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.


Anonymous said...

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Anil said...

Came here through multiple links :-) You are overtly optimistic of the potential of Indian IT industry; as you should, given your profession. However one has to put a critical eye to the deficiencies rather than cheerleading. After all successful entities, be it corporations, charities, or nations states - evolve by constantly critiquing the successes that have achieved, rather than defending the critique of others.

Hope to follow your writings in the future.

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Anonymous said...

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