Currently in his 50s, C.K. Prahalad (his full given name is Coimbatore Krishnarao) gives the impression of being avuncular and a bit formal; he speaks softly, with a strong Indian accent, and maintains a large network of friends and colleagues in academia and business.
It is telling that most of his books are co-authored; he continually argues that innovation is collaborative and that most people have intellectual gifts that business needs to tap. Academic colleagues praise him for his modesty, but it would be more accurate to call him discerning and precise; he is one of those people who does not suffer fools gladly, but is quick to single out his own achievements and those of others that he respects.
Indeed, some of the most interesting and prominent business thinkers in the United States these days are Indian expatriates. Trained in Western business schools and working closely with Western companies, they are well versed in the challenges facing global firms as well as in the language, religion and rituals of the East. Among the best known are business author Ram Charan, professor and strategist Pankaj Ghemawat and former International Monetary Fund chief economist Raghuram Rajan. But arguably the most influential of them all, and certainly the broadest in his approach, is the 68-year-old University of Michigan professor and author C.K. Prahalad. As the world becomes more interdependent, the economies of the East continue to rise in scope and importance and as multinational companies feel continued pressure to be leaner and more competitive, Prahalad’s ideas about competitiveness, organization design, innovation and human capital will be increasingly important. In his style and his perspective, he exemplifies the kind of multicultural thought leadership that business leaders will increasingly seek out as they expand around the world.
In books, articles and public speeches, Prahalad is a realistic optimist. He does not regard global business as a zero-sum game, in which competitors struggle for market share or low-cost positions in a mature, low-growth market. Instead, he speaks to business leaders who want to rebuild their practices with an eye toward the needs of customers—all 6 billion of them. Rich, poor, rural and urban consumers alike can become the engines of prosperity for high-potential companies.
Prahalad argues that any company, large or small, can be bold enough to reinvent its industry—an important next step for the global meeting and event industry. Examples range from world-class but shoestring medical enterprises such as Aravind eye care in India (which provides cataract surgery at extremely low cost) to Pomarfin, a small Finnish footwear manufacturer that builds custom-fit shoes and sells them online. All of these firms have torn up traditional industry wisdom and reinvented themselves and their industries. His audiences and readers are people who look for not only the courage to take this course, but a reliable sense of where and how to start.
“He’s simply the greatest and most original thinker that we have had in the field of strategic management and international business,” said Yves Doz, author and Timken Chaired Professor of Global Technology and Innovation at INSEAD, on the occasion of Prahalad winning the annual Eminent Scholar in International Management award in 2006 from the Academy of Management. “And he’s an extraordinarily gifted conceptualizer in our field. Each of [his major intellectual inquiries] has turned into some seminal work.”
Ascension
Like many business thinkers, Prahalad began his career as an industrial engineer. He grew up in Chennai (formerly known as Madras), India’s fifth-largest city, his father a noted Sanskrit scholar and judge. In the 1960s, as a young college graduate, he worked first for Union Carbide and then for automotive components manufacturer India Pistons. Already curious and interested in writing, he spent much of his spare time teaching managers decision rules and teamwork using computer-simulated production planning games. One of his bosses took him on to mentor, lending him the latest management books (difficult to come by in India at that time) and asking him what he thought of such emerging ideas as Douglas McGregor’s “Theory X and Theory Y,” and how it might apply to India’s unique situation. At that time, the country was clearly socialist. Multinational companies were tightly restricted and businesses were heavily taxed, but Prahalad could see the nascent signs of the entrepreneurial mindset that would become prominent in India 40 years later.
Drawn to strategy studies, Prahalad went first to India’s premier management school (the Indian Institute of Management Ahmedabad), then to Harvard Business School, where he earned a doctorate in 1975. He completed his work in less than three years. Following a short stint back in India, he joined the faculty at the Ross Business School of the University of Michigan in Ann Arbor, where he is currently the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy.
