The new age of innovation

If there is a list being compiled on the top management gurus, the most influential thinkers, or even the most influential management gurus, you can be sure C K Prahalad will feature on it. The Paul and Ruth McCracken distinguished university professor of strategy at University of Michigan's Ross School of Business, Prahalad is also a bestselling author of important books like Competing for the Future (with Gary Hamel), The Future of Competition and The Fortune at the Bottom of the Pyramid (with Venkat Ramaswamy). Each of these books proposed powerful ideas relating to corporate strategy, business processes and people. The New Age of Innovation is no different. Prahalad's latest book, which will be released later this month, suggests that the nature of innovation is changing. As the world flattens, company- and product-centric ideas must give way to strategies that reinvent business processes to leverage resources on a global scale. "The need for enabling unique and contextual experience from each customer (N=1) will shape the demand for rapid reconfiguration of resources, ideas, and talent globally (R=G). ...N=1 and R=G will be the basis for innovation and value creation. This trend is happening faster than anyone expected. We believe that by 2015 to 2020, in a very short period of 7 to 12 years, this transformation will not be big news. It will increasingly be the norm in many industries," predict Prahalad and co-author M S Krishnan in the book.
An exclusive extract:

It is increasingly clear to global managers that outsourcing is not about "exporting jobs"; it is about "importing competitiveness." Firms compete. Motorola competes with Nokia and Samsung. GE competes with Siemens. IBM competes with Accenture, Infosys, and TCS. This is not about countries but about the competitiveness of firms. It is no surprise that global firms have recognized this need to access skills from around the world to compete effectively and provide superior service to customers.

This recognition is forcing firms to build project teams that are multi-geographic and multicultural. The focus is not just on cost. Cost is a consideration but equally important is the quality, innovativeness of the solution, and speed. The patterns of work and the composition of the teams vary considerably as the nature of projects and access to talent required varies.

In the following paragraphs, we give examples of firms, such as IBM (established US-based MNC) and TCS (emerging India-based MNC), configuring their resources for specific projects. You will notice that the pattern of resource configuration depends on the nature of the project and where the firms can find the appropriate skills.

The patterns continually change. The relationships across geographies, business units, and vendors are not predetermined or static. The phenomenon is best described as a dynamic configuration of talent based on the specificity of needs.

Center Point Energy
Consider the Texas utility Point Energy, which wants to create a "smart power grid" with computerized electric meters, software, and sensors that can improve service and provide personalized advice on how to conserve energy to its customers. IBM is building the system to make this happen. The IBM team is scattered around the United States and India. The 90-plus people on the project come from 15 locations, primarily

in the United States and two locations in India. Contrast this with an IBM project for which most of the project team is located in one site "" that is, the traditional model of work.

Scuderia Ferrari
The Fiat-owned Scuderia Ferrari is the Formula One racing car that is nearly custom-developed every year. Ferrari has selected Tata Consultancy Services (TCS) from India as a technology partner in the development of the next version of the racing car. TCS is providing information technology solutions and engineering services.

It was the company's excellence in domain expertise and its capacity to execute projects on time that made TCS a winner in Ferrari's search for global partners. The TCS engagement with Ferrari involves both the broader 2000 luxury car division and the customized Formula One division, which makes only four custom-built cars in a year.

Ferrari is leveraging TCS's resources in multiple domains, including enterprise IT, vehicle electronics, and aerodynamics. The team size of over 70 is spread almost equally between both teams. This collaborative nature of the project requires on-site presence of the TCS team in Maranello, Italy, working closely with the Ferrari design team. Ferrari's mission is to build the best cars that win races. Their drivers come from different countries, and the car may also be made with global resources.

British Telecom
The composition and physical location of teams in global project execution also evolves. For example, in contrast to the Ferrari engagement, consider the TCS engagement with British Telecom (BT) to upgrade the entire telecom network of BT to an Internet-Protocol-based data network called the twenty-first-century network. This engagement necessitated a full understanding of the legacy BT telecom network with a mix of old technologies, such as circuit switches and new equipment.

TCS worked with BT to develop a plan for the migration of the entire network. The initial design solution team involved approximately 20 solutions designers each from BT and TCS. The plan included detailed steps on design, testing, and deployment of the various nodes in the network. As the project evolved, the increasing clarity to the task and the underlying activities allowed TCS to leverage cost advantages in India.

TCS has shifted a major chunk of services linked to systems integration, design, and testing to India. It has set up an exclusive lab for BT in Chennai, India, with 10 solutions designers and 115 testing and development experts. This model of offshore resources leverage has required detailed documentation tasks such as software development and testing and an explicit understanding of the network migration processes.

