Friday, January 22, 2010

The new age of innovation – book by CK Prahalad and MS Krishnan

Prahalad had caught my attention with his other book ¨Fortune at the bottom of the pyramid¨, which was an eye opener for me. His innovative connection of business profits to emancipation of poor people is brilliant. I had also listened to his lecture in India and I was fascinated by his cool and calm approach to the high decibel world of business management. I was therefore keen to read this new book on innovation.

As I had anticipated, the book has new insights and ideas for the new stage of business these days. Business has been transformed from firm and product centric approaches. Earlier the companies produced what they believed the consumers needed. The Model T car by Ford Motors was the best example. Ford said that the consumers coould choose any colour as long as it was black. Now the consumers have got on to the driving seat as copilots. They cocreate value and look at products as a personalised experience. To cater to this emerging trend, the companies need to be more innovative and deploy their technology assets towards this new value of cocreation. Even when producing for millions of customers, the companies need to create platforms for the customers to cocreate their own experiences. For this, the companies need not go in for acquiring new assets of technology and talents. There is no need for firms to own all the resource bases they need. They should simply have the capacity to access the vast global network of resources. They should focus on how to access and influence them rather than ownership and control. They should also make use of the new copilots. This is the message of this book.

Here are some of the interesting things I found in the book:

Consumers are increasingly becoming a source of competence. They offer advice, suggestions, new concepts and evaluation of existing products.

Foresight, not hindsight, is of value in this time of fast changing competitive environment. Experience of the past is becoming less and less relevant. This means that the business process and analytics should be flexible and dynamic to anticipate trends in technology and consumer trends.

Digitisation, connectivity and globalisation have radically altered the nature of the firms and have impacted even traditional industries such as education, insurance, healthcare, automobiles and footwear.

An example of cocreation of value by customers is TutorVista, a company which gives online tuition to thousands of students. In this business model, the students decide the teacher, timings and pace of tuition as suitable to them. Even shoe and shirt companies have started providing platforms for customer driven production. The customer goes to the shop and gives the measurement which goes to the factory and products are made as per the exact measurement of the customer and his choice of design and colour. The customer does not have to be disappointed with the limited standard size of seven or eight. Even a tyre company is offering tyre as a service in the longterm rather than as a one time sale. They monitor the tyre wear and tear through sensors and advise the driver and the fleet owner. Fedex allows the consumer to be a part of the operations experience by sharing its databases and applications so that individual consumers can track their packagaes. This inspires more confidence in the consumers besides saving the expenditure on call centres to answer the anxious enquiries for Fedex which handles six million packages a day. UPS which handles 15 million packages a day has developed an ICT system for picking up packages in a customer friendly way and moving the trucks efficiently.

The need for innovative business process and ICT for success is evident from the example of Walmart. The core elements and strategic assets of this giant corporation which delivers value for money to 100 million customers in a week through its global supply chain are its business process and ICT capability with its 500 terrabytes database.

ICICI bank in India which started operations as late as 1995 has become a leading player in India by the use of technology. It has created a trading platform, the third largest in the world, which is used by the customers to buy and sell stocks. It records 300,000 to as much as one million transactions per day. The Bank also innovated new business process for rural banking, microfinancing, internet banking and for remittance by non-resident Indians. ICICI uses only very few packaged applications and customises most of the applications. For example it has customised even ATMs for rural markets

The new emerging companies from India and China have a significant advantage over established large companies from US and Europe, which have inherited large and old systems. The big US corporations use over 70 percent of the IT budget for maintenance of legacy applications and only less tahn 20 percent for innovation. In contrast, ICICI bank of India uses 80 percent of its IT budegt for innovation while spending only 20 percent on maintaenance. This means that the new companies can grow very fast, leveraging new technologies and business processing while the biggies like GM and Cargill are bogged down with their baggage of the past.

The technology and business process innovation are not only for the corporations but also helps rural development in India. The best example of this is the eChoupal centres established in the villages by ITC. These centres help the farmers to know the prices, weather and trends of the markets and enable them to make the right decisions about growing crops and getting the best price for their produce. This is a challenging and rewarding work for ITC and Ramco, the IT company since they had to design a system for easy use by the villagers of India speaking different languages. This experience gives a unique advantage to the Indian companies who can simply repeat the business process to multinational companies operating in many markets.

The growing importance of business process and technology for corporate success is good news for India. This opens up more opportunities for Indian IT companies which are going up in the value chain of BPO business. It is no surprise that TCS is the technology partner of Ferrari for its next version of racing car. The R and D team of this project has a total of 52 out of which 23 are TCS techies, most of whom work onsite at Maranello, Italy. Ferrari is leveraging TCS´s resources in multiple domains including enterpriseIT, vehicle elctronics and aerodynamics. Lenova, the Chinese computer company does its global marketing from Bangalore using the Indian professionals of O and M. This Indian hub supports marketing in 25 languages in 60 countries.

