A new theory of creation

ìThe new game is about more efficiency and more innovation,î write CK Prahalad and MS Krishnan in their new book The New Age of Innovation: Driving co-created value through global networks. As a motto for companies battling with the most severe economic downturn for 60 years, it takes some beating. And as the man responsible for concepts such as ëcore competenceí and ëstrategic intentí, and described by Business Week as possibly ìthe most influential thinker on business strategy today,î Prahalad deserves listening to. The main theme of The New Age of Innovation is that the most successful companies no longer invent new products and services on their own. They ëco-createí them with their customers in a way that produces a unique experience for each customer. But because no company owns – or can possibly own – enough resources to provide unique experiences for all its customers, companies must organise a constantly shifting global web of suppliers and partners to do the job. To harness these resources properly, in a way that allows them to be more flexible to customersí needs, organisations need to become less hierarchical and more attuned to the needs and development of individual employees in order to build on and reconfigure their collective talents.

And critically, not only does the nature of the relationship between a business and its customers have to change, but it also needs to be supported by extensive use of innovative technology. Indeed, claim Prahalad and Krishnan, companies need to build their strategy around these new processes and technology which, for most, will require them to completely restructure. Prahalad, the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy and International Business at the Ross School of Business at the University of Michigan, has been developing his world view for many years. Born in Madras (now Chennai), he inherited his curiosity from his father, a well-known Sanskrit scholar and judge. At the age of 19, in between earning a Bachelorís degree in physics from the University of Chennai and a management
degree from the Indian Institute of Management, he worked as a manager in the local Union Carbide battery plant – an experience he describes as ëa major inflection pointí in his life.

His doctoral thesis at Harvard Business School was one of the first studies to argue that corporations need new structures to project global strategies while adapting to local needs. At Harvard he also began nurturing concepts that he would build on later in his career – for example, that entrepreneurs should not let limited resources constrain their ambitions or let deeply ingrained biases blind them to revolutionary change.

He has built a strong following among global chief executives as a blunt and demanding corporate adviser, and he has helped multinationals such as Citibank, Philips and Philip Morris break out of ingrained mindsets and craft new business models. But his reputation as the worldís most innovative management thinker stems primarily from three ground-breaking books – Competing for the Future (coauthored with Gary Hamel) in 1994, The Future of Competition: Co-creating value with customers (co-authored with Venkat Ramaswami) in 2004 and The Fortuneat the Bottom of the Pyramid: Eradicating poverty through profit in 2004. Competing for the Future, regarded as a classic, helped spark a management revolution in the 1990s with its central tenet that companies should identify and focus on their competitive strengths – or ëcore competenceí. The Future of Competition first introduced the concept of ëco-creationí, with Prahalad and Ramaswami arguing that the traditional ëcompany-centricí approach to product innovation is becoming obsolescent. Prahalad has also wrestled with the complex and political issue of poverty. It was his interest in this area that led him to write The Fortune at the Bottom of the Pyramid, in which he identifies the worldís poor as a potential untapped market for companies, worth anything up to $13 trillion a year.

ìThe real source of market promise is not the wealthy few in the developing world, or even the emerging middleincome consumers. It is the billions of aspiring poor who are joining the market economy for the first time,î he explains. Too often poor people are patronised, but Prahalad wants them to have real power in the marketplace. His work in this area led to his membership of the United Nations Commission on Poverty and the Private Sector between 2003 and 2004. But to return to The New Age of Innovation. The idea of co-created customer experiences, supported by innovative use of technology, to drive growth and profit, is not some futuristic dream. The book provides concrete examples of where it is happening now (see box). But while many of the best examples to date involve the internet, Prahalad and Krishnan also outline even broader possibilities for co-creation. For example, the health insurance premiums of a customer with diabetes could be reset continually based on monitoring that personís vital signs and compliance with a regime of diet, exercise and medication. Indeed, an early version is being used by ICICI Prudential in India.

The service and its price are continually co-created by the customer and the company in conjunction with a network of doctors, exercise facilities and pharmaceutical companies that have joined the project. Anything can be customised, claim the authors. For example, car tyres could be priced according to the number of miles they will need to be driven. Car insurers could use GPS tracking devices to calculate premiums based on an individual driverís location. Or a shoe shop could scan a customerís feet to produce and deliver a bespoke pair of shoes within days. To successfully win on the battlefields of 21st century business, companies must start thinking now about how to reconfigure themselves to deal with the new empowered technology-savvy customer. ìNo industry is immune from this trend,î write Prahalad and Krishnan. ìComing to terms with the implications of this change is critical for survival and growth.î

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