Leader's edge: an interview with C. K. Prahalad

Ivey Business Journal Online, Nov-Dec, 2008 by Stephen Bernhut

C.K. Prahalad is one of the most influential management thinkers and writers in the world. He is the Paul and Ruth McCracken Distinguished University Professor at the Ross School of Business, University of Michigan. He is the coauthor (with Gary Hamel) of Competing For the Future, a management classic, and the author of The Fortune At the Bottom of the Pyramid: Eradicating Poverty Through Profit, which The Economist named as the best book of the year (2004). C.K. Prahalad's latest book is The New Age of Innovation: Driving Co-Created Value Through Global Networks. This interview is based on the book.

SB: In The New Age of Innovation, you write that co-creation of value and global access to resources and talent are emerging as the two pillars of innovation. Can you describe the forces shaping their emergence?

CK: If you look at what has really changed and what are the key drivers of change in the nature of innovation--both the nature and the sources of innovation--there is connectivity around the world. For the first time, more than 3 billion people are already connected, and 4 billion will be connected through cell phones and PCs of some kind, in the next 5 years. That is the first time in human history. The second ... there is a tremendous convergence of technology and industry, making new things possible. For example, if you look at a cell phone today, it's literally a telephone, computer, map, calendar, watch, TV, radio ... there is a tremendous convergence taking place. That's not only in digital technology, but also in food and pharma ... we can go down the list. The third is the tremendous drop in the cost of digital technology. Today I can buy an 8-gigabyte memory stick for $30.00 ... it will go down to $5.00. Essentially, storage and computing and communications are becoming so low-cost, there are such dramatic improvements in quality and price, that technology does not differentiate between the rich and the poor any longer. So everybody can have access to technology. Then there is the emergence of social networks, be it Facebook, MySpace and others. So, there are 4 fundamental drivers that are changing the way we think about writing creation and innovation, and actual globalization has been going on for the last many years.

SB: What do you mean by value co-creation?

CK: The traditional view of consumers and manufacturers was that one produced and the other consumed, so the consumers were fairly passive. Then when you look at a whole bunch of self-service innovations, whether it's at the gas station or airport, essentially the consumers become part of the production process. So they are still part of the production process when they go to an ATM or gas pump, but still it is a firm-centric view and we are just part of the process. We are very oriented towards company-centric processes. When you start looking at what is happening in Google and Apple and so on, Apple produces the device, but it does not make any of the components, it does not produce any of the music; but it allows each one of us to create our own playlist. Google allows us to create our own page. Essentially, what these companies are trying to do is to say you create your own experience. That means I, the consumer, working with a Google platform or Apple platform, can create my own experience. It is different from the company orchestrating a piece of that experience for me. Here, I am involved in creating my own experience; that is true in the case of video games, true in NetFlix and Amazon. You produce a platform within which I create my own experience. This is an active involved consumer, and therefore a very different process of creating a relationship between the consumer and me. What is the benefit? The benefit is you start knowing a lot more about me. Therefore you can suggest--as a company--new movies or songs, knowing my interests. So a lot of analytic understanding of individuals' expectations, individuals' behaviour, allows me to be much more focused on helping serve one consumer at a time. Co-creation assumes that I share some information, I share my skills, beliefs, information and priorities, and the company responds back by helping me improve an experience by suggesting alternates, but making sure I get what I want. That is what I like to call co-creation, which is two joint problem-solvers collectively creating value, rather than the company creating the value and exchanging it with consumers.

SB: What physical/virtual medium would you use to get to my key preferences?

CK: For example, think about what has happened in many cases already. For example, I buy 5 books from Amazon, so they see a pattern of what I buy. They may not be smart enough to know that I might have bought all the books as gifts, but at least as a starting point they can suggest similar books that other people have bought and therefore what new books they can recommend; it happens already. The same thing can be done. NetFlix can look at the kind of movies that I order, and after a period of time they say, 'If you like Nature or Adventure, it seems that these following 3 movies may be of interest to you.'