Friday, September 18, 2009

The NEW age of Innovation

The NEW age of Innovation by CK Prahalad & MS Krishnan
(Book Commentary)
Book Name: The New Age of Innovation
Authors: CK Prahalad and MS Krishnan
Pages: 278 Pages
Publisher: Tata McGraw Hill

Certainly, authors have simplified the main message with a comprehensible equation.

N = 1

What they mean is that, “one customer at a time” (N=1). Resources (R) are leveraged across the globe (G) Hence R=G !. Resources, as the authors assert need not be owned – access and correct usage of them is vital. The book has heavy Indian flavor since major share of case studies are from Indian companies. Customer is no longer passive - be it buying tire, shoes, soaps or high-tech items. What they call as “co-create” during the buying process. One of their clear predictions is that, B2B and B2C would eventually converge as N=1.

This book, specifically takes a pot shot at current state of affairs at IT (Indian) industry. For example on Page-49
The economic model in most of the IT firms in India has not kept pace with the changing nature of the service they provide. As a result, revenue growth is tied to the # of employees – legacy of the cost arbitrage business model. For a firm to go from $2billion in revenue (60,000 employees) to $10billion, it has to recruit approximately 240,000 more employees in a short period of time. Needless to say, the time is ripe for fundamental re-examination of this biz model. We must add that, we do not know a single senior manager in the IT industry of India who does not understand this problem at an intellectual level. However, all their business process – be it estimation work, assignment of people to project, pricing, performance evaluation and profit forecasting – are tied to traditional model and optimized for that model”.

Since flexibility and fluidity is the name of the game, from authors’ standpoint IT architecture and its support is very critical to strategy (inputs from traditional, non-traditional, formal, in-formal) all to be processed and Biz analytics plays a key role in their philosophy.

This is indeed a far cry for IT folks. As of now, every move focuses on standardization and large projects, and here they are telling the exact opposite. Let us do a thought experiment.

Even if we take this prescription less-than-half-serious, it would mean exposing the nearly the entire potentially billable population of the firm to any potential client who can pick and choose a handful of people or just one (N=1 remember?), interview them, some short listed, some selected, some conditional bank – that is, picked up after some specific training and good number of rejects. Not be outdone in pricing, it would be based complex concoction of skills, performance, time allotted to the client, market factors for that skill-set etc. I wonder what can be discussed in Quality Meetings (assuming they would still exist) and broad set metrics that would provide indications on skills, productivity etc. Aside staffing team would have to be fully re-trained on Biz analytics and constant change - perhaps, they would be like stock traders on the floors!
It is a frightening prospect at least in near term for its overwhelming complexity it entails.

Authors do bribe us with compelling examples like, ICICI Insurance, Tutor Vista (Education), Pomafin-Finland (Shoes), and TVS Group, TCS, Satyam and a host of others.
Some of you might have read the famous essay; IT does not matter[1] by Nicholas G Carr. Theme there is that, IT is a commodity and what you do with it determine your destiny. To expand this school of thought, in this latest work, the Big Switch, he goes on to quote Electricity evolution as an example where, producer of anything also generated electricity to remain competitive. But, once transmission and cost per unit became so cheap after consolidation, industries piled on and went ahead with their main production agenda taking the electricity for granted as just as a utility or input. Similarly, quips Garr, IT is a utility we just take it for granted from various providers in the near future.

Whereas this duo presents a case where IT does matter – especially from biz analytics standpoint. It may appear exact opposites. But to me, they seem to be saying the same thing at higher level of abstraction.

Another point they make is that, the distinction between Service and product would blur beyond recognition. They take iPOD as a case study.
They are identifying 4 core drivers. (1) Connectivity (2) Digitization (3) Convergence (4) Social Networks. They form the inputs for creating value.
Innovation they insist that it not episodic but a continuous exercise of value creation taking advantage of the four core drivers.

Locus of Innovation has three grades.
ð Build Products
ð Build Solutions
ð Build Experiences for the customer

Needless to add, authors advocate highest level of innovation.
Authors also explain the Social Architecture of the firm which is also one of the key pillars.

Turnaround is typically a transformation that is tragically delayed. This book is about a transformation agenda. Lots of thought would have to go in to customize them on a per company basis, but in the end, it may be well worth the effort.

This book may not be classified as seminal book on Innovation, but certainly a work with terrific case studies that are well articulated. Authors’ passion to convert the digital divide to digital dividend is clear. In any event, one should not miss this book.

Thanks for reading so far.....



[1] Harvard Business Review , May 2003


Thirukumaran said...

Product and Service the distinction is getting blurred - In 2003, When Reliance Infocomm ordered 20000 of HP Printers, it refused to pay a single rupee to the hardware though they agreed to pay AMC. Their logic is HP makes money in cartridge refills!

Xerox no longer sells machines at least to Big Companies but charge based on number of copies taken.

Nokias, Erricssons and Alcatels of the world have already moved to recurring revenue model.

So is Gillette. Gillette makes money only when we buy blades and not when we buy razors!

Most of the hardware biggies have already made that switch from one time to recurring. What is preventing us? Hitches in delivery mechanism or transparent billing model or ...?

ESR said...

As a first reaction, I have a problem with R=G. in fact, R=L (Local?) can take you to Gandhian economics, which is not a bad idea at all, considering the alarming rates of failure of centralized systems. One thing for sure: The last word is not out yet; we need more 'out of the box' concepts.

Madhu Parthasarathy said...

Hello ESR Sir,
Sorry about the belated response to your comment, but it took a while for me to ramp up a bit on Gandhi's thoughts.
I would agree with you, things are going to more and more local where and when ever possible given the green efforts across the board.
Now super markets also stocks a lot of items that are produced locally, specifically food products. So R=L=1 would work!
My take is that, last word would not be out at all, we have to change constantly depending on the environmental factors

Madhu Parthasarathy said...

Since there is a Nick Carr reference, more updates are on the latest post for his book:

Besides his "big switch" book,he is about to come with one more called "The Shallows".
- Must be a good read !


Rupesh W Kumbhare said...

Good post Madhu-san! Commenting it very late (better late than never :-)

I agree that fundamental business model of Indian IT is flawed and need to change and everyone knows it. Same is true for global corporations today. Their model is heavily biased towards recurring revenue by selling services around products. Innovations does not happen in a fixed framework, process and constraints. Just need to look at the problems we face on a day to day basis and solve it in a most simplistic way.