future. Commitment and Perseverence Organizational commitment and perseverence are driven by the desire to make a difference in people’s lives – the bigger the differences, the deeper the commitment. This suggests a difference between 26 Purely Prahalad
Next Practices and Not Best Practices 26 competition for the future and competition for the present, namely the prospect of making an impact, rather than the certitude of immediate financial returns. Portfolio of Competencies It is important that top managers view the firm as a portfolio of competencies, for they must ask “given our particular portfolio of competencies, what opportunities are we uniquely positioned to exploit? ” The answer points to opportunity arenas that other firms, with different competence endowments, may find difficult to access. Occupying High Ground
Traditional planning seeks to position the firm optimally within the existing structure by identifying which segments, channels, price points, product differentiators, selling propositions, and value chain configuration will yield the highest profits. Although (this) is certainly legitimate, it is insufficient if the goal is to occupy the high ground in tomorrow’s industries. If strategy is seen only as a positioning game, it will be difficult for a company to avoid being trapped in an endless game of catchup with fragmented competitors. Managers Create Laggards
A laggard is a company where senior management has failed to write off its depreciating intellectual capital fast enough, and has underinvested in creating new intellectual capital; where senior managers believe they know more about how the industry works than they actually do, and where what they do know is out of date. Important Issues Competition within today’s industry structure raises issues such as: “What new features should be added to a product? How can we get better channel coverage? Should we price for maximum market share or maximum profits? Competition for tomorrow’s industry structure raises deeper questions such as: “Whose product will ultimately win? Which standards will be adopted? How will coalitions form and what will determine each member’s share of the power? ” And most critically, “How do we increase our ability to influence the emerging shape of a nascent industry? ” Reducing Genetic Variety Success reduces genetic variety. To the extent that success confirms the firm’s strategy, managers may come to believe that doing more of the same is the surest way to prolong success, and that any competitor that is not doing it “our way” can’t be very smart.
Agile Systems We need to focus on “global standards” of quality, transparency, interoperability, compliance, speed and cost. But we must also provide space for the 28 Purely Prahalad Next Practices and Not Best Practices 28 local operation to be flexible… What must be global, and therefore non-negotiable, and what can be local is a critical consideration in building flexible business processes and agile systems. Creating Unlearning Organization Creating a ‘learning organization’ is only half the solution. Just as important is creating an ‘unlearning’ organization.
To create the future, a company must unlearn at least some of its past. We’re all familiar with the “learning curve”, but what about the “forgetting curve” – the rate at which a company can unlearn those habits that hinder future success? Using Past As Pivot Creating the future does not require a company to abandon all of its past. A critical question for every firm is: “What part of our past can we use as a ‘pivot’ to get to the future, and what part of our past represents excess baggage? ” Amplifying Weak Signals
Competitiveness favours those who spot new trends and act on them expeditiously. Therefore, managers must develop insights about new opportunities by amplifying weak signals. These weak signals emerge from insights derived through a deep understanding and interpretation of a wide variety of information. Foresight Vs Hindsight Traditionally, managers depend on experience – “gut feel”, if you will. Most often a gut feel and intuition are important, but in a fast-changing competitive environment, experience of the past is less valuable. Foresight, not hindsight is of value.
Challenging Orthodoxies Flush with success, challengers often forget the most basic rules of corporate vitality. To be a challenger once, it is enough to challenge the orthodoxies of the incumbents; to be a challenger twice, a firm must be capable of challenging its own orthodoxies… To reinvent its industry a second time, a challenger must regenerate its core strategies. It must reconceive its definition of the marketplace, redraw the boundaries of the firm, redefine its value propositions, and rethink its most fundamental assumptions about how to compete. Opportunity Horizon
However unappealing a company’s present situation, it is unlikely to abandon the past for the future unless it has created for itself an alluring vista of future opportunities — an opportunity horizon that presents a compelling alternative to simply reliving yesterday’s success. To give up the bird in the hand, a company must see a dozen birds in the bush. The future must become just as vivid and real as the past. 30 Purely Prahalad Next Practices and Not Best Practices 30 Business Processes In a rapidly changing competitive environment, business processes cannot be stale.
