Purely Prahalad

Purely Prahalad

Business Wisdom from theLate Dr. C.K. Prahalad’s Thoughts

EDITED BY

B.N. Dastoor

i

2 Purely Prahalad

February 2011

Purely Prahalad: Business Wisdom fromthe Late Dr. C.K. Prahalad’s Thoughts

Edited byB.N. Dastoor

Published byAhmedabad Management AssociationCore-AMA Management House • Torrent-AMA Management CentreATIRA-AMA Centre for Textile StudiesDr. Vikram Sarabhai Marg, Ahmedabad 380 015, [email protected], www.amaindia.org

Shilp Gravures-AMA Media Outlet

Printed byN.K. Printers, Rakhial, Ahmedabad

iii

Dedicated to the

fond memory of

late Dr. C.K. Prahalad

AMA

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Foreword

Every January, as we welcomed a new year, we at AMA

would eagerly await the visit of Management Guru

Dr. C.K. Prahalad.

Most unfortunately, he left us suddenly for his heavenly

abode, and AMA will never be the same again without

his great contribution to the overall growth of

management education.

This book is published as a mark of respect, love and

gratitude for Dr. Prahalad. I am sure, this collection will

greatly benefit entrepreneurs, business leaders,

managers, as also teachers and students of management.

I thank our own Shri B.N. Dastoor for his skill and speed

in preparing this very useful book.

January 2011 Pankaj R. Patel

President, AMA

Preface

During his visits to Ahmedabad, for fourteen long years,

Dr. C.K. Prahalad had enlightened us with his lectures,

seminars, workshops, free-flowing discussions, and

interviews.

This attempt to collect the important glimpses of

Dr. Prahalad’s business wisdom, expresses Ahmedabad

Management Association’s deep gratitude for his salutary

contribution in the exciting and dynamic field of

management.

I consider myself very fortunate to be assigned the task

of presenting Dr. Prahalad’s thoughts in a concise form.

B.N. Dastoor

The author is a Motivational Trainer specialising in Sales andMarketing. He is an author and columnist and presentlyinvolved in several social and educational assignments.Email: [email protected]

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Contents

Foreword

Preface

1. Next Practices and Not Best Practices

2. Leveraging India

3. Fortune At the Bottom of the Pyramid

4. Quotable Quotes

Leaders of India Inc. Speak

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1Next Practices andNot Best Practices

Best practices lead to agreement on

mediocrity. I do not have much interest

in best practices. Because all of us

benchmark each other, we gravitate

toward mediocrity in a hurry. What we

really need to ask is “What is the next

practice?” so that we can become the

benchmark companies and benchmark

institutions around the world.

8

Inauguration of Golden Jubilee Management Convention.Seen are M/s. Janak Parikh, Rajiv Vastupal, Dr. Prahalad and Venkat Chengavalli

9

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NEXT PRACTICES AND NOT BEST PRACTICES

Quality-Cost Equation

There was a lot of debate about whether quality

will increase cost. What did we find? That if you

deeply understand quality and you put methodology

in place, costs automatically come down.

Sustainability

Sustainability can be the next quality challenge.

It’s going to drastically reduce cost and increase

consumer acceptance. Don’t look at sustainability

as compliance and regulation, but an opportunity

for breakthrough innovation.

Sustainability and Inclusiveness

You can design a product, service or supply chain

with sustainability and inclusiveness together. You

do not do it as an afterthought.

Customers Research Companies

We always assume that we are researching the

customer… But it is the customer who is researching

the brands and companies…

Disruptive Business Models

There are five criteria for “disruptive business

models”

1. Does it radically alter the economics of the

industry?

Next Practices and Not Best Practices 10

2. Does it maintain and improve functionality? It

is not just about lower cost. In fact, both of

them together

3. Does it make it difficult for incumbents to react?

In other words, you do not want other people to

be able to copy what you have done rapidly.

4. Is it sustainable? Is it based on logical internally

consistent business principles?

5. Does it enlarge the size of the market?

Change the Game

Once you establish an aspiration level wanting to

be a global leader, wanting to be No.1, wanting to

pursue excellence, then you can only do it one of

the two ways: leverage the resources that we have,

or alternatively, change the game to your

advantage.

Thinking Differently

Going there is about thinking differently, not being

just efficient. We have to be efficient, but we have

to develop a distinct point of view about

opportunities and disruptive business models. We

cannot play the game by other people’s rules, we

have to invent our own rules.

Customers Switch Brands

In many products, because the unit packs are small

and even expenditures are small, if people are not

satisfied, they can now switch brands. They will

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switch either if they are not satisfied or better value

is available.

Staying Afloat

My one mantra to stay afloat during the

manufacturing slowdown is that this is the good

time to become even more efficient. I always say

that the only trees that don’t fall during the storm

are those that have seen the drought, because their

roots go very deep.

Making Globalization Work

Globalization is like gravity. There is no point in

denying gravity. We should defy gravity and build

an airplane… I am often asked whether globalisation

is good or bad for the poor. To this I say that, this is

a wrong question. The question that we need to

ask is how to make globalization work for all.

Creative Solutions

There is no challenge which is impossible. The more

ingrained the thought process, the more creative

solution it demands. So, the real trick lies in finding

out such thought processes and then dealing with

them.

Helping People

If you are honest about helping others, rather than

showing how smart you are, things are very easy.

But the important thing is that people should realize

that you care about them, you want them to


succeed. As long as they understand that, people

will accept innovative approach.

Problems Vs Trajectory

You need to differentiate between problems of the

moment with the long term trajectory… The most

important challenges are, how can we become

technically agile and directionally consistent. No

economy goes uninterrupted.

Managing Volatility

The world will be witnessing extreme volatility, be

it in the political, economic or the regulatory

environment. For example, the price of oil went

from $60 to $145 to $45 in one year; same with

commodities. We need to have the capacity to

manage volatility in addition to quality, cost, scale

and speed as sources of competitive advantage. It

requires the capacity to scale up and scale down

quickly and the ability to anticipate… we also need

to learn to shift people rapidly to new opportunities.

Constraints Create Opportunities

When resources are low and aspirations are high,

innovations take place and not when the condition

is the other way round. Constraints create

opportunity for creation of innovation.

Creating a Surplus

If you don’t make a surplus, how will you have the

money to do anything for others? So, it is important

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to be profitable and successful to be able to do

good.

Innovation is the Key

If you are not profitable, you cannot afford the

future, and if you are not innovative, you have no

future… The key is innovation. It is about creating

awareness, accessibility, affordability and

availability.

Allow People to Co-create

Consumers will get informed through dialogue and

relationship with the community. When you allow

people to co-create, you get a lot of inputs. The

process does not only benefit companies to learn

what people do and how they use products, but it

also informs consumers better.

Continuous Change

I am not interested in a “charismatic leader”

approach to innovation. Companies need continuous

changes – not just episodic breakthroughs.

Point of View on the Future

Top managers must ask the question: how will the

world would be and not how the world is. They

must have a point of view on where we are, what

we want, what are the gaps to reach, where we

want to be.


Need for Excited Employees

Make sure that people are energized enough. You

don’t need satisfied employees, you need excited

employees.

Customers Are Not Stupid

The key point is, don’t treat your customers as

stupid… Consumers can dump you because of lower

switching costs… I think CEOs must behave like call-

centre executives. Instant response is the key or it

may be too late.

Organizational Legacies

Organizational legacies can erode the capacity of

a company to innovate and create value. Even

mergers and acquisitions bring with them disparate

systems.

Don’t Wait Too Long

Finding the motivation to affect 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?”

People Participation

Co-creation reduces risk because consumers are

already involved in thinking through what they

want. But that doesn’t mean that you don’t have

ideas of your own. You got to check the prototypes.

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It also reduces time and investment because more

people and suppliers participate in development.

Being Flexible

Raw materials may still be important in some

industries like oil, but in most industries you can

get raw materials. Technology and capital is freely

available… now it is becoming possible to hire global

talent. The real differentiating factor is the ability

to be flexible to change. We need resilient, flexible

processes… we need analytics. I need to be able to

understand the behaviour of a customer among 100

million. I need large database and analytics to focus

on the behaviour and needs of an individual.

Value-based Pricing

Value-based pricing is a strategy under which price

is set depending on how much the product or service

being offered is worth to the customer. This

obviously differs from the conventional cost-plus

pricing model where things like the actual cost of

product, competitor’s prices, or the historical price,

are taken into account.

Organizational Orphan

The change to value-based pricing needs changes

to the underlying structure of business processes

as well as changes in the way managers in the

industry are socialized, and in the way they keep

score of personal success. That is not happening

because it is one thing understanding the need to


change and another implementing it … Business

processes are not easy in any company… few

managers want to be responsible for it, much less

pay attention to it. It is often an organizational

orphan.

Next Vs Best

Best practices lead to agreement on mediocrity. I

do not have much interest in best practices. Because

all of us benchmark each other, we gravitate toward

mediocrity in a hurry. What we really need is to ask

what is the next practice, so that we can become

the benchmark companies, benchmark institutions

around the world.

Human Currency

People and employers are changing their

relationships to meet the new economy. Human

beings are the new form of currency and valuation

in companies.

Excitement Vs Satisfaction

Satisfied employees don’t mean anything.

