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Karmayogi
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Here it is. Now, you
design it!
22
May 2008, Fortune Magazine, By Geoff Colvin (senior editor at large)
Innovative companies, says a business guru, must learn to collaborate with
customers on unique products.
The Times of London
calls C.K. Prahalad "the No. 1 most influential management thinker in the
world." I wouldn't argue. And he's about to contribute another important
idea to business.
The buzzword you'll be
hearing and using a lot more is "co-creation." It's the latest addition to
the Prahalad lexicon, which you're already employing, perhaps without
knowing it. If you've ever talked about "core competencies" or "strategic
intent" or "the fortune at the bottom of the pyramid," you're using terms he
invented (with Gary Hamel in the first two cases). Co-creation is a key
concept in his just published book, "The New Age of Innovation," written
with M.S. Krishnan; Prahalad and Krishnan are professors at the University
of Michigan's Ross School of Business.
The idea is that the
most successful companies no longer invent new products and services on
their own. They create them along with their customers, and they do it in a
way that produces a unique experience for each customer. The important
corollary is that no company owns enough resources - or can possibly own
enough - to furnish unique experiences for every customer, so companies must
organize a constantly shifting global web of suppliers and partners to do
the job.
Those ideas beg for
examples. The starkest involve the Internet. Facebook isn't a product or a
service, but rather a platform on which users create their own unique
experiences; since it opened itself to software applications created by
outsiders a year ago, more than 20,000 have appeared. Facebook (estimated
value: $15 billion) couldn't possibly do all this on its own. The whole user
experience is co-created.
Another example: the
iPod. Apple invented the device, but users create their own experiences by
loading it with music, TV shows, podcasts, and other independently created
content, some of which exists because the iPod is available for it. Apple
makes deals for some of the content, which it couldn't create on its own, to
be available through the online iTunes store.
Prahalad and Krishnan
also describe a radically different example that suggests even broader
possibilities. Suppose the health insurance premiums of a customer with
diabetes could be reset continually based on monitoring of that person's
vital signs and compliance with a regimen of diet, exercise, and medication.
In theory that model is possible today, and an early version is being used
by ICICI Prudential in India. The service and what it costs are continually
co-created by the customer and the company in conjunction with a network of
doctors, exercise facilities, and pharmaceutical firms that have joined the
project.
If that sounds like
the old mass-customization idea, it decidedly isn't. That concept was about
a company's offering customers many choices on a wide range of product or
service attributes, but the company still had to decide which choices to
offer and then deliver them. In co-creation the choices are infinite, and
the company neither imagines nor delivers them all. Similarly, if this
sounds like Web 2.0, it sort of is, but it's much bigger, since it's more
than an Internet phenomenon.
The challenges are
clear. Most companies, especially old ones, are organized exactly wrong to
capitalize on co-creation. They're built around the processes of creating
products and services and managing owned resources - just the opposite of
the skills needed in the new model. In the same way, most managers
(especially old ones) lack an intuitive feel for the way the new model
works.
An even greater
challenge, which Prahalad and Krishnan don't address directly, is simply
imagining where we go next. After all, we're talking here about the latest
effects of the megatrend of our time: ubiquitous, ever cheaper infotech. The
trend has been apparent for decades, yet seeing very far into where it will
lead has been almost impossibly hard. It may well be that the most valuable
quality in a businessperson today is fearless imagination. That trait will
always be scarce. For now, as a look just slightly into the future, Prahalad
and Krishnan's vision will do nicely.
The New Age of
Innovation
19 May 2008,
Business Week, By Helen Walters
Despite the press
attention lavished on companies such as Apple and Google, modern business is
not all about Web 2.0, cutting-edge consumer tech. The latest voices
reminding us of this—and that innovation is a topic with a broad scope—are
those of authors and University of Michigan professors C.K. Prahalad and
M.S. Krishnan.
The pair's book,
The New Age of Innovation: Driving
Co-Created Value Through Global Networks, revolves around two
ideas, laid out on the first page of the first chapter. First states that
"value is based on unique, personalized experiences of consumers." That is,
even companies serving 100 million consumers need to focus on individuals.
Second, meanwhile, argues that since no company can hope to satisfy the
varied expectations of so many consumers, it must diversify how it operates.
"All firms will access resources from a wide variety of other big and small
firms—a global ecosystem," write Prahalad and Krishnan. In other words,
companies' internal focus should be on gaining access to resources, not
necessarily owning them.
The next 250 or so
pages attempt to hammer home the details of this shift from impersonal to
customized, vertical to horizontal, with a wealth of examples from an array
of industries. In fact, one of the book's strengths is that while it names
companies that seem to have seen success with at least one of the two
ideas—Apple, Facebook, Google, and MySpace — it also includes examples of
more established companies across diverse industries that make the headlines
less frequently.