The dynamics of an industry dictate the rate of change in business models and strategy. Business processes must keep pace with this rate of change in the strategy of the firm. More important, business process capability may suggest new ways of competing. Producing Urgency Any company that drives forward while looking at the rear view mirror will, sooner of later run into a brick wall. The goal of making the brick wall apparent to employees is not to create a sense of anxiety. Anxiety is immobilizing. The goal is to produce a sense of urgency.
Urgency comes when everyone knows there is a brick wall out there, but that the wall is far enough away. So there is still time to turn the wheel and avoid the crash. The New Landscape Spotting new trends require comprehension of consumer expectations and behaviours and technological changes, as well as the nature of the supply chain and opportunities for its improvement… The new competitive landscape requires continuous analysis of data for insight. Analysis that is only episodic and ad-hoc, or periodic will not suffice. Traditional analytical approaches are often asynchronous with business changes.
Transparent Assessment In a global firm, it is hard to know where talent is. Talent is, by definition, non-hierarchical… Further, the ability to effectively work in a crosscultural team may not be very transparent. So the first step in developing and understanding of how to mobilize task-specific teams is building a process for transparent and objective assessment of the skills, attitudes, and experiences of all people. Core and Non-core Capabilities Firms compete not only for market position and market power, but also compete for capability.
The firm must concentrate more on core competencies, customer value, competitor differentiation and extendibility. A core competence must make a sizeable contribution to customer-perceived value. Remember, customers are the judge of your core competence. The core competence must also be competitively unique and substantially superior to others. A true core competence must also form the basis for entry into new product markets. Measuring Capability You can get an accurate reading of a firm’s capabilities by subtracting the percentage of profits that derive from its historical endowments, from its total profits.
The remaining profitability indicates the firm’s ability to manage and exploit 32 Purely Prahalad Next Practices and Not Best Practices 32 its unique capabilities. Rewards of Leadership Being the first often carries a risk of failure, particularly when the leader fails to understand the precise nature of the emerging opportunity and allows the company’s financial commitment to take the driver’s seat. The leader must learn quickly and inexpensively the precise nature of the customer demand, the suitability of the new product or service concept, and the need for adjustments in the strategy.
Involving Key Customers A leader can involve key customers early in the development of the product or service. The company must regularly test emerging product concepts and prototypes with employees, and customers on a small scale. It will be good to share investment risk with alliance partners or use new and unfamiliar class of customers or set of techniques. The goal is not to be the first in an absolute sense, but to be the first with the product that finally unlocks the emerging mega market, with a blend of price and performance. Strategic Intent
There are three tests of any strategic intent – direction, discovery and destiny. The strategic intent turns into reality when everyone in the organization understands how his/her contribution is crucial to the achievement of the intent. Everyone in the company must find the goal emotionally compelling and how his or her job is linked with the attainment of the goal. Strategic intent must be personalized for everyone. Strategic Architecture The top management must set very clear corporate challenges that make everyone focus on the next key advantage or capability to be constructed.
Strategic architecture determines the exact nature of these challenges, one at a time. For example, the next cycle time, the next cost reductions, the next penetration in a new market, the next learning new technology and so on. The top management keeps on providing people with a clear view of the next advantage to be constructed. Specific Challenges Empower People People want to win and be a part of the winning team. It is the responsibility of the top management to establish a sense of purpose, to identify challenges and make every employee understand his/her role in the final victory.