Excitement is what creates energy and innovation.

Democratise information, change the game, and

leverage the resources. Five year budgets do not

equal strategy. We can imagine the future we want

to create. Aspirations excite people.

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Talent Management

Talent management connects social and technical

business processes. Without understanding who is

doing what, without having the business processes

in place to understand the social aspects and focus

on the individual, talent management cannot occur.

Building Global Teams

Talent is about competitiveness, so we should focus

on importing great talent rather than losing jobs.

The global search for talent changes the way we

manage companies. Cultural differences between

countries change corporate approaches to building

seamless global teams. Intellectual diversity

requires ways to train for collaboration.

Attitudes and Skills

It is important to test for attitudes as well as skill.

It is important to have diverse people and not put

lemons together. (It is) important to balance

intellectual needs with interpersonal demands. It

is also important to have methodologies in place to

get rid of friction and posturing between cultures.

Discontinuous Change

We are in an era of discontinuous change. We are

no longer talking about fine tuning or improving

the organization’s efficiency. We are talking about

nothing less than reinvention – reinventing the

business in fundamental ways.


Reinventing Business

Reinventing (the business) requires a new skill mix

and new ways of approaching the business. It may

require different business models. It may also

require different people.

Looking Outside

The same people who are socialized with the

standard way of doing business, and who understand

a certain recipe for how to manage, cannot change

very quickly and become the inventors of the new

business models. Look outside your basic industry

for people who can thrive in the new environment.

Experimental Learning

(To see the big picture and their place in it) you

train people. You do it by getting people with

different functional background to work together

on common tasks under time pressure. You do it by

getting them to achieve goals, where they must

understand what the other person can contribute

and why the other person’s contribution is

important. The learning has to be experimental,

not intellectual.

Quality-Speed-Innovation

… the search for talent has gone well beyond cost

arbitrage. Lowering costs is still a concern but it

should be coupled with the need for better quality,

speed and innovation.

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Freeing Talent

Companies (should) pull together teams of people

from all around the globe based on their skills,

attitudes and experiences to work on specific

projects. (There should be) a breakdown of the

traditional hierarchial systems in which business,

functional and geographical groups owned people.

Focusing On Next Practices

It is an attitude of the mind that you meant to focus

on the next practice and not on the best practice.

You never know fully whether what you are saying

will happen or not, because you are amplifying weak

signals and connecting the dots and trying to see a

pattern when the pattern is not fully evolved.

Creating Values

Hi-tech is no longer the privilege of only the rich.

If industry boundaries are cracking up, and social

networks are emerging, it must have something to

do with value creation. And it must change the very

locus as well as sources of innovation.

Micro-innovators

Instead of a small group of people thinking about

innovation, you can have three billion people not

only being micro-producers and micro-consumers,

but micro-innovators. This cannot happen

overnight. But everybody has an opportunity to

contribute to innovation.


Co-creation

Co-creation by definition is voluntary. You can’t

force a person to co-create with you. And co-

creation is about experience and experience is

always contextual and personal. You have this

experience and you have your own reference groups

to give meaning to that experience.

New Look Market Research

Market research is about asking your questions and

getting responses from, say, focus groups. But co-

creation is not about asking your questions. It’s

trying to understand their questions. That’s very

different … you have to have access, transparency,

dialogue and a deep understanding of risk and

benefit.

Getting to the Future First

Substantial challenges face any organization intent

on getting to the future first. The first challenge …

arises as both public and private institutions struggle

to plot a course through an increasingly inconstant

environment… The second … is how to oppose the

forces of institutional entropy… The third is … how

to stem the tide of individual estrangement.

Inspiring Individuals

Rather than calculating the number of people to

fire in order to become competitive, companies

should be asking “How can we create the sense of

purpose, possibility and mutual commitment that

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will inspire ordinary individuals to feats of collective

heroism!” … reengineering individuals can do more

for competitiveness than reengineering processes.

The Goal

The goal is to fundamentally reinvent existing

competitive space or invent entirely new

competitive space in ways that amaze customers

and dismay competitors.

Organizational Transformation

The organizational transformation challenge faced

by so many companies today is, in many cases, the

direct result of their failure to reinvent their

industries and regenerate their own strategies of a

decade or more.

Invent and Reinvent

To create future, a company must change in some

fundamental way the rules of engagement in a long-

standing industry, redraw the boundaries between

industries and/or create entirely new industries. A

capacity to invent new industries and reinvent old

ones is a prerequisite for getting to the future first

and a precondition for standing out.

Know What You Don’t Know

Managers must realize that precedents often outlive

the context that created them. Worse, they may

not know what they don’t know and still worse,

they don’t know that they don’t know. For any


organization, this is a great challenge. Tradition-

bound companies like Xerox and Sears suffered

because they did not know about the perspectives,

outlooks and goals of their competitors.

Bottleneck At the Top

The bottleneck is usually at the neck, at the top of

the bottle. Very conscious of their status in the

organization, they believe that they know more

about the industry, competitors, customers than

those whom they manage. But more often than not,

they know more about the past. As they climbed

the corporate ladder, they failed to realize that

rules of yesterdays’ success become obsolete

quickly in the dynamic business environment.

Questions Are Not Dumb

There are no dumb questions if they challenge the

present. Dr. Edward Land’s little daughter wanted

to see… the photograph her father had snapped,

‘right now’. This question set Dr. Land on a quest

to invent instant photography – Polaroid.

Remembering his daughter’s query, Land reflected,

“We don’t invent new products… The best ones are

already there, only invisible, just waiting to be

discovered.”

Shouldering Blame

Who takes the blame when a company suffers from

competitive failure? When a leading Japanese

company runs into financial difficulties, the top

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management takes the biggest pay cut, while the

first line people take the smallest. This approach

puts the blame on the people at the top who failed

to anticipate and respond to the winds of change.

Shared Pain – Shared Gain

If you want your people to rise to a particular

challenge, they must benefit when the company

succeeds. An atmosphere of “shared pain, shared

gain” must prevail in the firm. Such an atmosphere

is not possible when compensation levels between

the top management and first-line employees is,

say, 75 to 100 times higher at the top.

Focusing On New Challenges

The future is built on the ability of the entire

organization to focus on key challenges which bridge

the firm’s present with its strategic intent. Strategic

intent must be supported by building new

capabilities faster than the competitors. This is

possibly the ultimate competitive advantage.

Reskill, Reshape, Redesign

No company can escape the need to reskill its

people, reshape its product portfolio, redesign the

processes and redirect its resources. The real issue

is whether transformation happens belatedly in a

crisis atmosphere or with foresight in a calm and

considered atmosphere, whether the transforma-

tion agenda is set by more prescient competitors

or derived from one’s own point of view about the


future, whether transformation is spasmodic and

brutal or continuous and peaceful.

Zero Tolerance

Managers are critically concerned with the cost and

speed of change, knowing that quality must never

be compromised… A system supporting millions of

users and collaborators requires zero tolerance for

errors in matters of regulatory and financial

compliance – these expectations won’t change

methodologies used for developing new

applications. Changes to existing applications must

have six sigma quality built in.

Competing for the Future

To compete successfully for the future, senior

managers must first understand just how

competition for the future is different from

competition for the present. The differences are

profound. They challenge the traditional

perspectives on strategy and competition…

Competing for the future requires not only a

redefinition of strategy, but also a redefinition of

top management role in creating strategy.

Creating the Future

Creating the future is more challenging than playing

catch up, in that you have to create your own road

map. The role is not simply to benchmark a

competitor’s products and processes and imitate

its methods, but to develop an independent point

26 Purely Prahalad

of view about tomorrow’s opportunities and how

to exploit them.

Corporate Challenges

These are: (a) Set the challenge in the context of

the strategic intent. (b) Describe with honesty, the

nature and magnitude of the challenge. (c) Specify

precisely the improvements to be made within a

time frame. (d) Establish procedures to measure

and link every employee’s contribution to the

overall challenge. (e) Encourage the employees to

innovate and go beyond their usual roles in the

organization.

Need for Speed and Perseverance

Today speed is of utmost essence. Product life-

cycles are getting shorter, development times are

getting tighter, and customers expect almost

instantaneous service. Yet the relevant timeframe

for exploring and conquering a new opportunity

arena may be ten years, twenty years or even

longer. Leadership in fundamentally new industries

is seldom built in anything less than 10 or 15 years,

suggesting that perseverance may be just as

important as speed in the battle for the future.

Commitment and Perseverence

Organizational commitment and perseverence are

driven by the desire to make a difference in people’s

lives – the bigger the differences, the deeper the

commitment. This suggests a difference between


competition for the future and competition for the

present, namely the prospect of making an impact,

rather than the certitude of immediate financial

returns.

Portfolio of Competencies

It is important that top managers view the firm as

a portfolio of competencies, for they must ask

“given our particular portfolio of competencies,

what opportunities are we uniquely positioned to

exploit?” The answer points to opportunity arenas

that other firms, with different competence

endowments, may find difficult to access.

Occupying High Ground

Traditional planning seeks to position the firm

optimally within the existing structure by

identifying which segments, channels, price points,

product differentiators, selling propositions, and

value chain configuration will yield the highest

profits. Although (this) is certainly legitimate, it is

insufficient if the goal is to occupy the high ground

in tomorrow’s industries. If strategy is seen only as

a positioning game, it will be difficult for a company

to avoid being trapped in an endless game of catch-

up with fragmented competitors.

