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From Best Practices to Next Practices

5/8/2009 --

Bharti Airtel CEO explains how his company used concepts outlined by professors Prahalad and Krishnan to stimulate growth, gain profits.

ANN ARBOR, Mich.— In their book, The New Age of Innovation (McGraw-Hill 2008), Ross professors C.K. Prahalad and M.S. Krishnan argue that successful companies no longer can invent products and services on their own. Instead, they need to co-create unique experiences with customers and tap a global network of partners and suppliers to deliver the most value.

Think of an iPod. It's designed in California with hardware from Asia. The content is selected by the customer and each one is unique. Or consider Build-A-Bear. What gets parents to pay $20 to $50 for a stuffed animal? Is it the bear, or the experience of making it the child's own?

During a recent seminar sponsored by the Ross School's Office of Executive Education, one CEO demonstrated how these ideas helped transform his telecom business into one of the fastest-growing in the world.

Manoj Kohli, CEO of Bharti Airtel, joined an April 17 presentation featuring Prahalad and Krishnan via video link. In addition to experiencing impressive growth in a slow economy, Bharti Airtel has increased its profits and eliminated debt, Kohli told the audience.

Bharti Airtel charges phone customers about 1.2 cents per minute. In the U.S., customers typically pay about 20 cents a minute, and yet the technology is exactly the same. How does the company manage this?

In Bharti Airtel's case, necessity was the mother of innovation. In 2002, the company was losing money and its stock price was depressed. It needed a new business model, and it had to follow one principle: "We will do only what we know and not do what we don't know," said Kohli.

The Bharti Airtel team knew a lot about customer service, financial management, and brand building. They didn't know a lot about network management or information technology.

So the firm developed an outsourcing model. Bharti Airtel outsourced its network to leading providers, essentially buying capacity instead of equipment. It tapped IBM to run all of its IT systems in a deal that was, at the time, unique. Bharti Airtel also outsourced its towers. The company has a about a half-dozen partners that handle customer service call centers.

On the distribution side, Bharti Airtel partnered with thousands of retailers and distributors so it didn't have to own real estate. It focused on rural areas in India as economic prosperity there grew, but the local economies were still cash-based.

This allowed Bharti Airtel to focus on providing the lowest cost per minute while still investing in growth and new services to build up the brand.

"We look at every minute of cost, revenue, and margin," Kohli said. "If you make money per minute, then you will make money on every customer. This business model is very unique and very different than Western telecommunication companies."

The Bharti Airtel model involves more than simply outsourcing, he noted.

"Our partners are not treated as vendors," Kohli said. In fact, the company's vendor/partners are included in strategic meetings and take part in all company celebrations.

While the model has made Bharti Airtel cost-competitive, it also has allowed the company to invest in new products and services. It has developed ways to use the cell phone as a debit or credit card and has come up with a lifetime mobile plan. The company also is working with banks and retailers to move money the way Western Union does, only via cell phone. A sender could call with a code and the recipient could pick up the money at a nearby retailer by giving the proper code.

Bharti Airtel also is a major provider of music downloads and is moving into broadband and satellite services.

The company's model is now being copied, said Kohli, but it has a head start over the competition as the battle heats up in India to sign customers for broadband and satellite TV.

The ideas outlined in The New Age of Innovation have put his company in the right position as it battles for the "entire wallet share" of current customers, while still seeking to add new ones, he added.

Prahalad said companies shouldn't be following others but looking for "next practices."

"Best practice means somebody has already done it," he said. "Next practice means you're creating it."

Read an interview with Prahalad and Krishnan.

—Terry Kosdrosky

For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu