BOOK REVIEW: “The New Age of Innovation: Driving Co-Created Value Through Global Networks” by C.K. Prahalad & M.S. Krishnan ” (2008)

CoverThe New Age of Innovation is one of C.K.Prahalad last works. The central theme lies around what they define as N=1; R=G. Increasingly today business is having to adapt to the logic of the individual needs of each customer (N=1). At the same time, they are finding their resources on a global scale (R=G).

Key words

Management, leadership, strategy, strategic management, process management, corporate strategy, strategic business unit, sustainable competitive advantage, product innovation, market diversification, corporate culture.

Summary

According to Prahalad and Krishnan, value is based on unique personal Authorsexperiences and is shifting from products to solutions to experiences. In this New World, they say, be to be, and be to see what converge. This is the N equals 1. However, no company has all the resources it needs to create these personalized experiences. They will therefore have to access talents, products, services, and components from the best services and best sources across the world. This is the R, resource, equals G, global.

The book’s stated goal is to provide strategies for:

  • “Redesigning systems to co-create value with customers and connect all parts of a firm
  • Measuring individual behavior through smart analytics
  • Improving the flexibility and efficiency in all customer-facing and back-end processes
  • Treating all involved individuals–customers, employees, investors, suppliers–as unique
  • Working across cultures and time-zones in a seamless global network
  • Building teams that are capable of providing high-quality, low-cost solutions rapidly.”
Unisys &  ING

Unisys shorten the processing time of ING operations enormously.

The book is filled with examples of companies who have taken on board this theory. ING, a Dutch global financial services company, was facing the problem of its 5000 worldwide agents having to wait ten days for a policy to be processed and approved. By working with a large IT service company, Unisys, they managed to build a system that allowed them to bring down the processing time from ten days to just thirty seconds. This has increased the number of policies written by five-hundred percent since the system was introduced.

Similarly, in the UK, the Norwich Union, an auto insurance firm, now charges insurance based on individual driving habits and location. This is done through the use of a GPS device.

Apple gives us an example of R equals G, where resources are taken from different parts of the world. The iPod is designed in California, with disk drives that are made by Toshiba. The display modules are made by Matsushita and Toshiba in Japan. The memory is made by Samsung in Korea, and the video processes are made by Broadcom, a U.S firm. The assembly of the product is done by a Taiwanese firm, Inventech, at its factory in China. The authors say that in order to adapt an N equals 1, R equals G mentality; companies need to look very strongly at business process.

Ipod production line

The book is excellent in that it argues that unstructured data or weak signal, information from customers, anecdotes, etc. are important transactional data. They should be combined with hard data and analytical engines which will enable the company to focus on the strategic priorities. This will then allow them to define some actionable insights.

“Analytics and business processes then are the bloodstream of an organization,” say the authors and they are critical to supporting an innovation culture. However, the two authors are quite realistic about the prestige about such things within companies. Business processeses are rarely seen as being “sexy” in a company and few of the top managers want to be responsible for this area.

Part of the problem, according to the authors, is that companies are often broken down into strategic business units or profit centers. This means that it is very difficult to get a clear overall vision of the business processes necessary to gain accurate information and to define an efficient strategy for the corporation as a whole. However, if this is done well, business processes will enable the company to improve its innovation.

The other difficulty, according to the authors, is the people who manage the technical architecture of a company, usually the Chief Information Officers, are very sensitive to risk and making any radical changes within the system. It is said that 70% of the ICT budget goes on maintenance, meaning that there is little room for innovative solutions to address emerging opportunities. Companies should address this problem if they want to begin their journey to N equals 1 and R equals G.

Amazon & Google

It´s not a secret that Amazon & Google trace every click of its visitors.

The book gives an excellent argument for addressing the analytics of companies. We all know today that when we go on Google and Amazon, vast machines analyzing our every move and our ever click, in order to promote products or services at a later date.

The authors draw on their experiences from India (C.K Prahalad was an alumni of IM Ahmedabad as well as Harvard), but they also bring examples from different parts of the world. For example, they quote Starhub in Singapore and Parasat Cable TV in the Philippines, which offer prepaid card and digital accounts but charge users per use rather than per month. Pomarfin, a small Finnish company, now uses a small digital camera and scanner to measure people’s feet accurately and design shoes which fit exactly to their individual needs.