Managers Create Laggards

A laggard is a company where senior management

has failed to write off its depreciating intellectual

capital fast enough, and has underinvested in

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creating new intellectual capital; where senior

managers believe they know more about how the

industry works than they actually do, and where

what they do know is out of date.

Important Issues

Competition within today’s industry structure raises

issues such as: “What new features should be added

to a product? How can we get better channel

coverage? Should we price for maximum market

share or maximum profits?” Competition for

tomorrow’s industry structure raises deeper

questions such as: “Whose product will ultimately

win? Which standards will be adopted? How will

coalitions form and what will determine each

member’s share of the power?” And most critically,

“How do we increase our ability to influence the

emerging shape of a nascent industry?”

Reducing Genetic Variety

Success reduces genetic variety. To the extent that

success confirms the firm’s strategy, managers may

come to believe that doing more of the same is the

surest way to prolong success, and that any

competitor that is not doing it “our way” can’t be

very smart.

Agile Systems

We need to focus on “global standards” of quality,

transparency, interoperability, compliance, speed

and cost. But we must also provide space for the


local operation to be flexible… What must be global,

and therefore non-negotiable, and what can be local

is a critical consideration in building flexible

business processes and agile systems.

Creating Unlearning Organization

Creating a ‘learning organization’ is only half the

solution. Just as important is creating an

‘unlearning’ organization. To create the future, a

company must unlearn at least some of its past.

We’re all familiar with the “learning curve”, but

what about the “forgetting curve” – the rate at

which a company can unlearn those habits that

hinder future success?

Using Past As Pivot

Creating the future does not require a company to

abandon all of its past. A critical question for every

firm is: “What part of our past can we use as a

‘pivot’ to get to the future, and what part of our

past represents excess baggage?”

Amplifying Weak Signals

Competitiveness favours those who spot new trends

and act on them expeditiously. Therefore, managers

must develop insights about new opportunities by

amplifying weak signals. These weak signals emerge

from insights derived through a deep understanding

and interpretation of a wide variety of information.

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Foresight Vs Hindsight

Traditionally, managers depend on experience –

“gut feel”, if you will. Most often a gut feel and

intuition are important, but in a fast-changing

competitive environment, experience of the past

is less valuable. Foresight, not hindsight is of value.

Challenging Orthodoxies

Flush with success, challengers often forget the

most basic rules of corporate vitality. To be a

challenger once, it is enough to challenge the

orthodoxies of the incumbents; to be a challenger

twice, a firm must be capable of challenging its

own orthodoxies… To reinvent its industry a second

time, a challenger must regenerate its core

strategies. It must reconceive its definition of the

marketplace, redraw the boundaries of the firm,

redefine its value propositions, and rethink its most

fundamental assumptions about how to compete.

Opportunity Horizon

However unappealing a company’s present

situation, it is unlikely to abandon the past for the

future unless it has created for itself an alluring

vista of future opportunities — an opportunity

horizon that presents a compelling alternative to

simply reliving yesterday’s success. To give up the

bird in the hand, a company must see a dozen birds

in the bush. The future must become just as vivid

and real as the past.


Business Processes

In a rapidly changing competitive environment,

business processes cannot be stale. The dynamics

of an industry dictate the rate of change in business

models and strategy. Business processes must keep

pace with this rate of change in the strategy of the

firm. More important, business process capability

may suggest new ways of competing.

Producing Urgency

Any company that drives forward while looking at

the rear view mirror will, sooner of later run into a

brick wall. The goal of making the brick wall

apparent to employees is not to create a sense of

anxiety. Anxiety is immobilizing. The goal is to

produce a sense of urgency. Urgency comes when

everyone knows there is a brick wall out there, but

that the wall is far enough away. So there is still

time to turn the wheel and avoid the crash.

The New Landscape

Spotting new trends require comprehension of

consumer expectations and behaviours and

technological changes, as well as the nature of the

supply chain and opportunities for its

improvement… The new competitive landscape

requires continuous analysis of data for insight.

Analysis that is only episodic and ad-hoc, or periodic

will not suffice. Traditional analytical approaches

are often asynchronous with business changes.

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Transparent Assessment

In a global firm, it is hard to know where talent

is. Talent is, by definition, non-hierarchical…

Further, the ability to effectively work in a cross-

cultural team may not be very transparent. So

the first step in developing and understanding of

how to mobilize task-specific teams is building a

process for transparent and objective assessment

of the skills, attitudes, and experiences of all

people.

Core and Non-core Capabilities

Firms compete not only for market position and

market power, but also compete for capability. The

firm must concentrate more on core competencies,

customer value, competitor differentiation and

extendibility. A core competence must make a

sizeable contribution to customer-perceived value.

Remember, customers are the judge of your core

competence. The core competence must also be

competitively unique and substantially superior to

others. A true core competence must also form the

basis for entry into new product markets.

Measuring Capability

You can get an accurate reading of a firm’s

capabilities by subtracting the percentage of profits

that derive from its historical endowments, from

its total profits. The remaining profitability

indicates the firm’s ability to manage and exploit


its unique capabilities.

Rewards of Leadership

Being the first often carries a risk of failure,

particularly when the leader fails to understand

the precise nature of the emerging opportunity and

allows the company’s financial commitment to take

the driver’s seat. The leader must learn quickly and

inexpensively the precise nature of the customer

demand, the suitability of the new product or

service concept, and the need for adjustments in

the strategy.

Involving Key Customers

A leader can involve key customers early in the

development of the product or service. The

company must regularly test emerging product

concepts and prototypes with employees, and

customers on a small scale. It will be good to share

investment risk with alliance partners or use new

and unfamiliar class of customers or set of

techniques. The goal is not to be the first in an

absolute sense, but to be the first with the product

that finally unlocks the emerging mega market, with

a blend of price and performance.

Strategic Intent

There are three tests of any strategic intent –

direction, discovery and destiny. The strategic

intent turns into reality when everyone in the

organization understands how his/her contribution

is crucial to the achievement of the intent. Everyone

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in the company must find the goal emotionally

compelling and how his or her job is linked with

the attainment of the goal. Strategic intent must

be personalized for everyone.

Strategic Architecture

The top management must set very clear corporate

challenges that make everyone focus on the next

key advantage or capability to be constructed.

Strategic architecture determines the exact nature

of these challenges, one at a time. For example,

the next cycle time, the next cost reductions, the

next penetration in a new market, the next learning

new technology and so on. The top management

keeps on providing people with a clear view of the

next advantage to be constructed.

Specific Challenges Empower People

People want to win and be a part of the winning

team. It is the responsibility of the top management

to establish a sense of purpose, to identify

challenges and make every employee understand

his/her role in the final victory.

Real Challenge of Our Century

Democratizing commerce is the real challenge of

the 21st Century. While discussing the role of private

sector in the Fortune at the Bottom of the Pyramid,

a question came up “Is globalization good or bad

for the poor?” The question makes people take

sides. Instead, we should accept globalization as


gravity and defy it by building a plane with a

question “How do we make the benefits of

globalization reach to all micro consumers, micro

producers, innovators and micro entrepreneurs.”

We agree with Dr. Prahalad that choice is where dignity starts,

and that the world will change only when we view truly low-

income individuals as full participants in their local economies

and communities, rather than as passive recipients of charity.

— Jaaqueline Novogreats

CEO, The Acumen Fund

Emotional Energy

Corporate challenges aim at the acquisition of new

competitive advantages by identifying the local

point for capability building. This happens when

emotional energy is generated from enthusiasm for

the organization’s strategic intent. Every employee

must feel a deep sense of responsibility for the

success of the firm and must understand how his

contribution will help the firm succeed.

Empowering Employees

It is only when specific challenges are identified

that employees feel empowered… Setting corporate

challenges require great honesty and humility on

the part of top management. The top management

must honestly portray the magnitude of the

challenge and freely admit their part of the

responsibility for poor performance. Each employee

36 Purely Prahalad

must be made to feel free to challenge corporate

orthodoxies in say, standard operating procedures

or workflow design or bureaucratic procedures.

Respect for All

We must respect individuals irrespective of their

present condition. If we decide what is good for

them, the very spirit of co-creation is violated. We

can educate them on the benefits and risks of their

choices, but they must exercise their choices. Many

of us have had the taste of the extraordinary

intelligence of the uneducated and the way they

make the best of what they have.

Right to Exercise Roles

Everyone must have the right to exercise their roles

as micro consumers, micro producers, micro

entrepreneurs, micro investors and micro

innovators. They must have access to information,

access to credit and micro finance, access to

regional and national markets.

Democratizing Commerce

Democratizing commerce is steadily gaining ground.

Private sector is entering into a collaborative

partnership with civil society, governments and

philanthropists. Six conditions apply:

1. Respect individuals and their rights.

2. Focus on market-based solutions.


3. Ensure scalability of solutions.

4. Through information technology and organization,

reduce the rich-poor, urban-rural divide.

5. Focus on innovation and entrepreneurship.

6. Devise ecologically sustainable solutions.

Derisking Ambition

Being ambitious is not equivalent to taking big risks.