Real Challenge of Our Century Democratizing commerce is the real challenge of the 21st Century. While discussing the role of private sector in the Fortune at the Bottom of the Pyramid, a question came up “Is globalization good or bad for the poor? ” The question makes people take sides. Instead, we should accept globalization as 34 Purely Prahalad Next Practices and Not Best Practices 34 gravity and defy it by building a plane with a question “How do we make the benefits of globalization reach to all micro consumers, micro producers, innovators and micro entrepreneurs. We agree with Dr. Prahalad that choice is where dignity starts, and that the world will change only when we view truly lowincome individuals as full participants in their local economies and communities, rather than as passive recipients of charity. — Jaaqueline Novogreats CEO, The Acumen Fund Emotional Energy Corporate challenges aim at the acquisition of new competitive advantages by identifying the local point for capability building. This happens when emotional energy is generated from enthusiasm for the organization’s strategic intent.
Every employee must feel a deep sense of responsibility for the success of the firm and must understand how his contribution will help the firm succeed. Empowering Employees It is only when specific challenges are identified that employees feel empowered… Setting corporate challenges require great honesty and humility on the part of top management. The top management must honestly portray the magnitude of the challenge and freely admit their part of the responsibility for poor performance. Each employee ust be made to feel free to challenge corporate orthodoxies in say, standard operating procedures or workflow design or bureaucratic procedures. Respect for All We must respect individuals irrespective of their present condition. If we decide what is good for them, the very spirit of co-creation is violated. We can educate them on the benefits and risks of their choices, but they must exercise their choices. Many of us have had the taste of the extraordinary intelligence of the uneducated and the way they make the best of what they have. Right to Exercise Roles
Everyone must have the right to exercise their roles as micro consumers, micro producers, micro entrepreneurs, micro investors and micro innovators. They must have access to information, access to credit and micro finance, access to regional and national markets. Democratizing Commerce Democratizing commerce is steadily gaining ground. Private sector is entering into a collaborative partnership with civil society, governments and philanthropists. Six conditions apply: 1. Respect individuals and their rights. 2. Focus on market-based solutions. 36 Purely Prahalad Next Practices and Not Best Practices 36 3.
Ensure scalability of solutions. 4. Through information technology and organization, reduce the rich-poor, urban-rural divide. 5. Focus on innovation and entrepreneurship. 6. Devise ecologically sustainable solutions. Derisking Ambition Being ambitious is not equivalent to taking big risks. Many companies believe that risk-taking is necessary to grow and to innovate. Calculated risk must be taken, but by definition, “ambition” means stretching an aspiration and then “derisking” ambition. Rather than making heroic investment, the company should use its tools of resource leverage for derisking heroic ambitions.
One Loose Brick at a Time You can be small but collectively you can disrupt global business if you understand the structure and know where the loose bricks are. If you want to take down a big wall, don’t break your head against it. Instead, take one loose brick at a time. After you have taken out enough bricks, the wall will fall by itself. Keep searching for loose bricks. Breakthrough Innovation Traditionally we tend to glorify one person for some breakthrough innovation, generally in a product. But as companies get bigger, this one person may rovide the environment, but the actual work would have to be done by hundreds of people. Putting Processes in Place Unfortunately, business processes are an organizational orphan. They are looked upon as a necessary evil. But unless you have a very sound process in place, you cannot be flexible, which is crucial to being innovative. Developing a Point of View The first thing organizations need to do is to develop a point of view. It has to be the organizational equivalent of putting a man on the moon. You may not know how to do it, but once you know what you want to do, you work towards that step-bystep.
That done, the company needs to put in place its strategic intent – not necessarily a clear strategy, but a broad direction in which it is headed. Essential Analytics (For putting in place a strategic intent), along with changing the employee mindset, factors like IT systems and analytics also come into play. Analytics are essential as they enable the company to offer relevant options to each customer and make future recommendations on the basis of the data gathered. Evolution Vs Revolution Setting up an innovative capability will not happen overnight.