UPS, for instance, has
evolved from requiring customers to drop off parcels at a central collection
point to picking up packages from clients at specified times. "This," write
Prahalad and Krishnan, demonstrates "a significant transformation from a
business process focus on the firm to a business process focus on each
unique customer experience." In other words, no company can afford to think
its business can plod on as usual. The ability to rethink a firm's
fundamentals and implement appropriate changes will provide the driver of
success.
Executives at Madras
Cements, a division of India's Ramco Group, decided against deploying
sophisticated—and expensive—GPS technology to track the movement of its
trucks and goods. Instead, drivers were issued $30 cell phones and
instructed to communicate their whereabouts via SMS text messages. The
company designed an infrastructure that could process these raw data and
give regular, timely insights into driver performance, helping executives
identify areas of improvement for both individuals and the company at large.
To date, the simple, innovative solution has led to recurring annual savings
of more than $4 million.
They also include
examples of failures and mistakes. In one powerful example that is undercut
by the company in question oddly not being named (an anomaly), the authors
discuss the example of a "major auto supplier" in the U.S shifting the
sourcing of various parts to China. Unexpectedly, what seemed like a
clear-cut business decision had a negative impact on many levels: The
logistics of air-freighting parts from China wiped out any cost benefits,
while the resulting lack of flexibility and longer lead times meant that the
company's internal design process also had to be entirely rethought. The
example provides a salient reminder of the importance of stepping back and
thinking about the big picture, to consider the existence of less codified
processes and systems, and to identify and preempt the potential
consequences of any decision.
The New Age of
Innovation
is a fairly breezy and informal read that provides a timely snapshot of a
rapidly transforming business landscape. As the authors make clear, this
transformation is neither optional nor reversible. This book provides a
valuable primer for those wishing to stay on for the ride.
Lighting the way In India
2 May 2008, Forbes
magazine
While greed is
infectious, it hasn't touched Harish Hande. Unlike many entrepreneurs, Hande
didn't dream of great wealth, luxury or power as he built SELCO India, a
rural solar energy company.
At a time when his
fellow Indian Institute of Technology engineering alumni were drifting
aimlessly into the domestic IT industry, Hande stayed focused on his major:
energy engineering. After earning a Ph.D. in the specialization from the
University of Massachusetts, Lowell, Hande headed back home in 1993 to
provide reliable, clean energy to unelectrified areas of rural India. “We
believe that in anybody’s daily life, reliable energy like solar electricity
or solar lighting, can lead to a better quality of life," Hande says.
SELCO, short for Solar
Electric Light Co., sells small-scale, modular solar photovoltaic systems to
households and businesses in villages in the southern Indian states of
Karnataka, Kerala and Andhra Pradesh. He started small, buying one
solar-lighting system with $300 he had left over in scholarship money.
To find workers to do
installations on a larger scale, he went to village TV stores in Karnataka.
Hande described what he was doing, and asked if anyone was interested. They
were, since many of them didn't have electricity in their homes, relying on
candles and kerosene lamps for light after sundown. This gave him confidence
that he could build a team and that there was a market for what he wanted to
do.
Since most rural
Indians are poor and can't afford to pay for SELCO's systems out of pocket,
Hande needed to obtain bank financing. In late 1996 he convinced Malaprabha
Grameen Bank in Karnataka to finance 100 solar-lighting systems, “probably
because they were getting fed up with me more than anything else,” Hande
jokes.
He then leveraged the
bank's backing to get other banks to finance more solar-lighting systems.
“That was our biggest code to crack, since our entire model is based on
banks providing the financing,” Hande says.
In addition to
providing a source of safe, clean lighting to rural people, SELCO also helps
them generate much-needed income. With light after dark, they can keep shops
open later and stay up at home working on crafts. Some of his customers told
Hande they can now make two to three baskets a night, selling them for 30
rupees each. This gave Hande the idea to create a business plan for a tribal
community in Karnataka, with four-year bank loans under which they would pay
for their solar-lighting systems with the proceeds of basket sales.
So far, SELCO has
installed close to 100,000 solar-lighting systems, and in the process, it
has brought light to people who were considered too poor to be part of the
capitalist system.
I use the term "light"
both literally and metaphorically, since Hande’s thinking went far beyond
solar lighting system installations. What he did was innovate at a much
deeper level by connecting energy services to income generation.
Sadly, Hande says few
of his fellow Indian Institute of Technology energy engineering alumni are
working in alternative energy. “When I went back to IIT last year, all 26
seats in energy engineering went to [work in] software," he says. "There is
an extreme shortage of energy engineers.” I recently wrote an open letter to
IIT students asking them to look beyond software--and maybe do something
electrifying, following Hande’s example.
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