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C. K. Prahalad
  C.K. Prahalad
 

World's Top Management Guru Calls for Radical Innovation at First India Business Conference

10/21/2009 --

Now is the time for imagination, aspiration, disruptive business models, says Ross professor C.K. Prahalad.

ANN ARBOR, Mich. — C.K. Prahalad, recently named the world's leading management guru for the second time, is best known for his work regarding the "fortune at the bottom of the pyramid." But as Prahalad imagines an independent India at age 75, he foresees a new shape on the horizon.

"I am always accused of having thought about the pyramid," Prahalad told attendees of the recent India Business Conference at Ross. "But I was very clear since day one. Our job is to understand the pyramid so it becomes the diamond -- so most people live normal, middle class lives. That, I think, should be our goal as managers and people of privilege."

Prahalad is the Paul and Ruth McCracken Distinguished University Professor of Strategy at Ross. He presented his vision for "India at 75" during the school's premier India Business Conference Oct. 10. Panels focused on emerging opportunities and existing challenges for corporations doing business in India. Experts and faculty discussed the nationís burgeoning middle class, evolving consumer behavior, manufacturing innovations, infrastructure development, venture capital, and more. Alumni and business leaders representing Bharti Airtel, Tata Motors, ITC North America, TVS Capital Funds, and Ventureast, among others, shared their insights regarding Indiaís transforming economy and fast-changing market environment.

In keeping with the conference title "One Billion and Counting," Prahalad shared his vision for converting India's population into the largest economic opportunity the world has ever seen. To do so, three key elements must be integrated: economic strength, technology development, and moral leadership.

"History has shown that economic strength and vitality of technology without morality is defunct," he said. "No other country has as much diversity in terms of language, religion, and ethnicity as India. If we can learn to live in harmony and leverage our diversity, we can demonstrate that the world can live in peace. It's an obligation that diversity is something to be celebrated and leveraged, not squandered."

And it all starts with a goal of 200 million college graduates, a workforce of 500 million trained workers, universal literacy, and 300 new cities by 2022, he said.

So far, the goal of 500 million trained, skilled workers is one the Indian government has officially embraced, Prahalad said. And it's a goal that requires unprecedented innovation. "To train 500 million people at world-class levels and at low cost in [just over a decade] is a goal no society has ever attempted."

Embracing this kind of radical thinking could be one reason that Prahalad has topped CrainerDearlove's "Thinkers 50" list of the Most Influential Business Thinkers for the second time. In 2007, he also placed No. 1 on the biennial ranking of the Top 50 management thought leaders worldwide. [See related story.] The renowned scholar and strategy expert is credited for having coined the term "core competencies" and is the author of the groundbreaking book The Fortune at the Bottom of the Pyramid. He said it's time to eschew traditional strategy in order to actualize an India that plays a significant role in shaping the new world order.

"Leadership is about the future," he said. "We can understand the past, but not be constrained by the past. You cannot start with where we are, and yet that's what most strategy does. When you start with the current situation you can only extrapolate. Strategy is not about extrapolation. Therefore, I think our job is to imagine the future first and fold the future in."

Training India's exploding youth population at world-class levels, despite a current dearth of schools, teachers, and resources clearly requires a new approach. "The methodology cannot be business as usual," he said. "We must have 'stretch goals.' There is no way to train 500 million kids in world-class skills using the old ways. The worst thing that happens everywhere in India is that we have no resources. But no entrepreneur starts with resources. They start with aspirations."

India needs to develop a new social compact in which the private sector, public sector, and civil society work together, but never forget their independent roles, he said. Engagement with India requires excitement, energy, and empowerment. "Those are the operating terms for me that make sense in India."

So what are the challenges for CEOs, whether young entrepreneurs or multinational conglomerates? How does one develop new strategic capital and fundamentally new ways to compete? "You have to create disruptive business models," Prahalad said, "By choice. Ask yourself: Does [this model] radically alter the economics of the industry? Does it improve functionality? Does it make it difficult for incumbents to react? Is it sustainable? And does it enlarge the size of the market?"

Cell phones, generic drugs, the Indian auto industry, and even ringtones all illustrate the point, he noted. In fact, telecom services provider Bharti Airtel is now the largest music company in India. Its $500 million ringtone business did not even exist five years ago.

Advanced technology is required in all of these disruptive business models. "What India needs is the most advanced technology adjusted and adapted to its needs," Prahalad said. "Technology today is no longer a differentiator between the rich and poor. Everybody can have high-quality technology solutions."

A billion people getting their hands on [hundreds of millions] in new technology is bound to change the way people think, and will radically impact education in India, he said. For example, unlike consumers in advanced economies who have multiple options for electronic devices and information carriers (PC to PlayStation; landline to wireless; cable to satellite), Indian consumers tend to own one device (a cell phone) with a single carrier (wireless). But they still want all the functionality and portability of multiple devices. Innovation is bound to emerge from that desire.

"What if we combine in one device the selected functionalities of a PC, a cell phone, and a Kindle, and sell it for $100?" Prahalad said. "What I find fascinating is that Netbook was not invented for the U.S. It was invented for India, but they sold two million Netbooks here last year. This is going to be a very big issue. And I wonder, would you, if you were a young manager at Microsoft or Google or Intel, worry about this issue? I would be extremely concerned."

He pointed to other recent innovations, from a mapmaking software application to a stove fueled by biomass pellets, in which seemingly small efforts on a local scale can create huge impacts. In the case of the stove, Prahalad convinced British Petroleum to let him "have" 10 people for two years. The team worked with BP, members of nongovernmental organizations, scientists, and local entrepreneurs to design, manufacture, and market a well-engineered, smokeless, sustainable, and scalable stove that sells for less than $20. More than 100,000 units have been sold in just four years.

"We started with constraints and pursued a totally aspirational product," Prahalad said, noting that as business models evolve, so does social collateral. "We learned it is possible to create solutions that combine sustainability and improved quality of life."

Such innovations are collapsing the difference between the base of the pyramid, the middle class, and the rich. "I see the emergence of the diamond from the pyramid," he said, pointing to the fact that Indian consumers now enjoy $30 cataract surgery, $35 DVD players, one-cent shampoo, $2,000 cars, and $30 hotel rooms.

But multinationals need to understand these markets do force a fundamental challenge to existing cost structures and price performance. And it's not about investment capacity.

"It's about global talent, new business models, the capacity to collaborate with others who are different from you, and setting common standards and global platforms. We need to worry about global standards, but local solutions. We must focus on awareness, access, affordability, and availability," he said.

In just five years, Prahalad predicts a two-way street will open regarding innovation. "It will no longer just come from the top of the pyramid down, or from the rich countries to the poor," he said. "I see innovation going from poor countries back to the rich.

"But we cannot create this world unless we can imagine it -- unless we have the passion, the courage, the humanity, and the humility to create this world. Intellect helps, but we cannot analyze our way into this opportunity. We have to imagine our way into this opportunity."

Prahaladís presentation set the stage for a full day of sessions and activities regarding "One Billion and Counting." At the close of the conference, Prahalad joined Arun Shourie, former government minister of communications and IT, for a "fireside chat" moderated by Ross professor M.S. Krishnan. They took questions from the audience and covered everything from the explosion in non-English media to the impact of globalization on the Indian financial system. In addition to his role in the government, Shourie once held a position as economist with the World Bank and is a former editor of the Indian Express.

—Deborah Holdship



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