I do not believe in revolution but a fast evolution. Revolutions involve great risks and costs, 38 Purely Prahalad Next Practices and Not Best Practices 38 while evolutions give you time to adjust and make course corrections. Changing Relationships The biggest breakthrough that needs to happen is for companies to realize that the relationship between the company and consumers is fast changing. Re-examining Today While telling employees that what they have done so far was correct, they also need to be told that processes and skills are not separate from the external environment.
Once the external factors change, companies need to re-examine whether what they are doing will be right for the next round as well. Co-creating with Customers In a business culture dominated by quarterly results, companies are still pondering the efficiency and profitability versus innovation questions. This is rather silly. If you co-create with your customers, it will reduce the risk of product failure, as the end users are telling you, at no additional cost, what they want and you no longer have to define it. Accessing Global Networks Companies need to co-create unique experiences with customers to compete in a globalized world.
The key to creating value and the future growth of every business depends on accessing a global network of resources to co-create unique experiences with customers, one at a time. Customization Companies will need to interact with their customers so closely that they actually co-create value with them on an individual basis (N=1). Think of Google. They have 100 million customers all of whom can, for instance, create their own music portfolio. These are products that allow customers to use and customize them for their own individual purposes.
At the same time, companies will resource the goods and services needed to develop new offerings from anywhere in the world (R=G). N=1, R=G The equation, N=1, calls for a level of customer intimacy that can only be achieved with extensive use of deep analytical technology. The second, R=G, requires supply chain and logistics expertise that allows companies to source goods and services efficiently and effectively from anywhere. Running a Marathon I am not interested in a “charismatic leader” approach to innovation. Companies need continuous changes – not just epidemic breakthroughs.
It is like a marathon runner, with the difference that you divide the distance into metres. Talent Cannot Be Trapped The search for talent must go beyond cost arbitrage. 40 Purely Prahalad Next Practices and Not Best Practices 40 Lowering costs is a concern, but it is coupled with the need for better quality, speed and innovation. Talent can no longer be trapped in boxes in the organizational charts. Cocreation Reduces Risks Co-creation reduces risk because consumers are already involved in thinking through what they want. But that does not mean that you do not have ideas of your own.
You get to check prototypes. It also reduces time and investment. More people and suppliers participate in the development. N=1, R=G You need shorthand and N=1 and R=G are not equations. N=1 is a short hand way of saying one customer experience at one time and R=G is about resources accessed from multiple, global vendors. Delivering Value A company delivers value by giving each customer a unique personalized experience (N=1), but to make that possible, the company ought to have access to multiple resources, both global and local (R=G) from several vendors.
Four Driving Factors Four driving faces are coming together for the first time in human history. • Take connectivity and access to information. Over 3. 5 billion people are getting connected through cell phones and PCs. • The second is digitalization and the ability to move information seamlessly across multiple devices and the dramatic reduction in the cost of computing and communication. • The third piece is the convergence of industry and technology boundaries. Today your cell phone is a telephone, a computer, a camera, a watch, a radio and may be a TV. The fourth is the emergence of social networks. These four drivers together enable the emergence of new competitive dynamics. However, 90% of the thinking on innovation is still very much firmcentric, product-centric. Bringing About Transformation There are no right or wrong ways in bringing about transformation. Each company has a different starting point. But all the paths have two things in common – they have a point of view on where they want to go and they can uniquely develop personalized consumer experience based on cocreated solutions.
Second, no company today has the capacity to service just one consumer at a time because of the complexity involved in building and sustaining the ecosystem. Shifting Values 42 42 Purely Prahalad Next Practices and Not Best Practices Value is shifting from products to solutions to experiences. In this new world B2B and B2C will converge. No company has all the resources it needs to create unique personalized experiences. All companies will, therefore, have to access talent, components, products and services from the best source. Then comes flexible systems which are a prerequisite and must be developed.
