'CEOs should act like call centre executives'

Q&A: C K Prahalad

Coimbatore Krishnarao (CK) Prahalad speaks in a measured baritone and asks for feedback on his latest book - The New Age of Innovation - which was launched in India last Thursday, almost a month before its scheduled distribution in the US. The University of Michigan professor listens intently, almost like a student eager to know whether he has gone wrong anywhere. "That's co-creation of value by the author and the reader - the thesis of my latest book," says Prahalad.

It's easy to figure out why Prahalad, the author of classics such as Competing for the Future, The Future of Competition and The Fortune at the Bottom of the Pyramid, has acquired the reputation of an incredibly influential corporate strategist. For, at the end of the two-hour interview conducted at the noisy lobby of the Taj Mahal Hotel in Mumbai, the formula, "N=1 and R=G" (the main theme of his latest book), does not sound daunting any more. "My formula is fairly simple. CEOs also have to act like junior BPO executives: both have to respond to a situation instantly," says Prahalad. Excerpts from an interview with Shyamal Majumdar:

The thesis of your latest book is that the future of business is N=1; R=G. This sounds nice, but are Indian companies in a position to adopt this?

Many of them have already adopted this and I don't see why others can't. Let me explain the thesis of my book. Companies will need to interact with their customers so closely that they actually "co-create" value with them on an individual basis (N=1). Think of iGoogle. They have 100 million customers all of whom can, for instance, create their own music portfolio.

These are products that allow customers to use and customise them for their own individual purposes. At the same time, companies will resource the goods and services needed to develop new offerings from anywhere in the world (R=G).

Think of Amul and its highly interactive, superefficient supply chain. They distribute 7 million litres of milk sourced from 2.2 million suppliers every day. In a unique way, farmers are being linked to global markets. It is a classic example of personalised globalisation.

The first equation, N=1, calls for a level of customer intimacy that can only be achieved with extensive use of deep analytical technology. The second, R=G, requires supply chain and logistics expertise that allows companies to source goods and services efficiently and effectively from anywhere.

Many Indian companies have already done this efficiently. Look at Bharti. Among the reasons Airtel can offer telecom service so cheaply is that it keeps capital costs down by outsourcing everything from its network infrastructure to IT systems and promotes use of prepaid cards that generate cash up front. By making service affordable to the masses, it can lure millions more subscribers, gaining economies of scale.

Is co-creation of value a feasible idea? Large companies with millions of customers may find it difficult to focus on one consumer experience at a time.

It should be fairly easy. Your friendly neighbourhood kirana store owner knows exactly what your needs are; your database is in his head. He knows whether you are creditworthy, whether you have upgraded your soap brand; how many family members you have and their eating habits. I want this incredible personalised service to be combined with the efficiencies of mass production.

The industrial system, as we know it, has been morphing for some time. Now, it may have reached an inflection point. Ubiquitous connectivity (4 billion Indians will be connected by 2012 for the first time in history); digitisation, convergence of technology and industry boundaries (is your face cream an FMCG product or a pharma product?), and the emergence of social networks have collectively put a turbo charge on this transformation. The costs are dropping so dramatically that today the poorest people can afford digital communication.

Look at the focus of the young on Web sites such as MySpace, YouTube, Facebook and others. It suggests that a whole new generation of consumers will grow up expecting to be treated as unique individuals, and they will have the skills and the propensity to engage in a marketplace defined by N=1.

Companies often say big breakthroughs like this can't be done overnight. And since it's hugely time-consuming, most lose interest.

That's precisely my point. I am not interested in a "charismatic leader" approach to innovation. Companies need continuous changes "" not just episodic breakthroughs. It's like a marathon runner, with the difference that you divide the distance into 400 metres each.

This enables you to run at full speed but the breaks ensure you have the stamina to go the full course. Today's Google, for instance, looks like a distant cousin to the Google two years ago. They have taken small steps very, very rapidly "" that's the key to success.

For N=1, R=G to succeed, there has to be a buy-in at the top.

Absolutely. Top managers have to ask the question how the world will be and not how the world is. They must have a point of view on where we are, what we want to be, what are the gaps to reach where we want to be. Finally, make sure that the people are energized enough. You don't need satisfied employees; you need excited employees.

The key point is don't treat your customers as stupid. Don't forget that the bottom of the pyramid market has triggered the growth of telecom, retail, FMCG and banking industries in India. And consumers in this market can dump you because of lower switching costs.

For instance, they buy shampoo in sachets. If they don't like the product, they can easily switch to another company. I think CEOs have to behave like call centre executives "" instant response is the key or it may be too late.

What are the key elements of this transformation?

There are many but I will just mention a few. First, value is shifting from products to solutions to experiences. In this new world, B2B and B2C will converge. Second, no company has all the resources it needs to create unique personalised experiences.

All companies will, therefore, have to access talent, components, products and services from the best source. Third, specific models must be developed to enable organisations to focus on one consumer from the millions.

Most companies suffer from a legacy problem. How do you solve the issue?

That's true. Organisational legacies can erode the capacity of a company to innovate and create value. Even mergers and acquisitions bring with them disparate systems. Finding the motivation to effect change is very difficult when the existing business models seem to be working well. But the question to ask is will their zone of comfort force them to wait too long before they make the transition? But I would still like an orderly process of evolution, and not a revolution.

You have talked about the need for a global search for talent.

I am happy that many Indian companies now have a global view to secure talent. Who would have imagined a few years ago that a company such as Videocon will manage to convince a top executive from LG to join them? After the Corus acquisition, the Tata Steel board will have representations from all over the globe. No US company has an all-American board.

The same is rapidly happening in India. Actually, the search for talent has gone well beyond cost arbitrage. Lowering costs is still a concern, but it is coupled with the need for better quality, speed and innovation. What you could see is the breakdown of the traditional hierarchical systems in which business, functional and geographical groups owned people. Talent can no longer be trapped in boxes in the organisational charts.

You have talked about those Indian companies which have been successful in making the transition, albeit slowly. But what are the areas where you would like to see a massive change?

Some Indian companies have become arrogant due to their initial success. It's necessary to be confident but don't lose touch with reality. It's fine to say we have 250 million cell phone users, but please remember China has 500 million already. The per capita income in India has dramatically improved to $500. But the same in the US is $40,000. So it's not a bad idea to do a reality check.