Many companies believe that risk-taking is necessary

to grow and to innovate. Calculated risk must be

taken, but by definition, “ambition” means

stretching an aspiration and then “derisking”

ambition. Rather than making heroic investment,

the company should use its tools of resource

leverage for derisking heroic ambitions.

One Loose Brick at a Time

You can be small but collectively you can disrupt

global business if you understand the structure and

know where the loose bricks are. If you want to

take down a big wall, don’t break your head against

it. Instead, take one loose brick at a time. After

you have taken out enough bricks, the wall will fall

by itself. Keep searching for loose bricks.

Breakthrough Innovation

Traditionally we tend to glorify one person for some

breakthrough innovation, generally in a product.

But as companies get bigger, this one person may

38 Purely Prahalad

provide the environment, but the actual work

would have to be done by hundreds of people.

Putting Processes in Place

Unfortunately, business processes are an

organizational orphan. They are looked upon as a

necessary evil. But unless you have a very sound

process in place, you cannot be flexible, which is

crucial to being innovative.

Developing a Point of View

The first thing organizations need to do is to develop

a point of view. It has to be the organizational

equivalent of putting a man on the moon. You may

not know how to do it, but once you know what

you want to do, you work towards that step-by-

step. That done, the company needs to put in place

its strategic intent – not necessarily a clear strategy,

but a broad direction in which it is headed.

Essential Analytics

(For putting in place a strategic intent), along with

changing the employee mindset, factors like IT

systems and analytics also come into play. Analytics

are essential as they enable the company to offer

relevant options to each customer and make future

recommendations on the basis of the data gathered.

Evolution Vs Revolution

Setting up an innovative capability will not happen

overnight. I do not believe in revolution but a fast

evolution. Revolutions involve great risks and costs,


while evolutions give you time to adjust and make

course corrections.

Changing Relationships

The biggest breakthrough that needs to happen is

for companies to realize that the relationship

between the company and consumers is fast

changing.

Re-examining Today

While telling employees that what they have done

so far was correct, they also need to be told that

processes and skills are not separate from the

external environment. Once the external factors

change, companies need to re-examine whether

what they are doing will be right for the next round

as well.

Co-creating with Customers

In a business culture dominated by quarterly results,

companies are still pondering the efficiency and

profitability versus innovation questions. This is

rather silly. If you co-create with your customers,

it will reduce the risk of product failure, as the end

users are telling you, at no additional cost, what

they want and you no longer have to define it.

Accessing Global Networks

Companies need to co-create unique experiences

with customers to compete in a globalized world.

The key to creating value and the future growth of

every business depends on accessing a global

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network of resources to co-create unique

experiences with customers, one at a time.

Customization

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 Google. 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 customize 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).

N=1, R=G

The 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.

Running a Marathon

I am not interested in a “charismatic leader”

approach to innovation. Companies need continuous

changes – not just epidemic breakthroughs. It is

like a marathon runner, with the difference that

you divide the distance into metres.

Talent Cannot Be Trapped

The search for talent must go beyond cost arbitrage.


Lowering costs is a concern, but it is coupled with

the need for better quality, speed and innovation.

Talent can no longer be trapped in boxes in the

organizational charts.

Cocreation Reduces Risks

Co-creation reduces risk because consumers are

already involved in thinking through what they

want. But that does not mean that you do not have

ideas of your own. You get to check prototypes. It

also reduces time and investment. More people and

suppliers participate in the development.

N=1, R=G

You need shorthand and N=1 and R=G are not

equations. N=1 is a short hand way of saying one

customer experience at one time and R=G is about

resources accessed from multiple, global vendors.

Delivering Value

A company delivers value by giving each customer

a unique personalized experience (N=1), but to

make that possible, the company ought to have

access to multiple resources, both global and local

(R=G) from several vendors.

Four Driving Factors

Four driving faces are coming together for the first

time in human history.

• Take connectivity and access to information.

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Over 3.5 billion people are getting connected

through cell phones and PCs.

• The second is digitalization and the ability to

move information seamlessly across multiple

devices and the dramatic reduction in the cost

of computing and communication.

• The third piece is the convergence of industry

and technology boundaries. Today your cell

phone is a telephone, a computer, a camera, a

watch, a radio and may be a TV.

• The fourth is the emergence of social networks.

These four drivers together enable the emergence

of new competitive dynamics. However, 90% of the

thinking on innovation is still very much firm-

centric, product-centric.

Bringing About Transformation

There are no right or wrong ways in bringing about

transformation. Each company has a different

starting point. But all the paths have two things in

common – they have a point of view on where they

want to go and they can uniquely develop

personalized consumer experience based on co-

created solutions. Second, no company today has

the capacity to service just one consumer at a time

because of the complexity involved in building and

sustaining the ecosystem.

Shifting Values


Value is shifting from products to solutions to

experiences. In this new world B2B and B2C will

converge. No company has all the resources it needs

to create unique personalized experiences. All

companies will, therefore, have to access talent,

components, products and services from the best

source. Then comes flexible systems which are a pre-

requisite and must be developed. And finally,

specific models must be developed to enable organi-

zations to focus on one consumer from the millions.

The Big Picture

You need to enable people to see the big picture

and their place in it. You train them to do this. You

do it by getting people with different functional

backgrounds to work together in common tasks

under time pressure. You do it by getting them to

achieve goals, where they must understand what

the other person can contribute and why the other

person’s contribution is important. This learning has

to be experimental and intellectual.

Excitement Creates Energy

Entrepreneurial talent is attracted where your

resources are low and enthusiasm is high. When

resources are high and enthusiasm is low, innovation

becomes hard to find. Satisfied employers do not

mean anything. Excitement is what creates energy

and innovation.

Managing Talent

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Talent management connects social and technical

business processes. You need IT and analytics to

achieve data management. Without understanding

who is doing what, and without having the business

practices in place to understand the social aspects

and focus on the individual, talent management

cannot occur.

Importing Talent

Talent is about competitiveness, so we should focus

on importing great talent rather than losing jobs.

The global search for talent changes the way we

manage companies.

Building Seamless Teams

Cultural differences between countries change

corporate approaches to building seamless global

teams. Intellectual diversity requires ways to train

for collaboration.

Don’t Put Lemons Together

It is important to test for attitudes as well as skills.

It is important to have diverse people and not put

lemons together. Balance in countries, work type

and the like are important to balance inter cultural

needs with inter personal demands. It is also

important to have methodologies in place to get

rid of friction and posturing between cultures.

Creating a Mismatch

Creating a mismatch by design where aspirations


are ahead of resources is fundamental to innovation

and entrepreneurship. Resource constraints is not

the problem, innovation constraint is.

Changing the Game

Once you establish an aspiration level wanting to

be a global leader, wanting to be No.1, wanting to

pursue excellence, then you can only do it one of

two ways – leverage the resource that you have, or

change the game to your advantage. Innovation in

terms of better utilization of limited resources or

change in the game to your advantage both come

out of the aspirations that are mismatched with

the existing resources.

Thinking Differently

Going ahead is about thinking differently, not being

just efficient. But you have to be different. You

have to develop a distinct point of view about

opportunities and disruptive business models. We

cannot play the game with other people’s rules,

we have to invent our own rules.

Disruptive Models

To understand disruptive business models, five

criteria are critical.

1. Does it radically alter the economics of the

industry?

2. Does it maintain and improve functionality? It is

not just about lower cost, it is about improving

functionality. In fact, both of them go together

46 Purely Prahalad

if your know what to do.

3. Does it make it difficult for incumbents to

react? You do not want other people to be able

to copy what you have done rapidly. They will

find it difficult because they have to forget

what they have learnt, and they have to

readjust their asset base in order to compete

with you.

4. Is it sustainable? Is it based on logical internally

consistent business principles?

5. Does it enlarge the size of the market?

Value Creation

Almost all traditional views of strategy have been

very elitist when it comes to value creation. The

assumption is that the top managers develop

strategy and everyone else implements it. I don’t

think this is the correct answer.

Reinventing Business

We are in an era of discontinuous change. As a

result, we are no longer talking about fine tuning

or improving the organization’s efficiency. We are

talking about nothing less than re-invention —

reinventing the business in fundamental ways.

Reinvention requires a new skill mix and new ways

of approaching business. It may require different

business models. It may also require different


people. Companies have been looking outside their

basic industries for people who can thrive in the

new environment.

Three Billion Micro-innovators

Today, instead of a small group of people sitting

and thinking about innovation, you can have three

billion people not only being micro-producers and

micro-consumers but micro-innovators. It will not

happen overnight, but everybody has an opportunity

to contribute to innovation.

Granularity and Modularity

The more detailed (granular) our understanding of

the activities that constitute business process and

more explicit the logical linkage among those

activities, the better the building blocks of the

business processes. Granularity allows for fine-

grained changes to the business process and

enhances clarity to each activity and action.

Modularity of business processes enables easier

change and connectivity to other processes.

New Ways of Thinking

One must think differently about strategy and about

organizations. You need new ways of thinking about

organization when, for example, you:

• Mobilize your employees around a strategic

intent

• Leverage resources across organizational

48 Purely Prahalad

boundaries

• Find and explore opportunities

• Redeploy core competencies

• Consistently delight customers

• Explore new competitive space

• Build banner brands

Exploiting the Inter-linkages

One should not perceive a corporation as a single

entity or a collection of unrelated businesses. Senior

managers must first identify and then exploit the

inter-linkages across units that could potentially

add value to the whole.