And finally, specific models must be developed to enable organizations to focus on one consumer from the millions. The Big Picture You need to enable people to see the big picture and their place in it. You train them to do this. You do it by getting people with different functional backgrounds to work together in common tasks under time pressure. You do it by getting them to achieve goals, where they must understand what the other person can contribute and why the other person’s contribution is important. This learning has to be experimental and intellectual. Excitement Creates Energy
Entrepreneurial talent is attracted where your resources are low and enthusiasm is high. When resources are high and enthusiasm is low, innovation becomes hard to find. Satisfied employers do not mean anything. Excitement is what creates energy and innovation. Managing Talent Talent management connects social and technical business processes. You need IT and analytics to achieve data management. Without understanding who is doing what, and without having the business practices in place to understand the social aspects and focus on the individual, talent management cannot occur. Importing Talent
Talent is about competitiveness, so we should focus on importing great talent rather than losing jobs. The global search for talent changes the way we manage companies. Building Seamless Teams Cultural differences between countries change corporate approaches to building seamless global teams. Intellectual diversity requires ways to train for collaboration. Don’t Put Lemons Together It is important to test for attitudes as well as skills. It is important to have diverse people and not put lemons together. Balance in countries, work type and the like are important to balance inter cultural needs with inter personal demands.
It is also important to have methodologies in place to get rid of friction and posturing between cultures. Creating a Mismatch Creating a mismatch by design where aspirations 44 Purely Prahalad Next Practices and Not Best Practices 44 are ahead of resources is fundamental to innovation and entrepreneurship. Resource constraints is not the problem, innovation constraint is. Changing the Game Once you establish an aspiration level wanting to be a global leader, wanting to be No. 1, wanting to pursue excellence, then you can only do it one of two ways – leverage the resource that you have, or change the game to your dvantage. Innovation in terms of better utilization of limited resources or change in the game to your advantage both come out of the aspirations that are mismatched with the existing resources. Thinking Differently Going ahead is about thinking differently, not being just efficient. But you have to be different. You have to develop a distinct point of view about opportunities and disruptive business models. We cannot play the game with other people’s rules, we have to invent our own rules. Disruptive Models To understand disruptive business models, five criteria are critical. 1.
Does it radically alter the economics of the industry? 2. Does it maintain and improve functionality? It is not just about lower cost, it is about improving functionality. In fact, both of them go together if your know what to do. 3. Does it make it difficult for incumbents to react? You do not want other people to be able to copy what you have done rapidly. They will find it difficult because they have to forget what they have learnt, and they have to readjust their asset base in order to compete with you. 4. Is it sustainable? Is it based on logical internally consistent business principles? 5.
Does it enlarge the size of the market? Value Creation Almost all traditional views of strategy have been very elitist when it comes to value creation. The assumption is that the top managers develop strategy and everyone else implements it. I don’t think this is the correct answer. Reinventing Business We are in an era of discontinuous change. As a result, we are no longer talking about fine tuning or improving the organization’s efficiency. We are talking about nothing less than re-invention — reinventing the business in fundamental ways. Reinvention requires a new skill mix and new ways of approaching business.
It may require different business models. It may also require different 46 Purely Prahalad Next Practices and Not Best Practices 46 people. Companies have been looking outside their basic industries for people who can thrive in the new environment. Three Billion Micro-innovators 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. It will not happen overnight, but everybody has an opportunity to contribute to innovation.
Granularity and Modularity The more detailed (granular) our understanding of the activities that constitute business process and more explicit the logical linkage among those activities, the better the building blocks of the business processes. Granularity allows for finegrained changes to the business process and enhances clarity to each activity and action. Modularity of business processes enables easier change and connectivity to other processes. New Ways of Thinking One must think differently about strategy and about organizations.