Though he published several books during his early academic years, Prahalad’s breakthrough work—co-authored with his former student and current management author Gary Hamel—was the business blockbuster Competing for the Future, published in 1994. It introduced the idea of “core competence”—that a company’s primary currency, its greatest source of tradable value, was its unique accumulated intellectual knowledge that permitted its people to do things that no one else could do as well. The concept of core competencies flew in the face of the prevailing strategic idea of the moment, the concept of portfolio management—that corporate management added so little value that investors would be better off breaking up companies into their component parts. But Prahalad and Hamel asked themselves why upstart companies Canon and Wal-Mart could overtake seemingly invulnerable dominators Xerox and Sears Roebuck. Studying fiercely competitive industries like consumer electronics and computer component manufacturing, they concluded that companies which understood core competencies and focused ingenuity and knowledge would almost invariably win over incumbents with capital or technology advantages.
“It’s not everybody who can make an optical disk drive—or its equivalent in other industries,” Prahalad later recalled. “By probing what was going on, we came to understand that companies thrived by leveraging their intellectual resources.”
In the late 1990s, Prahalad turned his attention to “co-creation”—the idea that firms must access the knowledge held by their suppliers, and more importantly, by their customers. No single company had the resources to innovate on its own at the scale required in this turbulent environment. Instead, successful innovators would have to pursue an open-source approach. Prahalad’s work on the subject anticipated some successful shared innovation efforts, such as Google’s fostering of employee- and customer-generated ideas and Procter & Gamble’s “Connect and Deliver” approach to seek partnerships with a broad range of outside inventors.
At the same time, Prahalad began looking freshly at an area of global business opportunity that was entirely ignored by both the corporate and the not-for-profit worlds—the potential business value of the “fortune at the bottom of the pyramid.” There are up to 5 billion relatively impoverished people, who were underserved and unserved by most mainstream companies, but who could become a source of enormous growth and innovation. Prahalad began to argue that for companies, the most powerful way to succeed in the future would be by meeting the needs of the enormous populations in emerging economies of China, India and other nations outside of Europe and North America. These people were highly entrepreneurial and eager to improve their lives. They didn’t lack capability and they were no longer isolated; they now had cellular phones and, through microfinance, some connection to capital. But, to break out of poverty, they needed the kinds of capitalist institutions—including access to credit, information and logistics—their middle-class counterparts took for granted. Businesses ignored these billions of potential customers because they were too trapped in their established ways of thinking to figure out a new business model for serving them.
“Here are companies desperately trying to grow in new markets, and here are people desperately trying to participate in the benefits of the global economy,” Prahalad explains. “So, if you put them together, there must be something good that can happen.”
Constructing a Solid Base
The ideas—core competences and the massive global market—have since become conventional wisdom, though there are still few companies that fully take them to heart. But Prahalad has moved on to other concepts that could be equally significant. And if companies begin to take them seriously, they could dramatically shift the nature of business practice, while affecting the priorities of those, including meeting planners, who help corporate leaders find and develop their insights.
For instance, Prahalad’s idea of strategic intent, initially outlined in Competing for the Future, is a still-valid wake-up call after the global recession. Conventionally cautious business wisdom argues for “strategic fit”—don’t take on goals unless you can accomplish them. This often translates into a quest for “best practices”—find out what your competitors are doing and outperform them at it. But when industries are reinvented by, say, digital media or cheap international labor, that strategy no longer works. Companies have to pursue “stretch” goals that take them beyond their comfort zones.
“No entrepreneur starts with adequate resources given his aspirations,” Prahalad says. “If you want to create entrepreneurial drive in a large company, you have to create aspirations that lie outside your resource base.”
In practice, this means developing products at market prices that don’t make sense given the prevailing paradigms of the industry. India, as it happens, has been the source of many such products. The Tata Nano automobile, for example, sells for less than US$2,000. The Jaipur Foot prosthetic limb costs less than $30 and is often made from discarded tires. To provide these products, companies have to discard old assumptions about the way they are made (for example, Nanos are assembled at the dealerships) and financed. To Prahalad, this is the essence of organizational creativity, and he calls it the innovation “sandbox”—set up difficult and stretch constraints, such as the need to reach millions of people affordably, and it unleashes a kind of creativity and playfulness because there is no alternative.