Facebook n MySpace

In business, fortune can change very quickly.

Of course, things can move very quickly in business. The authors quote largely Myspace and Facebook as good examples of customers being treated as individuals. At the time they wrote the book, Myspace had over 200 million customers. Facebook at the time had 47 million customers. As I write this, the fortunes of the companies have been reversed and by September 2012, Facebook was able to report over 1 billion active users, whereas Myspace had shrunk to 25 million users.

The authors are aware that moving towards an N equals 1, R equals G world “is not an event. It is an evolutionary process that has to be set up within the company.” This will take a certain amount of time, and they suggest it is not possible within a few years, but companies should begin now.

They also argue that business schools have their role to play since they are the ones that train senior business executives. However, less than 15% of the top ten business schools in the United States make a course on information technology compulsory. By bringing such courses within the core of the MBA curriculum, the authors argue, they would stimulate business innovation and make companies of the future far more efficient.

The book was named one of the “Best Books on Innovation, 2008” by BusinessWeek magazine.

     
Interesting quotes from the book:

Mass customization has failed because, first, it is based on a firm-centric view of value creation in which product managers and designers preselect the possible options and say to the customer: We don’t need to hear what you want; choose from the options we give you.

New Age of Innovation375 percent of DVD rental revenue happens within the first two weeks of a release, then 10 percent of revenue is earned during the next six months, and the rest over multiple years.

The transformation of a firm from its current business model to N = 1 and R = G will not be a smooth and well-balanced exercise. There will be lags.

 All businesses are becoming more knowledge intensive. A lot of the knowledge is not just in the physical product but in the embedded software that makes it intelligent, like the sensors embedded in a tire that can measure tire pressure and inform the driver if it is not appropriate.

Business processes are the bloodstream of an organization. Business processes are critical to support an innovation culture. But if left unattended and not consciously adapted to the changing business environment, business processes can become impediments to innovation and change.

 We recognize that business processes are not ‘sexy’ in any company we have known. Few of the top managers want to be responsible for this area, much less pay attention to it. It is often an organizational orphan.

 Our perspective on business processes is that they enable innovation.

The business process is the link between the business strategy, business models, and day-to-day operations.” Wal-Mart protects its business processes and resultant ICT applications as a strategic asset. Its database is over 500 terabytes – the largest commercial database in the world.

eBay customers

Most of eBay´s system innovation comes from its best customers.

By allowing its key customers, those who are veteran buyers and sellers, to participate in designing their systems, eBay has created a model user-friendly experience platform. Every quarter, eBay makes an equivalent of 175 changes, most of which are derived from consumer suggestions. eBay has over 60,000 independent software writers contributing to its platform. These developers have contributed over 9,000 applications that enable 25 percent of the product listings on the eBay platform.

 Every firm accumulates a voluminous amount of transaction data (for example, sales transactions) and equally large volumes of unstructured data (for example, video clips and advertisements). Managers need a mechanism to understand the accumulated information and extract valuable insights.

innovation

Analytics must be driven by strategy.

Foresight is a result of understanding, through structured and unstructured data, the unfolding of competitive dynamics. Analytics must be driven by strategy. In order to price health insurance for each diabetic consumer (patient), we need analytics, which in real time monitors behaviors (compliance on predetermined routines) but can also forecast likely behaviors.

Schneider Electric is the world’s largest manufacturer of electrical distribution systems and components. Schneider’s purchasing organization procures for four leading markets (each worth U.S. $1 billion): raw materials and means of production, fabricated metallic and plastic components, electronic and electrical devices, and nonproduction services.

Fedex tracking

Fedex tracking

FedEx recently integrated the software systems of its ground, air, and freight businesses to provide full visibility to all of its customers and employees for the 6 million plus packages it handles every day.

 It is common for customer support call centers to use technologies to route calls to appropriate agents (agents with specific skills and temperament based on customer needs) within an office. U.K. based Aviva plc, the largest insurance company in Europe, focus on enhancing the consumer’s experience (N = 1) by dynamically routing customer service requests to different parts of the world to provide the best service for that customer without compromising the cost of that service. This requires a capacity for real time matching of customer profiles with agent skill profiles on a global basis.