You need new ways of thinking about organization when, for example, you: • Mobilize your employees around a strategic intent • Leverage resources across organizational boundaries • Find and explore opportunities • Redeploy core competencies • Consistently delight customers • Explore new competitive space • Build banner brands Exploiting the Inter-linkages One should not perceive a corporation as a single entity or a collection of unrelated businesses. Senior managers must first identify and then exploit the inter-linkages across units that could potentially add value to the whole. Strengthening Emotional Ties
Recognition (brand recall) and reputation (brand esteem) are not the only parameters of brand power. One must also consider affinity — the strength of emotional tie that connects the consumer with the brand. When the level of affinity is high, the consumer is more predisposed to consider a new product bearing the banner brand. Too Much of a Good Thing Assigning responsibility for strategic decision making to people closest to customer and competitors — is good medicine, but an overdose 48 Purely Prahalad Next Practices and Not Best Practices 48 may prove toxic. Dismantling bureaucracy without a clear sense of direction could prove chaotic.
Empowerment without direction is anarchy. Unique and Defensible Mission statements do inspire people but most are undifferentiated form those of the competitors and so fail to inspire employees. A mission statement must stake out a unique and defensible position in an already overcrowded market. Balancing Act For balancing demands of innovation and efficiency, managers must start with a point of view of how they want to compete and drive change day by day, meeting by meeting, report by report. They should not forget that making business processes strategic to results require managerial, cultural and technological change.
Leveraging Resources Some firms are capable of extracting greater learning from each additional experience. Some firms are more efficient at learning. The capacity to mine ideas for improvement and innovation from each and every incremental experience is a critical component of resource leverage. Borrowing Resources Borrowing the resources from other sources is yet another way of achieving resource leverage. Through alliances, joint ventures, inward licencing and use of subcontractors, a company can avail itself of skills and resources residing outside the firm. Borrowing also involves internalizing of skills by learning from the partners.
Internalization Acquiring an entire firm is not always a good idea. Internalization is often a more efficient way of acquiring new skills. When you acquire a firm, you also pay for the skills you already have or for skills that are less strategically valuable. In an acquisition, the problems of cultural integration and policy harmonization are more complex. Learning from Experience The capacity to learn from experience depends on many factors. You should have people who are good at problem solving, a forum where employees can identify common problems and search solutions.
You must be willing to fix things before they are broken and continuously benchmark against the world’s best practices. Basis of Entrepreneurship Entrepreneurship is open to everybody. Knowledge, courage and determination, and not inherited wealth are the basis of entrepreneurship. Everyone can identify with the new entrepreneurs – their 50 Purely Prahalad Next Practices and Not Best Practices 50 starting points, their family backgrounds, their early struggles, their pursuit of education, their belief in themselves, their capacity to ignore constraints and the creation of new business models.
Co-creating Solutions For building a co-creation platform for collaboration with others, the managers need to learn to co-opt both consumers and civil society as also other institutions. They must learn to cocreate solutions because gaining local knowledge, accessing specialized overhead, gaining trust and becoming locally relevant is not easy. The managers will have to develop collaborative and integrative capacity — the capacity to integrate the contributions of multiple players into a collective whole. Breaking Out of the Pack Performance orientation must become a central organizing idea.
The key to global leadership is continuous attention to performance. Whether it is speed, costs, technological edge, or service, the key is to break out of the pack with breakthrough improvements and NOT marginal improvements. Markets Focus on the Future Market-value represents a belief in the point of view of top management on how to compete. The market does not value the past. It focuses on the future and the sustainability of the business models that firms use. A clear and unambiguous articulation of the strategic direction of the company is crucial to gain the confidence of consumers, employees and the investors.
Good Governance Openness and transparency are critical. Good governance matters. Openness to customers, suppliers, employees and investors and willingness to share information and engage in an open dialogue is critical to building trust and respect. Innovation is the Key Innovation is the key to success. To take global leadership, firms must innovate. Innovation forces managers to focus their attention on ideas and talents, NOT on capital and physical assets. Creating Intellectual Excitement Create intellectual excitement. High performance firms have a lot of intellectual energy.