It is not only the lower cost of India but the large pool of skills and competence of the Indians which are being increasingly leveraged by multinatinal corporatins to remain globally competitive. For example, Honeywell the aerospace and automation controlls company has a R and D unit in India which carries the complete responsibility for new products from concept to market. The business rationale for this unit has shifted from cost saving to new products and business development.

The Indian firms have also outgrown their original approach to a total cost arbitrage- based business model. Innovation, anlytics, enterpreneurship and domestic opportunity are the new mantras of Indian IT companies.

In this book Prahalad and Krishnan have not only shown the way for global corporations to suceed through new innovations but have also highlighted the competitive advantage of the Indian companies to grow faster. This makes the Indians to believe strongly in the new projections about India becoming a global economic and technological power.

Tuesday, January 19, 2010

Hot,Flat and Crowded - book by Thomas Friedman

The full title of the book is
¨ Hot, flat and crowded- why the world needs a green revolution and how we can renew our global future¨.

In his previous book ¨The world is flat¨ Tom Friedman explained how the world is becoming flat through globalisation and internet. In this book, he has dealt with the issue of global warming (hot) by increasing consumption and consumers (crowded) . He says that this new Energy- Climate Era needs a new approach. He points out rightly that the issue is not just about regulation but throws open an opportunity for innovation for a smarter and sustainable way of living in the future. He calls for innovation of cleaner technologies for which the governments need to have the right kind of policies, incentives and support for research and development. He warns that the rate at which caron dioxide is emitted and earth is pollutted is a cause for serious and urgent attention and says that the world cannot afford any more delay in addressing the issue.

He has analysed the issues from political, economic, social, technological and more importantly from the American points of view. He has interviewed a variety of experts and brought in their perspectives. This is useful since average people get confused by the alarms raised by greenpeace types and the opposite energy politics in America driven by oil and car companies. Even the scientist are divided over the extent of global warming and their prescriptions to deal with the issue. Tom Friedman brings some clarity and widens the debate on the energy-climate issues saying that ¨Green is no longer a boutique statement, green is no longer something you do to be good… Green is the way to grow, build, design, manufacture, work and live…because it is the smartest, most efficient and lowest-cost way¨ He wants everyone to become conscious of a ¨new world with energy, environment and economy in balance¨

Here are some interesting observations by him:

-Quoting an expert he says that coal, oil and natural gas are fuels from hell because they polute, come from underground and are exhaustible. Fuels from heaven are: wind, solar, hydroelectric and tidal wave. These from the surface are clean, renewable and inexhaustible.
- Lot of energy can be saved by reducing wastage and inefficiet use of energy and innovation of energy- saving and energy-efficient devices. These measures are as important as setting up new power plants, since energy saved is equivalent to energy produced.
-In the current system of production and distribution of power by utility companies the emphasis is on greater consumption for greater profit margin for the company. This approach can be sustained only at the peril of the society. There is need to introduce Smartgrids which will give only that much power needed by individual customers and appliances and charge only for that with varying prices for peak consumption and low demand time. At the same time, the consumers should install solar panels and windmills to generate energy which should become part of the grid and the consumers will supply their surplus production into the grid. Friedman calls this as Energy Internet. He gives a vision of how daily life will be in the future when renewable energy is produced and consumed smartly.

-The high prices Americans pay for the gasoline end up as excessive wealth of unstable and undemocratic petrodictator sheikhs in middle east who use the windfall to build madrassas which produce fundamentalism and terrorists. More gas-guzzling SUVs in America generates not only pollution but also enemies ( fundamentalist terrorists).
- Quoting another expert Friedman calls the American system of policy making on energy and other matters as the ¨survival of the fattest¨- those with the biggest lobbies and deepest pockets make the policy. He points out the absurdity of American antidumping duty on ethanol imported from Brazil to protect the domestic corn ethanol industry despite the fact that sugarcane ethanol is more efficient than corn ethanol. On the other hand, the oil lobby has succeeded in preventing imposition of higher import tariff or taxes on gasoline imported from middle east, thereby contributing indirectly to terrorist enemies.
-China is moving ahead of USA in the energy- climate issue. China has set a target of producing 16 percent of its total energy from renewable sources by 2020 from its current level of seven percent. The Chinese have adopted world class mileage standard for their cars. One of the richest men of China is a green technology enterpreneur Shi, the founder of Suntech Power company, which is one of the top four solar manufacturers in the world. Tom Friedman contrasts this with the Americans who are mired in energy politics unwilling to formulate a sensible energy policy.

- Friedman calls on America to lead the world in the innovation of green technologies and products as part of its strategic policy of maintaining its leadership in the world.

The book is educative, informative and provocative. This is a useful read for government policy makers and businessmen and for anyone who wants to understand the issues of climate change and sustainable development.