In search of the 'next practice'

When he co-authored Competing for the Future with Gary Hamel in 1994, C K Prahalad had more than earned his spurs as one of the more creative and thoughtful management thinkers on the block.

The broad message of that seminal book was that it was vital for managements to think beyond immediate issues such as operational efficiencies and develop long-term organisational capabilities that would assure their corporations unassailable positions in their markets.

"Core competence" and "strategic intent" were the two much-used "" and often misused "" terms that emerged from Hamel and Prahalad's work.

Prahalad's forte lay in the fact that he brought theory into the realm of practice, even starting and running his own company in San Diego a few years ago. In India, he famously did a Six Sigma measurement of Mumbai's dabbawallahs, the age-old office meal delivery system, demonstrating the near-flawless management of this complex supply chain.

When almost all consumer goods companies were gambling on premium products to capture market share in India, he was one of the first to suggest that consumer companies needed to look down the value chain to garner volumes "" at the Re 1 ice-cream, the Rs 10 chappal and so on "" to truly unleash Indian purchasing power.

Much of what he said was prescient, as the impending launches of no-frills airlines and a Rs 1,00,000 car from Tata Motors testify.

At a speech to businessmen in Mumbai a couple of years ago, he suggested that fast moving consumer goods companies weren't doing enough R&D to come up with fresh new propositions for consumers. It is a point that surely must occur to corporations like Hindustan Lever as they struggle to ward off small-scale competition today.

With The Future of Competition, Prahalad and co-author Venkat Ramaswamy, also of the University of Michigan Business School, are hoping to offer managers advice on the next stage of business competition.

What is this "next practice", as the authors call it? How does this change the way companies should do business? Prahalad and Ramaswamy write, "In the conventional value-creation process, companies and consumers had distinct roles of production and consumption...Value creation occurred outside the market. But as we move toward co-creation...this distinction disappears. Increasingly, consumers engage in the processes of both defining and creating value. The co-creation experience of the consumer becomes the very basis of value."

Elsewhere, they write, "The transition for most firms is from a product/service based, firm-centric view of innovation to an experience-centric co-creation view of innovation."

The book is an extended explanation of this proposition. The authors coin a term, DART, an acronym for Dialogue, Access, Risk Assessment and Transparency, as the key building block for this co-creation exercise. They also clarify that, "...managing the variety of co-creation experiences differs from managing product variety because the firm is ultimately managing the quality of its interaction with its consumers" (authors' italics).

No practising manager is likely to disagree with Prahalad and Ramaswamy. The issue that might puzzle him is how precisely their proposition constitutes "next practice". The consumer has always been at the centre of value creation as a co-creator. This is a basic element of all competitive markets.

Business history is replete with examples of corporations that have enjoyed outstanding success because they followed precisely this creed. Think of Sony's Walkman, Harley Davidson, Mattel, Dell, Linux, Amazon, Apple, even, till recently Nokia, to name a few.

There may be a case for saying that more and more firms need to think in these terms in these hyper-competitive times. But surely the issue is one of degree. Prahalad and Ramaswamy argue that the evolution of the co-creating consumer is inevitable given her changing role "" "from isolated to connected, from unaware to informed, from passive to active" "" a transformation fostered by the explosion of the Internet.

This is a valid point, as is the suggestion that "providers must learn to experience the world as many consumers do".

In essence, corporations have to learn to deal with the heightened expectations of consumers who are better informed and more activist than ever before. Co-opting them more closely in value creation is a practical solution. The point is that this happens at every stage of consumer and information evolution and canny firms adjust to it.

Perhaps this is why some of the examples the authors use are rather obvious. They describe, for instance, how toy maker Lego co-opted the inventions of its consumers, who were violating intellectual property rights, into Mindstorms, a hugely popular computerised version of its product.

This is admirable, certainly and creative thinking at its best. But does this constitute a breakthrough "next practice" or is it merely a logical move along the value chain as technology evolves?

The authors rightly point out that the music business might have benefited had it viewed Napster as an opportunity rather than a threat. But then, the winners and losers in the corporate world have always been divided between the creative and the conventional thinkers.

The authors have failed to show how their proposition differs from extreme customisation. Thus, they talk admiringly about a premium houseboat manufacturer that adjusts its boat specs to customer requirement.

This is too esoteric an example, as is the undoubtedly fascinating account of how John Deere is re-engineering its tractors to serve the farming community's needs more efficiently. But the authors do not explain how co-creation can be profitably extended to mass produced consumer goods "" for, say, the manufacturers of toothpaste, soap or even processed foods.

The book might be considered a timely warning that firms need to be far more pro-active in their approach to consumers and, therefore, to the manner in which they manage their companies. Indeed, the most absorbing chapters are those on decentralising management.

The book might have gained had these chapters been fleshed out. But calling co-creation a "next practice" amounts to little more than re-packaging an old concept.

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THE FUTURE OF COMPETITION: Co-creating unique value with customers

C K Prahalad and Venkat Ramaswamy
Harvard Business School Press
Price: Rs 495,
Pages: 257