They are characterized by high growth, new products and services, new markets and new business models. The capacity for continuous change is the precondition for excitement. Recipe for Leadership We need leaders who combine substantial knowledge of their industries and who are 52 Purely Prahalad Next Practices and Not Best Practices 52 connected to the global network of collaborators and competitors. Leadership is increasingly a combination of intellect, administrative savvy and morality. Developing Cross-cultural Sensitivity M/s. Rajiv Vastupal, Rajiv Mehta, Janak Parikh and Dr. Prahalad 53
Global leaders will be expected to develop crosscultural sensitivity. They must live with and thrive on ambiguity. Markets, technologies, competitive arrangements are changing so fast that detailed predictions are not easy or feasible. Thinking, acting and enabling others to act will become critical. 2 54 Leveraging India The industrial infrastructure around the world is in a state of turbulence. Opportunities as are available today come once in a lifetime. India must seize the moment. Let us not waver and let it 54 Purely Prahalad M/s. Janak Parikh, Dr. Prahalad, Sunil Shah, Rajiv Mehta and D. J. Radia 5 pass. The time for decisive leadership is now. Trust the young – the 25-30 year olds – to lead the way. Let us give them their space and get out of their way. LEVERAGING INDIA Aspirational Products The Indian consumer is quite aspirational. It doesn’t matter what income level he is at, he wants aspirational products. So brands are quite important contrary to the common perception that brands are only important for the top of the pyramid. But there has to be constant value. Opportunities Galore We have failed to recognize that every minute 30 Indians are leaving the villages to come to some city.
Every city in the country will have 50 per cent of its citizens living in slums. We need to build at least 300 new cities. Imagine what building 300 new cities in the next 15 years means for our country. It is the most massive construction opportunity that we have. Connecting all these with infrastructure will provide an enormous opportunity for growth, for innovation. 56 Purely Prahalad Leveraging India 56 Imagination Vs Resources The real challenge is to recognize that entrepreneurial transformation is not about resources, it is about imagination and its aspirations. All entrepreneurs start with low resources, and high aspirations.
India has low resources but we should get high and global aspirations. We can then leverage resources and change the game. Imagining a Different India If you want to build a different India, you must imagine a different India. You cannot extrapolate. All that the planning commission does is extrapolation. So we end up with budgeting rather than imagining a different India and building it. This does not mean that we go from here to there in one jump. We have to build systematically, one step at a time. We focus on next practices and not best practices. We have to create an innovation sign box.
We accept India’s constraints but innovate within these constraints. Create a Sandbox We need to focus on six constraints: market based solutions, social equality and development, procreation and collaboration, scale, new price performance levels, and ecologically sustainable development. If we accept these and create a sandbox, we can get the conversation going in communities, in businesses, civil society, politicians and bureaucracies. Magnificent India India can be a major player in shaping the emerging world order through economic strength, technological vitality and moral leadership.
In 2022: • India will have world’s largest pool of trained manpower – 200 million graduates (16%) and 500 million trained, skilled workforce (40%). • World’s leader in industry and commerce – 30 of the Fortune 100 companies from India. • It would account for 10 per cent of world trade. • It will be a source of global innovation — new businesses, new forms of organization, new technologies. Shared Aspirations Since Poorna Swaraj in 1929, India has never had a national aspiration which every Indian can share. A shared aspiration is fundamental for changing India.
As a country, India must have high and shared aspirations. New Moral Voice The world needs a new moral voice which India can provide as a country, since universality and inclusiveness is practiced with its wide variety of cultures, leverages and religions. 58 Purely Prahalad Leveraging India 58 Pushing Domestic Economy Although India is affected by the economic slowdown, it should deal with it expeditiously and how fast it handles is important. It is time to prove that this country has the courage to set it right. India has to focus on how to create a massive global market.
It has the potential, cash, infrastructure, but the real problem is pushing domestic economy to grow faster. Aspirations Vs Resources The question we should not ask is, do we have the resources. If aspirations are higher than resources, you will innovate and thereby change the game. The issue is not resources but the balance between aspirations and resources. It is the conscious misfit between aspirations and resources that create innovation and entrepreneurial energy. Folding in the Future Incrementalism will not work. India should focus on the opportunities rather than looking at the constraints.