 It is obvious that using powerful mathematical models requires computing capabilities. What is often less obvious is that for a global firm, getting real-time data from multiple sources – point-of-sale systems, RFID tags, consumers, suppliers, and other stakeholders – requires an investment in telecommunications and network capabilities as well.

As the global economy demands ever greater attention to individual customers, the size of the databases will increase enormously. Google, for example, accesses 40 billion distinct pages to create unique personalized experience for its customers.

eastern mountain sports

Eastern Mountain Sports fosters tacit knowledge sharing among its stakeholders.

The tension between ‘openness’ and ‘proprietary intellectual property’ is not easy to deal with. Even within an ecosystem, there may be multiple levels of ‘openness’. In Massachusetts-based Eastern Mountain Sports, one of the leading outdoor specialty retailers in the United States, the CIO has enabled internal blogs and wikis so that the company’s product designers, customers, and marketing experts across various sites can collaborate and share tacit knowledge.

 All global firms face a dilemma: How much central control should we mandate and what freedom should we give to local operations?

 

 We are aware of at least two global firms – Chennai-based Ramco Systems in RamcoIndia and Unisys in the United States – that have developed a capability for delivering an ICT platform very close to what we describe here.

 ING identified the need to build flexibility in its business processes in the insurance-related products in 2004. Group faced intense competition. Second, it operated through more than 5,000 insurance brokers who were the distribution agents for its products. The system at that time provided only offline and manual integration, and it therefore took around 10 days to complete a transaction.

 Unisys and ING jointly deployed a system of core components such as claims management and contract engines for insurance policy delivery and administration in ING’s life insurance business. More than 80 percent of the administrative activities in ING’s general insurance business are now online. The latency to handle a broker’s request for a product has been drastically reduced, from 10 days in the prior system to a few seconds with the new system.

 In most firms, business processes are not the responsibility of any one executive. Organizational and administrative hierarchy is often aligned with business, geography, and/or function. As a result, business processes tend to be ‘organizational orphans.’ Changes to business processes, therefore, are not well managed, leading further to multiple and, often, incompatible systems.

 Firms need to recognize that organizational and information silos naturally evolve in large organizations. Managers must accept that silos trap organizational resources, including information.

Szygenda

Ralph Szygenda, GM

GM under the leadership of its CIO Ralph Szygenda, cleaned up the staggering number of applications in GM’s legacy architecture, reducing 7,000 applications to less than 2,500.

StarHub in Singapore and Parasat Cable TV in the Philippines. Here, the cable company offers prepaid cards and digital accounts on the Web with fixed amounts of television time and a digital device connected to the television to track usage. This means that individual customers can use the prepaid card to personalize the way they watch television. They pay per use, not per month.

 A recent announcement by Verizon to open its telecom network for customers to connect any device of their choice – be it a digital camera, a cell phone, a music player, or any wireless device – is unprecedented in the U.S. telecom market.

 Business processes are the core links between business strategy and action through with the products and services are delivered and experiences are created for customers. A business process, like the circulatory system, is often organizationally invisible but crucial.

    

See also:

Other Book Reviews

C.K. Prahalad: The New Age of Innovation

Businessweek: 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.”

Book Review – The New Age of Innovation, Driving Co-Created Value Through Global Networks, by C.K. Prahalad and M.S. Krishnan

Creativity is Free: “The concept of N=1 is defined as creating one ongoing experience at a time.  This also means a shift from traditional transaction based relationships where companies exchange products for one time payment to companies exchanging services for ongoing payments.”

Book Review: The New Age of Innovation by C K Prahalad

Descicritics: “I had to read this book as a part of my professional requirement, to be able to talk about what C K Prahalad and M K Krishnan, the gurus of Innovation have to say in their latest book.”

   

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3 Comments

Filed under Book Review, Business, India, Innovation, Management, Strategy

3 responses to “BOOK REVIEW: “The New Age of Innovation: Driving Co-Created Value Through Global Networks” by C.K. Prahalad & M.S. Krishnan ” (2008)

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