Strengthening Emotional Ties

Recognition (brand recall) and reputation (brand

esteem) are not the only parameters of brand

power. One must also consider affinity — the

strength of emotional tie that connects the

consumer with the brand. When the level of affinity

is high, the consumer is more predisposed to

consider a new product bearing the banner brand.

Too Much of a Good Thing

Assigning responsibility for strategic decision

making to people closest to customer and

competitors — is good medicine, but an overdose


may prove toxic. Dismantling bureaucracy without

a clear sense of direction could prove chaotic.

Empowerment without direction is anarchy.

Unique and Defensible

Mission statements do inspire people but most are

undifferentiated form those of the competitors and

so fail to inspire employees. A mission statement

must stake out a unique and defensible position in

an already overcrowded market.

Balancing Act

For balancing demands of innovation and efficiency,

managers must start with a point of view of how

they want to compete and drive change day by day,

meeting by meeting, report by report. They should

not forget that making business processes strategic

to results require managerial, cultural and

technological change.

Leveraging Resources

Some firms are capable of extracting greater

learning from each additional experience. Some

firms are more efficient at learning. The capacity

to mine ideas for improvement and innovation from

each and every incremental experience is a critical

component of resource leverage.

Borrowing Resources

Borrowing the resources from other sources is yet

50 Purely Prahalad

another way of achieving resource leverage.

Through alliances, joint ventures, inward licencing

and use of subcontractors, a company can avail

itself of skills and resources residing outside the

firm. Borrowing also involves internalizing of skills

by learning from the partners.

Internalization

Acquiring an entire firm is not always a good idea.

Internalization is often a more efficient way of

acquiring new skills. When you acquire a firm, you

also pay for the skills you already have or for skills

that are less strategically valuable. In an

acquisition, the problems of cultural integration

and policy harmonization are more complex.

Learning from Experience

The capacity to learn from experience depends on

many factors. You should have people who are good

at problem solving, a forum where employees can

identify common problems and search solutions.

You must be willing to fix things before they are

broken and continuously benchmark against the

world’s best practices.

Basis of Entrepreneurship

Entrepreneurship is open to everybody. Knowledge,

courage and determination, and not inherited

wealth are the basis of entrepreneurship. Everyone

can identify with the new entrepreneurs – their


starting points, their family backgrounds, their

early struggles, their pursuit of education, their

belief in themselves, their capacity to ignore

constraints and the creation of new business

models.

Co-creating Solutions

For building a co-creation platform for

collaboration with others, the managers need to

learn to co-opt both consumers and civil society

as also other institutions. They must learn to co-

create solutions because gaining local knowledge,

accessing specialized overhead, gaining trust and

becoming locally relevant is not easy. The managers

will have to develop collaborative and integrative

capacity — the capacity to integrate the

contributions of multiple players into a collective

whole.

Breaking Out of the Pack

Performance orientation must become a central

organizing idea. The key to global leadership is

continuous attention to performance. Whether it

is speed, costs, technological edge, or service, the

key is to break out of the pack with breakthrough

improvements and NOT marginal improvements.

Markets Focus on the Future

Market-value represents a belief in the point of view

of top management on how to compete. The market

52 Purely Prahalad

does not value the past. It focuses on the future

and the sustainability of the business models that

firms use. A clear and unambiguous articulation of

the strategic direction of the company is crucial to

gain the confidence of consumers, employees and

the investors.

Good Governance

Openness and transparency are critical. Good

governance matters. Openness to customers,

suppliers, employees and investors and willingness

to share information and engage in an open dialogue

is critical to building trust and respect.

Innovation is the Key

Innovation is the key to success. To take global

leadership, firms must innovate. Innovation forces

managers to focus their attention on ideas and

talents, NOT on capital and physical assets.

Creating Intellectual Excitement

Create intellectual excitement. High performance

firms have a lot of intellectual energy. They are

characterized by high growth, new products and

services, new markets and new business models.

The capacity for continuous change is the

precondition for excitement.

Recipe for Leadership

We need leaders who combine substantial

knowledge of their industries and who are


connected to the global network of collaborators

and competitors. Leadership is increasingly a

combination of intellect, administrative savvy and

morality.

Developing Cross-cultural Sensitivity

M/s. Rajiv Vastupal, Rajiv Mehta, Janak Parikh and Dr. Prahalad

53

54 Purely Prahalad

2Global leaders will be expected to develop cross-

cultural sensitivity. They must live with and thrive

on ambiguity. Markets, technologies, competitive

arrangements are changing so fast that detailed

predictions are not easy or feasible. Thinking, acting

and enabling others to act will become critical.

Leveraging India

The industrial infrastructure around the

world is in a state of turbulence.

Opportunities as are available today

come once in a lifetime. India must seize

the moment. Let us not waver and let it

54

M/s. Janak Parikh, Dr. Prahalad, Sunil Shah, Rajiv Mehta and D.J. Radia

55

56 Purely Prahalad

pass. The time for decisive

leadership is now. Trust

the young – the 25-30 year

olds – to lead the way.

Let us give them their

space and get out of their

way.LEVERAGING INDIA

Aspirational Products

The Indian consumer is quite aspirational. It doesn’t

matter what income level he is at, he wants

aspirational products. So brands are quite important

contrary to the common perception that brands are

only important for the top of the pyramid. But there

has to be constant value.

Opportunities Galore

We have failed to recognize that every minute 30

Indians are leaving the villages to come to some

city. Every city in the country will have 50 per cent

of its citizens living in slums. We need to build at

least 300 new cities. Imagine what building 300 new

cities in the next 15 years means for our country. It

is the most massive construction opportunity that

we have. Connecting all these with infrastructure

will provide an enormous opportunity for growth,

for innovation.

Leveraging India 56

Imagination Vs Resources

The real challenge is to recognize that

entrepreneurial transformation is not about

resources, it is about imagination and its

aspirations. All entrepreneurs start with low

resources, and high aspirations. India has low

resources but we should get high and global

aspirations. We can then leverage resources and

change the game.

Imagining a Different India

If you want to build a different India, you must

imagine a different India. You cannot extrapolate.

All that the planning commission does is

extrapolation. So we end up with budgeting rather

than imagining a different India and building it.

This does not mean that we go from here to there

in one jump. We have to build systematically, one

step at a time. We focus on next practices and not

best practices. We have to create an innovation

sign box. We accept India’s constraints but innovate

within these constraints.

Create a Sandbox

We need to focus on six constraints: market based

solutions, social equality and development,

procreation and collaboration, scale, new price

performance levels, and ecologically sustainable

development. If we accept these and create a

sandbox, we can get the conversation going in

communities, in businesses, civil society, politicians

58 Purely Prahalad

and bureaucracies.

Magnificent India

India can be a major player in shaping the emerging

world order through economic strength,

technological vitality and moral leadership. In 2022:

• India will have world’s largest pool of trained

manpower – 200 million graduates (16%) and 500

million trained, skilled workforce (40%).

• World’s leader in industry and commerce – 30 of

the Fortune 100 companies from India.

• It would account for 10 per cent of world trade.

• It will be a source of global innovation — new

businesses, new forms of organization, new

technologies.

Shared Aspirations

Since Poorna Swaraj in 1929, India has never had a

national aspiration which every Indian can share. A

shared aspiration is fundamental for changing India.

As a country, India must have high and shared

aspirations.

New Moral Voice

The world needs a new moral voice which India

can provide as a country, since universality and

inclusiveness is practiced with its wide variety of

cultures, leverages and religions.

Leveraging India 58

Pushing Domestic Economy

Although India is affected by the economic

slowdown, it should deal with it expeditiously and

how fast it handles is important. It is time to prove

that this country has the courage to set it right.

India has to focus on how to create a massive global

market. It has the potential, cash, infrastructure,

but the real problem is pushing domestic economy

to grow faster.

Aspirations Vs Resources

The question we should not ask is, do we have

the resources. If aspirations are higher than

resources, you will innovate and thereby change

the game. The issue is not resources but the

balance between aspirations and resources. It is

the conscious misfit between aspirations and

resources that create innovation and

entrepreneurial energy.

Folding in the Future

Incrementalism will not work. India should focus

on the opportunities rather than looking at the

constraints. One cannot get to the potential of India

@ 75 by extrapolating what it did in the last 60

years, or even the last 10 years. You have to imagine

India @ 75 and then fold the future in.

Recognizing Researchers

We should start looking at basic research as an

integral part of innovation. We must celebrate the

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achievements of researchers as we do for Bollywood

stars. After all, people need recognition. A country

will get only that kind of people who you recognize.

More Data Driven

“Market based” does not mean private sector alone.

It could be public sector, NGOs, private sector or

cooperatives. Market based means transparency in

prices, transparency in decision making,

enforceability of contracts, etc. India needs to be

more data driven than technology driven. We need

to focus on individual rights rather than group

rights.

Becoming the Education Laboratory

We need to create a capacity for becoming the

education laboratory of the world. We need to focus

on arts, science, literature and heritage, and strive

toward creating an environment from which can

emerge 10 Nobel laureates.