At a superficial level, this configuration of resources looks likes "business as usual." What is new here is that these configurations are constantly changing, even within a firm and within a project as it evolves:

1. Many of these tasks and/or projects are implemented in multiple locations and around the world.
   
   
2. Expertise is geographically distributed (the IBM example) and can be distributed across firms (as in the TCS-Ferrari and TCS-BT examples).
   
   
3. The composition of teams is task specific, and the nature of tasks evolves over times from new and complex activities to routine. (This was the case in the BT-TCS example in which the task related to the migration of the network started with a complex task codeveloped with BT first and implemented on site in the United Kingdom till the process was well understood. It then moved to India.)
   
4. That there are no fixed patterns in the migration of jobs. It is not the movement of jobs from United States or other locations to India. The configurations of teams differ based on the tasks and the availability of appropriate talent for specific projects.
   
   
5. The common theme is about talent arbitrage, not just cost arbitrage.

The change in the patterns of work and composition of teams in global firms need not be limited to complex software-intensive development projects. This transformation of how work is done cuts across business functions and industries...

...As a result of its early exposure to global resources in the software domain, technology firms may have an advantage in leading others in adapting innovative patterns of work.

For example, let us consider the collaboration between Lenovo (the Chinese MNC in the personal computer business) and Ogilvy & Mather (O&M), the advertising wing of the media group WPP. Lenovo and O&M have moved their marketing services to a global hub in Bangalore. A team of around 85 employees (20 representing Lenovo and 65 representing O&M) in this marketing hub in India is connected to the marketing staff of Lenovo and O&M in 60 countries around the globe.

This experiment challenges the traditional belief that branding and advertising activities are best addressed at each local market and location. These activities were always considered country and/ or culture specific. The Lenovo experiment shows that branding and advertising activities can be disaggregated and that all elements need not be culture specific. In fact, some of the culture-specific activities may be better executed from a central hub in a remote location based on the collective knowledge and access to talent. Further, this approach may reduce the redundancy and wastage of creative effort.

This concept of a central hub for marketing and branding activities emerged as Lenovo was faced with redundancy in processes and activities across the global operations that it inherited from IBM. The key skills in a typical branding and advertising campaign involve strategic planners, client relationship managers, and the creative team that brings new ideas. In the case of Lenovo, these skills were distributed and duplicated globally (a legacy of its acquisition of the PC business from IBM).

The company consequently centralized these activities in its hub in Bangalore and established discipline in workflows and business processes through appropriate systems. A request for creative work from Paris thus is forwarded to the group in India working on the European market.

Once completed, the work is submitted to Paris or London for a local creative director to review and send back for improvements, if needed. All the work activities in the hub related to every project are tracked (including the time spent in creative activities).

Employees at this central hub are encouraged to build their knowledge base on the global markets they are working on. Senior executives of Lenovo and O&M periodically visit this central hub to facilitate in building this knowledge. Account executives from the hub are also expected to travel across geographies and bring in their collective learning on various markets and activities to the hub.

... The conclusions from the foregoing trends are clear: The search for talent has gone well beyond cost arbitrage. Lowering cost is still a concern, but it is coupled with the need for better quality, innovation, and speed. Therefore, firms will engage in pulling together teams of people based on their skills, attitudes, and experiences to work on specific projects. What we see here is the breakdown of the traditional hierarchical systems in which, business, functional, and geographic groups "owned" people.

Talent used to be trapped in boxes in the organizational charts. In contrast, we are moving to a system of project management in which projects are temporary organizational systems. The transition is critical to recognize.

The messages is this: "I, as a skilled associate, do not belong to the India or the US operations even though I may live in one of those countries and be managed administratively by the country manager. I belong to a global practice group, and I can be called upon to work on specific projects based on my unique skills and experiences." Thus each employee starts to belong to multiple systems:

1. A member of a business functional unit (for example, financial markets business group and/or human resources function)
   
   
2. A member of a country team (for example, US, Chinese, or Indian operations)
   
   
3. A member of a project team of the moment (for example, Indian programmers in IMB's Texas Center Point Energy utility project)
   
   
4. A member of a vendor's firm who works as a member of the team of the ABC firm (for example, the TCS team in Ferrari race car electronics project)

The majority of the employees may not have this somewhat ambiguous and shifting organizational affiliation. However, for the highly skilled and the most coveted people, this will increasingly be the reality.