C.K. Prahalad on the New Age of Innovation
Vendors can leapfrog their SaaS competitors by delivering applications via virtual appliances in the cloud.
By Kathleen Goolsby, Sandhill.com
Aug. 18, 2008
A prominent world-class figure, Dr. C. K. Prahalad was named number one in the Thinkers50 (the most influential thinkers in management alive today) poll conducted by Suntop media and the Times of London. He is currently Distinguished Professor, Ross School of Business, University of Michigan and specializes in corporate strategy.
Among the books he has written, Competing for the Future (co-authored with Gary Hamel) was named the Best Selling Business Book of the Year 1994; The Future of Competition: Co-Creating Unique Value with Customers (co-authored with Venkatram Ramaswamy in 2004) was described by Business Week as "an important book full of disruptive ideas;" and The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profit was selected as one of the best books of 2004.
Interop/Software 2008. was the site of the U.S. launch of his most recent book (co-authored with M. S. Krishnan). During his keynote address, Dr. Prahalad explained the concepts behind the new business model presented in the book, the role of IT in this model, and the business imperatives for succeeding in The New Age of Innovation .
The Basis and Concepts Behind Creating Value in the New Business Model
What led you to write The New Age of Innovation and what is the core concept of your book?
"The core concept is that companies will lose their competitiveness if they deny four current trends and how the convergence of these trends is changing the way we think about innovation and value creation. It does not matter whether the business is selling tires, insurance or health care, or whether it's one of the new age businesses like Facebook, Google or eBay.
For the last four years, I've been asking myself: in the age of the Internet, what is going to be the underlying source of competitive advantage for companies? What will endure for the next ten years? I noticed four trends.
First, connectivity - and I think it's the core issue that will change the competitive landscape for all of us, whether it's through PCs or cell phones. Second, the cost of digitization is going down, so the cost of technology is not going to be a limiting factor for deploying it across the world. A third trend is the convergence of technology. Is your cell phone a telephone, a computer, a camera, a watch or all of the above? And industry boundaries are breaking down like technology boundaries. The fourth trend is the emergence of social networks.
If you take globalization, which feeds on connectivity, digitization, convergence and social networks - and the other way around - all of them together will change the way we think about innovation and value creation."
To Stay Competitive, Companies Need to Adopt the New Way of Doing Business
How will it change the way companies do business and innovate to create value for their customers?
"It causes the relative balance of power between the consumer and the firm to change. Ten years ago, the firm had significantly more influence than the consumers. Now consumers can have as much influence and, in some cases, more influence than the firm.
As an example, Google does not create firm content. The content is sourced from a large number of suppliers around the world, none of whom Google owns, but to whom Google has privileged access. In the new business model, the firm does not have to own the resources but must have the capacity to access the resources."
Besides ownership of resources, are there any other characteristics of this new "connected" business model?
"The second part is how the value is created. Even when Google may have a hundred million consumers, it may still have to treat each consumer's experience as unique. You and I can decide what content we want to look at and how we want to experience Google at any point in time. So one consumer experience, which is co-created with Google, is what creates value. This is a huge shift from the Model-T's unappreciated consumer, where Henry Ford said they could have any kind of color they wanted as long as it was black. And all the resources for the Model T were within the company.
In the new business model, it's not one consumer; it's one consumer experience at a time. So the new game will be co-creation of a personalized experience. Co-creation is important because I am involved as a person in constructing my own experience. And that is true, whether I go to Starbuck's, or iPod, Google or eBay. Co-creation means two joint problem-solvers: the company and me. And it is about experience, not about products. So we have a co-created, virtualized experience real value instead of a product-centric real value."
Among the books he has written, Competing for the Future (co-authored with Gary Hamel) was named the Best Selling Business Book of the Year 1994; The Future of Competition: Co-Creating Unique Value with Customers (co-authored with Venkatram Ramaswamy in 2004) was described by Business Week as "an important book full of disruptive ideas;" and The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profit was selected as one of the best books of 2004.
Interop/Software 2008. was the site of the U.S. launch of his most recent book (co-authored with M. S. Krishnan). During his keynote address, Dr. Prahalad explained the concepts behind the new business model presented in the book, the role of IT in this model, and the business imperatives for succeeding in The New Age of Innovation .
The Basis and Concepts Behind Creating Value in the New Business Model
What led you to write The New Age of Innovation and what is the core concept of your book?
"The core concept is that companies will lose their competitiveness if they deny four current trends and how the convergence of these trends is changing the way we think about innovation and value creation. It does not matter whether the business is selling tires, insurance or health care, or whether it's one of the new age businesses like Facebook, Google or eBay.
For the last four years, I've been asking myself: in the age of the Internet, what is going to be the underlying source of competitive advantage for companies? What will endure for the next ten years? I noticed four trends.
First, connectivity - and I think it's the core issue that will change the competitive landscape for all of us, whether it's through PCs or cell phones. Second, the cost of digitization is going down, so the cost of technology is not going to be a limiting factor for deploying it across the world. A third trend is the convergence of technology. Is your cell phone a telephone, a computer, a camera, a watch or all of the above? And industry boundaries are breaking down like technology boundaries. The fourth trend is the emergence of social networks.
If you take globalization, which feeds on connectivity, digitization, convergence and social networks - and the other way around - all of them together will change the way we think about innovation and value creation."
To Stay Competitive, Companies Need to Adopt the New Way of Doing Business
How will it change the way companies do business and innovate to create value for their customers?
"It causes the relative balance of power between the consumer and the firm to change. Ten years ago, the firm had significantly more influence than the consumers. Now consumers can have as much influence and, in some cases, more influence than the firm.
As an example, Google does not create firm content. The content is sourced from a large number of suppliers around the world, none of whom Google owns, but to whom Google has privileged access. In the new business model, the firm does not have to own the resources but must have the capacity to access the resources."
Besides ownership of resources, are there any other characteristics of this new "connected" business model?
"The second part is how the value is created. Even when Google may have a hundred million consumers, it may still have to treat each consumer's experience as unique. You and I can decide what content we want to look at and how we want to experience Google at any point in time. So one consumer experience, which is co-created with Google, is what creates value. This is a huge shift from the Model-T's unappreciated consumer, where Henry Ford said they could have any kind of color they wanted as long as it was black. And all the resources for the Model T were within the company.
In the new business model, it's not one consumer; it's one consumer experience at a time. So the new game will be co-creation of a personalized experience. Co-creation is important because I am involved as a person in constructing my own experience. And that is true, whether I go to Starbuck's, or iPod, Google or eBay. Co-creation means two joint problem-solvers: the company and me. And it is about experience, not about products. So we have a co-created, virtualized experience real value instead of a product-centric real value."