Sharing Aspirations

We need to let aspirations live outside the

benchmark of our resource base and share it with

the rest of our brotherhood. A shared aspiration is

the key for changing India. And to do this, we have

to leverage resources by getting more for every

person and every rupee spent.

Education and Skill Building

Dissolving abject poverty can be achieved by

Leveraging India 60

strongly focusing on education and skill building.

We need to create 10 million jobs annually. Taxing

the rich and subsiding the poor won’t help. We have

to create inclusive growth by creating sustainable

opportunities.

The Cost of Corruption

We can safely say that in India, the poor quality of

human development is not about lack of resources

but the level of corruption in the deployment of

resources. Our cost of corruption is $20 trillion per

annum. We need to ask, “Is the cost worth paying?”

Good governance and less corruption lead to high

levels of GDP per capita. A nation does not get rich

first and then become less corrupt. It’s the other

way round.

Being Socially Responsible

To look at corporate social responsibility (CSR) as

different from business, gives it the flavour of

philanthropy. CSR is a good way to get started in

being socially responsible. Being socially responsible

and being profit-oriented are not in conflict,

because if you don’t make a surplus, how will you

have money to do anything for others?

New Managerial Lens

The world is moving at a breakneck speed. Why

can’t we take one step forward and find new and

different ways to innovate to be part of the new

world of competition? There are different ways to

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leverage the resources of others rather than

assume that all resources have to be inside the

company. Once you start with the new

perspectives or a managerial lens, you see change

in innovation patterns all across.

Building a Supply Chain

We cannot start with the assumption that we can

be vertically integrated and still do N=1. We need

to build a unique supply chain that allows a manager

to selectively access resources depending on the

demands of the consumer.

Customer Preferences

Companies that do not make the transition to

N=1 and R=G can go on momentum for quite some

time especially in a country like India which is

growing so rapidly that supply is not yet keeping

pace with the demand. You can get away with it

for some time. The sooner we learn how to do

N=1 and R=G, the better. Old approaches will work

if you are only competing inside the country in a

supply constrained environment. Globally, variations

based on customer preferences, biases, behaviour

will be the order of the day.

The Dhaba Culture

India can move faster by combining the dhaba

culture – very personalized (I want less salt, more

ghee, more onions) – with the efficiency of the

industrial system.

Leveraging India 62

One Step at a Time

Indian companies have to fold the future in, one

step at a time, one building block at a time. You

cannot go from here to there in one shot. You can

have clarity of direction for the first two steps but

not all the way. We need to have an overarching

theme but we have to invent the means as we go

along. It is never a straight line from here to there.

We can take small steps, establish milestones. Each

of these milestones can be clear and precise. As

we learn, as we consolidate, we can do many

creative things.

Shaping the Future

All good Indian companies have the tendency to

look for best practices and then try and replicate

the model. My advice to them would be to shape

their own future and innovate customized solutions.

Look at next practices and not best practices.

Confidence Vs Arrogance

Some Indian companies have become arrogant due

to their initial success. It is necessary to be

confident but retain humility. Indian companies still

have miles to go.

Structure at the Top

The real issue in India is not technology. We have

the best IT companies here, we have analytical skills

here – we have to just embrace them and use them.

But in order to build the bottom of the house and

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the basement, we have to worry about the

structure at the top — skills, attitudes, opinions,

preferences of managers and their values.

Need for Sophistication

In India, one will increasingly find a wide rural

distribution, which is going to require extremely

sophisticated logistics, information technology and

IT capabilities. Strategy and implementation are

two sides of the same coin in taking this further.

Trends of the Future

Here is a rundown of the top 5 consumer trends

of the future that I see unfolding in India:

1. Hi-tech solutions are not going to be the privilege

of the rich, as tech solutions will become

inexpensive.

2. There will be a rapid diffusion of products and

services.

3. A continuous process on value, which implies

innovation to continuously change the price –

performance equation. So, poor countries like

India, will set the stage for value, not the rich

ones. For instance, a $30 cataract surgery, a $20

hotel room, a $2000 car, etc.

4. Will see a lot more public-private civil society

partnership in order to provide unique solutions.

5. Sustainability will become an integral part of

Leveraging India 64

what we will think of a development opportunity,

as 700 million additional people come into the

workforce as micro-producers and micro-

consumers.

Shaping the Emerging World

I believe that India can and should actively shape

the emerging world order. This demands that the

country must acquire enough economic strength,

technological vitality and moral leadership.

Six Crucial Factors

In our journey to make India shape the emerging

world order, we need to accomplish six most crucial

goals during the journey.

1. India needs to turn its population into a distinct

advantage as it has the potential to build a base

of 200 million college graduates. India then can

have the largest pool of technically trained

manpower in the world.

2. India must become home to at least 30 of the

Fortune 100 companies.

3. India should account for 10 per cent of the global

trade by 2022. India must get connected with

the rest of the world.

4. India must become a source of global innovations,

new businesses, new technologies and new

business models. In this, the bottom of the

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pyramid, 800 million Indians can become a

major source of breakthrough innovations.

5. India must focus on the flowering of arts,

science and literature.

6. India must become the world’s benchmark on

how to cope with diversity.

Creating World-class Enterprises

A developing country is a state of mind and not a

physical reality. Inefficiencies and dysfunctional

behaviours, sheer lack of discipline and disregard

for productivity are not caused by resource

constraints. They create resource constraints. All

the icons of India today are proof that resource

shortage is not an excuse for not creating world-

class enterprises.

Meritocracy Is the Key

The world is a stage for a young Indian. Talent and

opportunities are not geographically constrained.

Meritocracy and not privileged access to resources

and markets, is the basis for enduring success.

Global standards are critical even if you just want

to be a player in India. Indian consumers want

choice and new price-performance levels.

Leaders, not Managers

India needs leaders and not cautious administrators

or managers of the status quo. We need leaders

who have vision, who are demanding, impose high

standards on themselves and others, and who are

Leveraging India 66

willing to force change in the status quo. India

has always responded to leaders who combined

vision with personal integrity.

India Must Seize the Moment

The industrial infrastructure around the world is in

a state of turbulence. Opportunities as are available

today come once in a lifetime. India must seize

the moment. Let us not waver and let it pass. The

time for decisive leadership is now. Trust the young

— the 25-30 year olds – to lead the way. Let us give

them their space and get out of their way.

Building a Different India

You must imagine a different India, if you want

to build a different India. If you extrapolate, you

will end up with budgeting rather than imagining

a different India and building it.

Global Aspiration

India has low resources, but we better get high

aspiration, a global aspiration. We will then

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3leverage our resources and change the game. The

real challenge is to recognize that entrepreneurial

transformation is not about resources. It is about

imagination and its aspirations.

Conducting Reality Checks

Some Indian companies have become arrogant due

to their initial success. It is necessary to be

confident but don’t lose touch with reality. The

per capita income in India has dramatically

improved to $500 per annum. But the same in USA

is $40,000. So, it is not a bad idea to do a reality

check.

Fortune at theBottom of the Pyramid

68

M/s. Yatindra Sharma (Past-President, AMA), Dr. C.K. Prahalad, andProf. Balakrishnan

69

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The four billion people who constitute

the bottom of the pyramid are not a

monolith. For those who want to engage

in this opportunity, there is no single

universal definition of the bottom of the

pyramid. The definition must fit the

focus for productive engagement. We can

choose to serve any segment of the four

billion.FORTUNE AT THE BOTTOM OF THE PYRAMID

The Concept of BOP

The concept (bottom of the pyramid) was

introduced to draw attention to the 4-5 billion poor

people who are unserved or underserved by the

large organized private sector, including

multinational firms.

Engine of Innovation

… four billion micro consumers and micro producers

constitute a significant market and represent an

engine of innovation, vitality and growth. This is a

new category for all – be it managers, governments,

or civil society organizations.

Fortune at the Bottom of the Pyramid 70

Defining BOP

The four billion people are not a monolith. For those

who want to engage in this opportunity, there is no

single universal definition of the Bottom of the

Pyramid. The definition must fit the focus for

productive engagement. We can choose to serve

any segment of the four billions.

Consumer’s Right

The next big challenge for humanity is to get

everybody not just the elite, to participate in

globalization and avail of its benefits. So, do you

want to get world class products, not luxury

products, at affordable prices and with multiple

choices? That is the consumer’s right.

Innovation Principles for Bottom of the

Pyramid Markets

1. Focus on price-performance of products and

services.

2. Provide hybrid solutions.

3. Develop scalable and transportable

solutions across languages, cultures and

countries.

4. Focus on conserving resources: eliminate,

reduce, recycle.

5. Start product development from a deep

understanding of functionality and not just

form.

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6. Focus on building a logistics infrastructure

that includes manufacturing that is sensitive

to prevailing conditions.

7. While designing products and services,

consider the skill levels, poor infrastructure

and difficulties in servicing remote areas.

8. Find innovative ways to educate the

customers on product usage.

9. Develop products that can perform in hostile

environment.

10. Given the heterogeneity of the consumers,

research the interfaces.

11. Ensure that innovations reach the consumer.

12. While developing products, focus on the

platform so that new features can be easily

incorporated.

Radical Innovation

Right pricing and right business model will get you

a huge market… poor people adopt technology

rapidly. They have no problem with advanced

technology and there is money to be made… you

need radical innovation and model products and

services.

