C.K. Prahalad the renowned management guru who coined the term Core Competency, shares his views on how the Indian Industry can leap frog into a leadership position by taking advantage of how the markets and customers are transforming. This talk given at the TiE meeting held at Bangalore, gives a lot of insights for the Indian Software industry and even has C.K. Prahalad saying that his core competency theory is limited in the changing scenario. Read these highlights for ideas that might change the way you do business.

“The Indian Software Industry has grown at a tremendous pace. Today I am going to speak to you on a uniquely Indian opportunity that will show that what you have seen in the last 10 years is just the tip of the iceberg. This talk is mainly on the transformation of markets and customers. The first part is about how industries around the world are transforming themselves, the second on how companies will cope with it and what are the underlying capabilities and thinking needed for it, and third is how the Indian industry is uniquely positioned to serve this market, and open up a new competitive space. Indian companies need to create this space, if we don’t someone else will.

Typically when companies look at strategy they look at well-known practices and best practices. If that is so taking a leadership position is very tough because someone is already doing it. What we need is a next practice. Next practice means that

1. We have to imagine a world, which does not exist yet. The contours may be visible but it is not there yet.

2. Best practice assumes that you have to take the leadership position. You cannot hide behind some body else.

3. You cannot copy any one.

It is time we started imaging Indian Companies, as companies which others will come to benchmark. It is not that we need to keep a closed mind. We still need to benchmark others, but I would still like to see the day when others would come to benchmark our companies. The need is therefore ‘folding the future in’ and not ‘extrapolating the past’.

Most companies understand today the strategies for new sources of advantage. Old ways of creating value are becoming less and less relevant. It is about being unique, it is about creating wealth, it is about reducing risk, reducing investment and time. My position is that increasingly strategy is about discovering of new sources of wealth. The key is ‘discovering’ not positioning your company in a game somebody knows already. Most companies in the United States base their strategies on what they have done in the past and lots of them have done extraordinarily well. United States is the richest country for some very good reasons, they have figured out to do some things extraordinarily well. But there are implicit assumptions in what they have done well, and that is what is being challenged today. The point of departure is the existing way of conceptualizing the boundaries of an organization, how we create wealth and what is the value to the consumers.

This is the typical stylized caricature of the firm, which is the typical value chain.

I am always fascinated by why it is called the value chain? It really is a cost bill. It is a picture of how cost is added in the internal processes. In any case we assume cost reduction as value creation. Therefore cost bill equals value charge. So cost becomes the unit analysis for a firm. In SCM (supplier chain management) ERP (Enterprise resource planning) and CRM (Customer relationship management) etc. if you really look at it, it is how well you manage suppliers and customers. The key words are quality, cycle time reduction. This is a firm centric and efficiency centric view, of how we create value. This is our point of departure and I want to highlight this because the companies, which are good at this approach, find it extremely difficult to create wealth in new ways.

Then what is the new reality? Even my own work on core competency is a very firm centric view. What core competency did say was don’t just look at individual business units look at the corporation as a portfolio of skills. But I am arguing today that it is a limited view. (So if somebody is going to kill your concept it better be you!) So I am arguing that in 1990 the game was simple, everybody knew what it was, efficiency was the game, you wanted to get asymmetric efficiency gains as a way to make money. But today what is happening is that across countries deregulation is cutting across the world.

Look at the telecom sector today in India. It is not even a distant cousin of what it was even 5 years ago. Today we have the best telecom system in the world available to every body at the lowest cost in the world. US still has analog-digital, causing enormous problems when you want to deploy some new technology.

Globalization of a new kind is taking place. Think of this. Here in Bangalore there are a number of companies with less than 100 people and yet have 80% of their sales coming from overseas. We might have invented a new form of entity called the Micro Multinational. In other words, we have demonstrated to the world that multinationals do not have to be large. This is what I call the post Internet multinationals, which is totally different from how multinationals once were. This is true for companies across China, Brazil and India. The good news is that there is more need for strategy, but the bad news is nobody knows what the game is. But that is our advantage. If nobody knows, we can invent the new game. In the 1990s we had a tough time inventing a new game, in 2003 we are in a much better position to do so.

Discontinuous technology: note that I do not use the word disruptive technology. No technology comes with the label disruptive. If you do not use new technology to your advantage, then it becomes disruptive. The incumbent’s dilemma is not discontinuous technological change but the inability to react fast enough.

Let me ask you how many of you do yoga, herbal medicines and are careful about fitness? And while you are doing all this how many of you also go to the doctor and take regular medicines for blood pressure or some other ailment? Now how many of you tell your doctor what other things you do to keep fit? Now very few actually tell the doctor all the other things that one is doing to keep fit.

Now put yourself in the shoes of the pharma industry like Pfizer. What business are you in? More importantly who is deciding the boundaries of your business. The difference today is that every one of us can construct our own portfolio of wellness. You have yoga I don’t want yoga. One of my students said why don’t you have alcohol in this list of things for wellness. Well in his concept of wellness alcohol is part of it, not for me. In other words each one of us is constantly constructing our own view of the wellness industry.

Good news for consumers, but now companies need not believe that they can tell you what this industry is. Consumers are telling them. So how will companies create products if they don’t know what the portfolio is?

Not many of us know all the functions of our cell phones. Most of us use only 5% of the functionality. Then why do we pay for the 95% that we do not use. Companies have not figured out how to deal with this problem.

Don’t most of us, wonder after we have bought a cell phone whether we have bought the best? We ask questions like “Will technology change? Will prices go down? Most of us have post purchase dissonance. That is a hell of a way to satisfy customers. Create problems, Create dissatisfaction. This is a problem, because computers, and consumer electronics is coming together.

When I was a child in India and some one wanted to buy a car there were only two choices Ambassador or Fiat. You did not even know names of other car unless you read the Time magazine, but you did not pay much attention. Today a kid knows about 50 models and I can get into the Internet and see 700 models and say “Why not a Mercedes Benz for me?” In other words our aspirations and information is not locationally dependent. Therefore we have a global view, a network of communities, and experimentation.

Convergence of technologies, industry and consumer activism, put them together, and suddenly you find a very different revolution. Let us look at Napster. A lot of you in the audience would have down loaded music from Napster. Do you know it is illegal? Who cares? But now for Sony is it good news or bad news? Think about it. What are the consumers telling Sony? “We like your product but we don’t like the way you distribute it.” In order to make money here companies need to understand micro billing. But since you don’t know what to do, you de-market the new technology and then you tell your best friends of music, “I do not want to give this to you, in fact I want to prosecute you.”

Napster redefined the meaning of customer’s choice. It is not you who decide Mr. Company, it is I who decide what I want to hear. So they killed Napster,OK. But we have a system here which does exactly that in India in Hamara CD. Look up the music that you want on the CD and put a lable that you like and they will give it to you. My question to the company is why can’t you give it right away, it is only a matter of time, you have to figure out the logistics.

Lego Mindstorm is similar. Lot of adults play it. Now is lego a function variety or experience variety. Your cell phone has a function variety it does things on you. Lego just gives you blocks and you can imagine various kinds of opportunities for experimentations. That is why it is always fresh.

One person wrote an operating system and called it Legos, and is distributing it free. Now what can the lego company do? Sue its most ardent customer? If you are Lego, you need to understand that the consumer community is getting equally involved in driving product strategy.

Say in FedEx you can check your box yourself any time by logging into their system. That means they are creating a safe level of transparency and openness for you to access their internal logistic systems. What does this mean? When can you open up your system for anyone to see? That means you are 6 sigma all the time.

You can put your whole internal processes in a database and let the consumer see what it is. There are a lot of implications to this.

Remember a time when you were not well and did exactly what the doctor told you to do. Now what do we do. I will just go and check it out on the internet and I can challenge the doctor on why some other mode of treatment is better.

What is happening in all these cases? These are all weak signals and these signals are saying that fundamentally you cannot run a business today without providing access, having a dialogue with customers, deeply communicating and sharing risk benefits and certainly, transparency.

FedEx is about transparency. Napster about access, Legos is dialogue and in the case of a patient it is about taking risks. If they take medication on their own, they need to be made aware of what the risks are. In other words the whole world is turning upside down.

1) Value is created increasingly at the point of exchange 2) It is co-created with the consumer 3) Value is embedded in experiences and products and services are carriers.

Therefore the model is not a sequential value chain but experiences fulfillment waves.

(To read the 2nd part of this article click on the given below

Transformation of Markets Opportunity for India - Part II.)

Issue BG23 Feb03

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