One cannot get to the potential of India @ 75 by extrapolating what it did in the last 60 years, or even the last 10 years. You have to imagine India @ 75 and then fold the future in. Recognizing Researchers We should start looking at basic research as an integral part of innovation. We must celebrate the achievements of researchers as we do for Bollywood stars. After all, people need recognition. A country will get only that kind of people who you recognize. More Data Driven “Market based” does not mean private sector alone. It could be public sector, NGOs, private sector or cooperatives.
Market based means transparency in prices, transparency in decision making, enforceability of contracts, etc. India needs to be more data driven than technology driven. We need to focus on individual rights rather than group rights. Becoming the Education Laboratory We need to create a capacity for becoming the education laboratory of the world. We need to focus on arts, science, literature and heritage, and strive toward creating an environment from which can emerge 10 Nobel laureates. Sharing Aspirations We need to let aspirations live outside the benchmark of our resource base and share it with the rest of our brotherhood.
A shared aspiration is the key for changing India. And to do this, we have to leverage resources by getting more for every person and every rupee spent. Education and Skill Building Dissolving abject poverty can be achieved by 60 Purely Prahalad Leveraging India 60 strongly focusing on education and skill building. We need to create 10 million jobs annually. Taxing the rich and subsiding the poor won’t help. We have to create inclusive growth by creating sustainable opportunities. The Cost of Corruption We can safely say that in India, the poor quality of human development is not bout lack of resources but the level of corruption in the deployment of resources. Our cost of corruption is $20 trillion per annum. We need to ask, “Is the cost worth paying? ” Good governance and less corruption lead to high levels of GDP per capita. A nation does not get rich first and then become less corrupt. It’s the other way round. Being Socially Responsible To look at corporate social responsibility (CSR) as different from business, gives it the flavour of philanthropy. CSR is a good way to get started in being socially responsible.
Being socially responsible and being profit-oriented are not in conflict, because if you don’t make a surplus, how will you have money to do anything for others? New Managerial Lens The world is moving at a breakneck speed. Why can’t we take one step forward and find new and different ways to innovate to be part of the new world of competition? There are different ways to leverage the resources of others rather than assume that all resources have to be inside the company. Once you start with the new perspectives or a managerial lens, you see change in innovation patterns all across.
Building a Supply Chain We cannot start with the assumption that we can be vertically integrated and still do N=1. We need to build a unique supply chain that allows a manager to selectively access resources depending on the demands of the consumer. Customer Preferences Companies that do not make the transition to N=1 and R=G can go on momentum for quite some time especially in a country like India which is growing so rapidly that supply is not yet keeping pace with the demand. You can get away with it for some time. The sooner we learn how to do N=1 and R=G, the better.
Old approaches will work if you are only competing inside the country in a supply constrained environment. Globally, variations based on customer preferences, biases, behaviour will be the order of the day. The Dhaba Culture India can move faster by combining the dhaba culture – very personalized (I want less salt, more ghee, more onions) – with the efficiency of the industrial system. 62 Purely Prahalad Leveraging India 62 One Step at a Time Indian companies have to fold the future in, one step at a time, one building block at a time. You cannot go from here to there in one shot.
You can have clarity of direction for the first two steps but not all the way. We need to have an overarching theme but we have to invent the means as we go along. It is never a straight line from here to there. We can take small steps, establish milestones. Each of these milestones can be clear and precise. As we learn, as we consolidate, we can do many creative things. Shaping the Future All good Indian companies have the tendency to look for best practices and then try and replicate the model. My advice to them would be to shape their own future and innovate customized solutions.
Look at next practices and not best practices. Confidence Vs Arrogance Some Indian companies have become arrogant due to their initial success. It is necessary to be confident but retain humility. Indian companies still have miles to go. Structure at the Top 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