Entrepreneurship and Innovation

Even the little boys on the street who sell small

things to earn a living are entrepreneurs.

Entrepreneurship doesn’t necessarily mean volume

of investment. In fact, it largely depends on

innovation and the way you think. Entrepreneurship

and innovation are the antidote to poverty.


Low Switching Costs

While people are aspirational, they also can switch.

What is interesting is that the switching cost for

consumers in India is low. Therefore, companies,

have to continually innovate in order to keep the

consumer. The consumer is increasingly at the

driver’s seat. And it is quite important for companies

to recognize that it is the Indian consumer,

particularly poor consumers, who’re going to drive

continuous innovation.

Sophisticated Poor

Consumers are very discerning when it comes to

big-ticket items – they’ll be a lot more conservative

and look at the best value… They are willing to pay

more for things that have better value… The Indian

consumer is a much more sophisticated consumer

even if he is poor.

Customer Behaviour

Companies can go on a momentum for quite some

time in a country like India which is growing so

rapidly that supply is not yet keeping pace with

demand… you ca get away with it for some time…

If you are only competing inside the country in a

supply constrained environment, old approaches

will work. On the other hand, as supplies catch up

with demand, it will hurt you as people start saying,

“I want to have an influence on what happens”.

Globally, variations based on customer preferences,

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biases, behavior will be the order of the day.

Personalized Service

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 and the eating habits of your family members.

So, he gives you an incredible personalized service.

This personalized service (can) be combined with

the efficiencies of mass production.

Working Together

Large private sector firms and civil society

organizations are learning to work together in a

collaborative fashion. There is a growing recognition

that marrying the local knowledge of a non-

government organization with the global reach of

a multinational firm can create unique and

substantial solutions.

Poverty Alleviation

The private sector cannot solve all the problems

(of poverty alleviation), but can bring technical and

financial resources, the disciplines of organization,

accountability and entrepreneurial drive to bear

on the problems.

Escaping Poverty

Even (for grossly destitute, deprived people) our

goal should be to build capacity for people to escape


poverty and deprivation through self-sustaining

market-based systems.

Critical Constraints

Awareness, access, affordability and availability are

the key ingredients to market development at the

bottom of the pyramid. It is useful to start with an

innovation sandbox, a set of critical constraints that

must become non-negotiable in the development

process. The innovation sandbox must be specific

to the firm, its target segment, and the business.

The Innovation Sandbox

The innovation sandbox for business at the Bottom

of the Pyramid should include sealability. Unless

solutions can be sealed, it has little use in changing

people’s lives. Such businesses tend to be low

margin, high volume, high return on capital

businesses. Then comes a new price-performance

envelope. Affordability dictates that we must start

with a price+profit-cost and not cost + profit = price

perspective. Attention should also be given to

modern technology… in the development of

products, services and information technology.

Finally such businesses should provide international

standards of quality, safety, ecological sustainability

and aesthetics.

Lifestyle Measures

One should not measure the customer segments by

income alone, because it hides the interesting

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transitions that are taking place in the market. It

is better to use lifestyle measures (LSMs) of the

bottom of the pyramid consumers – their aspirations

and preferred lifestyles. Individuals make choices

that do not necessarily follow our perceptions of

what an individual should do at his or her income

level. A slum dweller aspires for a TV, a farmer

invests in cattle without improving his residence.

Advanced Technology

Advanced technology is critical for ensuring the

quality of products or service delivered. More

importantly, advanced technologies, wisely

deployed, reduce the overall costs, if the

investments can be leveraged.

Challenges into Opportunities

Many CEOs, are looking at business with the Bottom

of the Pyramid lens. They recognize that the

government alone cannot solve the complex and

multi-dimensional social and environmental

challenges of the twenty-first century. Industry will

have to be a part of the solution. There is an

increasing awareness that such challenges can

become opportunities for innovation and business

development.

Social Transformation

I am impressed by the social transformation that is

taking place in markets where private and public

sectors are involved. BOP consumers adapt to new


technologies, experiment and find innovative

applications. Barriers to communication are

breaking down. They are getting access to legal

identify and so can benefit from the opportunities

and social interactions. And finally, the very social

fabric of society is being changed by organized,

empowered, networked and active women.

Right to Dignity and Choice

You and I cannot decide what a poor person should

have… They have as much right to dignity and choice

as we have. I remember a time, right here, ten

years ago, I asked why a poor child cannot have an

ice cream. Ice cream was taxed as a luxury item! I

want to know who decided ice cream is a luxury. I

also want to know who decided telephone is a

luxury… Let us not pretend to make choices for

poor people. Let them make their own choices.

We have the obligation to give them information,

but they have their right to make their choice

just as you and I have.

Breakthrough Innovation

I think the bottom of the pyramid is not something

you do when you don’t have anything else to do.

The bottom of the pyramid is breakthrough

innovation. It is not something you do because of

guilt. You do it because it is the right thing to do

for being innovative and creating breakthroughs in

your business.

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Entrepreneurship Drive

Preconditions for entrepreneurial drive in BOP are:

(i) new channels of access to consumers, (ii) access

to world class technology, (iii) growth in per capita

income, (iv) availability of consumer credit (v)

price-performance changes. These will increase

focus on entrepreneurship and alleviate poverty.

Importing Competitiveness

I continuously keep arguing in the US that you are

not exporting jobs to India. You are importing

competitiveness from India. There is a huge

difference between the two ways of thinking. If

you think you are exporting jobs, then you have to

worry about Buffalo versus Bengaluru. On the other

hand if you are importing competitiveness, it is a

good job to keep it in Bengaluru, so that you can

compete on a global basis.

Entrepreneurial Drive

Development of skills, quality, processes, project

management skills and so on are very important.

They represent tremendous entrepreneurial drive.

There are 3000 companies only in Bengaluru which

are less than 20 million dollars in sales. That is the

key. This is the entrepreneurial drive.

Asking Right Questions

Why can we not anticipate new opportunities by

asking simple questions?


• Is it a big widely recognized problem in India?

• Will it affect a wide range of businesses?

• Is there an opportunity to leapfrog?

• Are there any real winners in this game, any

established leaders? If not, why can’t I be the one?

• Will it change the economics of the industry?

Empowering with Education

India needs to become a source of global innovations

by generating new businesses, technologies and

business models. To create these new models of

innovation, we need to stress on education by

making education affordable to one and all, without

any lowering of quality. The bottom of the pyramid,

800 million poor Indians can become a major source

of innovations, if empowered with the tool of

education. Moreover, our diverse culture, heritage,

languages, dialects are all a benchmark for the

practice of universality and inclusiveness.

New Business Models

India is becoming home to new business models —

very low capital intensity, extremely low fixed costs

and conversion of fixed costs into variable costs.

The bottom of the pyramid, 800 million Indians,

can become a major source of breakthrough

innovation.

Customers Can Dump You

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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. Consumers in this market can

dump you because of lower switching costs.

Aspirations at BOP

The Indian consumers are quite aspirational. It

doesn’t matter what economic level they are at

but they want aspirational products. So brands are

quite important contrary to the common perception

that brands are only important for the top of the

pyramid. But there has to be consistent value.

Keeping the Customer

In many products in India, the unit packs are small

and even the expenditures are small. Therefore, if

people are not satisfied, they can switch brands.

They will switch if they are not satisfied or better

values are available. A good example is how fast

people switched when telephony costs dropped to

one paisa per second. Companies, therefore, have

to continuously innovate in order to keep the

consumer. It is quite important for companies to

recognize that it is the Indian consumer, particularly

poor consumers at the bottom of the pyramid who

are going to drive continuous innovation.

Quality is Critical

A lot of consumers, even those at the bottom of

the pyramid, are willing to pay for quality.


Therefore, companies have to learn that quality is

a critical component of the brand premise.

Poor but Sophisticated

Consumers are very discerning when it comes to

big-ticket items. They are more conservative and

look at the best value. So, nowadays one tends to

find a lot of research that goes into maintenance,

repair, kilometres per hour, etc. Consumers are

willing to pay more for things that have a better

value. So, the Indian consumer is a very

sophisticated customer even if he is poor.

Role of Women

A well-understood but poorly articulated reality of

development is the role of women. Women are

central to the entire development process. Access

to economic independence can change the long

tradition of suppression of women and denial of

opportunities.

Price-Performance Structure

While attempting to innovate BOP markets, one

must focus on products and services. Serving BOP

market is not just about lower prices. It is about

creating a new price-performance structure.

Technology and Infrastructure

BOP consumer problems cannot be solved with old

technologies. They need hybrid solutions. Scalable

and price-performance enhancing solutions need

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advanced technologies blended with the existing

and rapidly evolving infrastructure.

Scalable Solutions

As BOP markets are large, solutions must be scalable

and transportable across countries, cultures and

languages. Solutions must be designed for ease of

adaptation in similar BOP markets.

Eliminate, Reduce, Recycle

In relation to a BOP market, all innovations must

focus on conserving resources: eliminate, reduce

and recycle.

Acquiring Trust

The sophistication and demand of the BOP markets

have surprised managers who are used to developed

markets. It is not just about making cheaper

versions of products sold in developed markets. The

managers must acquire local knowledge and local

trust before they develop markets – be it micro

consumers or micro producers. They must learn,

learn rapidly.