In his latest book (with professor M.S. Krishnan), The New Age of Innovation, Prahalad suggests that a company’s value is based on the “unique personalized experiences of consumers.” When every product is infinitely customizable, from the Build-a-Bear toy to the microfinance loan, then companies have to “learn to focus on one consumer and experience at a time, even if they serve 100 million consumers.” To accomplish this, companies can no longer assume they will deliver a standardized standalone product; they draw on resources from partners around the world, including tiny companies from far-flung places. (A good example is the iPod and iPhone; Apple maintains tight control over the design of the devices, but partners openly with application designers and music and video producers.)
At the same time, the biggest companies must rethink their global natures. This has been a preoccupation for Prahalad since at least 1987, when he and Doz co-authored a book titled Multinational Mission: Balancing Local Demands and Global Vision. They recognized that every company must resolve, in its own way, the tension between global integration (to get the benefits of scale) and local responsiveness (to meet the needs of diverse customers). Further, all forms of globalization were not equal; the barriers to trade and corporate activity within regions (such as within sub-Saharan Africa, East Asia or the Caribbean and Central America) were far lower than the barriers across regions. A Canadian company would still sell more products in the U.S. than in Europe; a Spanish company would have better luck in Italy than in China. And yet, at the same time, companies based in the U.S. or Europe are hobbled by their isolation from emerging markets, and their habits of promoting leaders from within.
Thus (with former Unilever executive Hrishi Bhattacharya) proposes that companies will soon give up their reliance on a single “home office.” Instead, they will situate themselves in a series of hubs around the world, creating a floating kind of headquarters, centered in several of these regional hubs, with top executives recruited from all of them. About 20 countries, according to the article, account for 90 percent of the world’s economic activity: Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, the U.K. and the U.S. in the industrialized world and Brazil, China, India, Indonesia, Mexico, Russia, South Africa, South Korea, Thailand and Turkey among emerging nations. Each of these becomes a gateway to in-depth activity in its sphere of influence.
Finally, to make all this work, companies will need to regard themselves as global knowledge enterprises, going beyond the rhetoric of valuing employees to change the way they deploy people and measure peoples' effectiveness. Prahalad notes that at the most effective companies, people who rise to the top are not necessarily the most brilliant technologists or financiers, but “the most team-oriented people who can make teams work together much faster.” One of the people he admires is Narayana Murthy, the co-founder and former president of the iconic Indian outsourcing technology company InfoSys. Murthy built a unique Indian firm, a model of governance and transparency.
Some of C.K. Prahalad’s ideas are now not only familiar but also part of the business lexicon in both business practice and literature. Others, such as “the fortune at the bottom of the pyramid,” were more countercultural but also became part of the business vocabulary. Each idea was individually significant, but it’s only when you put all of them together that you understand Prahalad’s distinctive picture of how a high-performance company can be run: continually experimenting, giving people room to try things globally based, communicating naturally, co-creating products and services, breaking existing industry norms and rules and avoiding complacency. This naturally creative approach isn’t necessarily what managers want to hear about, but they recognize that they need to move in this direction to succeed. They understand what Prahalad means when he talks about the creativity that comes from constraints; for example, how important it is to take on seemingly impossible goals (such as delivering health care at minimal cost) to maintain a competitive position.
If corporate leaders can take this message to heart and give up their preconceived notions they will learn, for example, to embrace the constraints that lead to better inventions—entering the frame of mind of the innovation sandbox. To hear Prahalad’s gentle but persistent point of view is to accept that this sort of change is possible, that people are seeking to take it seriously and believe it is possible, and that they are drawn by immense fortunes that finally seem available to business at all levels of the economic pyramid. One+
ART KLEINER is editor-in-chief of strategy+business.