Co-opting Consumers

The managers need to learn to co-opt both

consumers and civil society and other institutions

to create a co-creation platform. They must learn

to co-create solutions because gaining local

knowledge, accessing specialized overheads,


gaining trust and becoming locally relevant is not

easy. The managers will have to develop

collaborative and integrative capacity — the

capacity to integrate the contributions of multiple

players into a collective whole.

Changing Mindsets

The biggest challenge to managers who are trained

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4to serve existing markets effectively is to change

their mindsets when they approach BOP markets.

The managers have to forget traditional ways of

approaching the business and develop a new and

innovative approach. The goal is to build new

markets, organize the unorganized markets, build

new ecosystems and create new business modes.

Focusing on BOP

India can become a source of innovations if we

recognize the needs of the poor — the bottom of

the pyramid. There is a potential market of 500

84

85

86 Purely Prahalad

million Indian who are not currently serviced by

the organizated sector. Focusing on the bottom of

the pyramid will force us to think of substantial

development, new price-performance levels.

Quotable Quotes

There is no challenge which is

impossible. The more ingrained the

thought process, the more creative

solution it demands. So, the real trick

lies in finding out such a thought process

and then dealing with it.QUOTABLE QUOTES

“ The thought process that you are resource

constrained, that you cannot lead, that we have to

look at the best practices and so on are very deep

rooted. So once you understand them you have to

construct methods by which you can keep a check

on it.”“People should realize that you care about them, you

want them to succeed. They will then accept

innovative approaches.”Quotable Quotes 86

“Business need to recognize that they are a social

institution that operates with a social license from

the community.”“ If you are honest about helping others rather than

showing how smart you are, things are very easy.”“You need to differentiate between problems of the

moment with long term trajectory.”“The catch lies in how we can provide the most

innovative products to customers at a very

affordable price.”“Business leaders need to do good, not by

philanthropy, but by enlarging the scope of business,

making it more inclusive.”“The traditional approach to poverty alleviation

assumed that we, the elites, have to tell the poor

what to do. While we must enforce global standards,

global technology and the global ability to organize,

we also need to have local responsiveness. Co-

creation is an integral part of serving.”“The last century was all about marketization of

politics and getting individuals share their voice

about how they are governed. The next big challenge

for the humanity is to get everybody, not just elite,

to participate in globalization and avail of its

benefits.”

88 Purely Prahalad

“Democratize commerce. People who have access

to information will not tolerate inequality.”“No business can sustain itself if there is no value

created for the customer. If both parties do not get

value, there is no transaction.”“Some 30 years ago, there was a lot of debate about

whether quality will increase cost. What did we find?

That if you deeply understand quality and you put

methodology in place, costs automatically come

down.”“ It is the consumer’s right to get world-class products,

not luxury products, at affordable prices and with

multiple choices. And the producer must get fair

wages for his efforts and fair returns for his

creativity.”“The opportunities are immense in the era of

globalization. The surge in connectivity,

digitalization, convergence and social networking

have opened new doors for entrepreneurial

boom.”“Traditionally, companies fragment their brands to

compete for share of segment. Like the Japanese,

you must promise the best price-performance trade

off – the best value – at whatever price point you

buy.”Quotable Quotes 88

“The watch-word for the would-be engineers of the

modern corporation are devotion, empowerment,

focus, entrepreneurship, personal accountability

and customer-focus.”“Quality and alignment of business processes to

strategy and business models can become a source

of competitive advantage.”“We always assume that we are researching the

customer. But it is the customer who is researching

the brands and companies.”“The core competence that support product

leadership is the foundation of corporation. The

banner brands is the roof. Between the foundation

and the roof are the various businesses each resting

on a shared foundation and each supporting a

common roof.”“ The emancipation of women is an important part

of building markets at the bottom of the pyramid.

Empowered, organized, networked and active

women are changing the social fabric of the

society.”“Flexible business processes can create the capacity

to develop new business models and strategy.”“Early in the pursuit of new competitive space, the

most critical resource is not cash, but management

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talent.”“The goal is not just to focus on a few things at a

time, but to focus on the right things, to target those

activities that will make the biggest impact in terms

of customer perceived value.”“Some firms approach alliances and joint ventures

with the attitude of a teacher, others do it with the

attitude of a student.”“Dividing meagre resources across a wide range of

medium-term operational goals is a recipe for

mediocrity across a broad front.”“Technology is increasingly stateless. It moves quickly

across borders in the form of scientific papers,

foreign sponsorship of research, cross-border equity

stakes, international conferences and so on.”“Unlearning most often takes place before learning

can begin.”“ Industry foresight comes when senior executives in

a company are able to empathize with basic human

needs.”“Having imagined a future, a company must find a

path that leads from today to tomorrow.”“Wealth creation can be a legitimate activity. Wealth

fairly and openly acquired must be respected.”“ If you don’t know where you are going, going faster

doesn’t help.”“Leadership is about the future and about change.

Leadership is about hope too.”

Quotable Quotes 90

Leaders of India Inc. Speak

Edited excerpts from newspaper reports ofDr. Prahalad's first memorial service held at Chennai

S. Ramadorai Vice Chairman, Tata Consultancy Services

It is time the nation introduces next practices in

governance by looking inward and not outside, for

inspiration… We should create a Centre for Clean

Governance.

Dr. Prahalad espoused a six-pronged strategy to

be on par with the developed nations in 2022. We

must innovate to create a 500 million skilled

workforce and leverage technology for uplifting

the poor primarily by providing education and

imparting skills.

Jamshyd N. Godrej CMD, Godrej and Boyce Manufacturing

Dr. Prahalad's belief that manufacturing was the

core strength of the country is the turning point

in making it a manufacturing hub in the last

decade.

As the nation stood on the cusp of sustainability

requiring enormous changes, Prof. Prahalad's

theories would provide the interface and influence

legislation on sustainability.

Gopal Srinivasan Chairman, TVS Capital Funds

The greatest strength of Prof. Prahalad was that

he was truly humane.

D. Sudaram Former Vice-Chairman, Hindustan Unilever

Prof. Prahalad was the driving force behind Pureit,

a solution to provide safe drinking water at low

price and Shakti, a project of empowering rural

women by distributing FMCG through them. Prof.

Prahalad travelled to remote interiors to interact

with the women for further research.

Shridhar Mitta Cofounder, B4e Inc.

Prof. Prahalad inspired me to set a world-class

testing facility in India and become a role model

to the world.

Prof. S. Sadagopan Director, Indian Institute of Information Technology

Prof. Prahalad dared to be different and was

extraordinarily committed.

P.R. Venkatarama Raja Vice Chairman, Ramco Systems

Prof. Prahalad's repeated message was, "You are

responsible as leaders to lead the country into a

future full of unknowns."

Arvind Srinivasan Administrator, Arvind Eye Hospital

Prof. Prahalad was an alchemist who picked up all

base metals and turned them into precious ones

by working on the collective wisdom of individuals.

Leaders of India Inc. Speak 92

Lectures delivered at AMAby Late Dr. C.K. Prahalad

1. Opportunities for Indian Organisations for theGlobal Markets (August 20, 1993)

2. The Power of Imagination: India’s Legacy and thePath to the Future (January 8, 1999)

3. What We Cannot Imagine: We Cannot Create(January 7, 2000)

4. Face to Face with Dr. C.K. Prahalad (TopManagement Forum) (January 5, 2001)

5. India as a Source of Innovation (January 6, 2001)

6. Rapid Growth: The Imperative for India (June 29, 2002)

7. India of My Dreams (December 26, 2003)

8. Learning to Lead (January 31, 2005)

9. Changing the Rules of the Game in the GlobalIndustries (February 7, 2006)

10. Advance in Science and its Impact on Strategy(December 28, 2006)

11. The Next Practices: Innovations from India(February 24, 2007)

12. Globalizations of Indian Firms: Innovation orImitation? (February 25, 2008)

13. Global Crisis: Is There an India Advantage?(February 17, 2009)

14. Leveraging India (January 11, 2010)

Lecture CDs available at AMA

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The Late Dr. C.K. Prahalad

For fourteen long years, the late Dr. C.K. Prahalad, during his visits to

Ahmedabad, enriched us with his perspective on business in general

and also on the opportunities that India has, showing us how to

leverage the country’s extraordinary potential in the global market.

A Paul and Ruth McCracken distinguished university professor of

corporate strategy at the Ross School of Business, the University of

Michigan, he topped the “Thinkers 50” list for two consecutive years.

In the word of Des Dearlove, co-creator of the Thinkers 50 ranking,

Coimbatore Krishna Rao Prahalad’s “influence on the business world

is immense”.

In 2009, he was awarded the prestigious Pravasi Bharatiya Sanman

Award for his enormous contribution in the field of management.

In the same year, he was conferred the Padma Bhushan. For over

ten years, Dr. Prahalad was among the top 10 management thinkers

in every major survey.

Author and co-author of several international best-sellers, he was

hailed by the Business Week as “a brilliant teacher” and “the most

influential thinker on business practices today”.

He was a member of the Blue Ribbon Commission of the United

Nations on private sector and development.

He was the first recipient of the Lal Bahadur Shastri Award for

worthwhile contributions to management and public administration.

He was also the recipient of the third Distinguished Global Thinker

Award.

Documents

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