Monday, January 26, 2009

Unlearn the past to create the future: C K Prahalad

There was a time when the general belief was that the developed markets are the source of innovation and the benefits of their innovation may flow over time emerging economies like India. That the opposite could be true, that the world could be more equitable and that innovation could flow from emerging markets to developed markets was never seriously considered. Why is the obvious sometimes so hard to recognise? It’s because of the tyranny of dominant logic.

Dominant logic is the result of a pattern of socialisation. All of us are susceptible to it. Often, the dominant logic is implicit. For over fifty years, developed country managers, consultants and academic researchers have been socialised to believe that developing markets cannot be a source of innovation. The academic community has, by and large, accepted this notion as well. The dominant logic provides the theoretical lens with which we see the world. I think it’s time to challenge this received wisdom.

We need to bring back a dash of curiosity, creativity and imagination into the discipline of academic research. To create the future, we have to un-learn the past. We all know the learning curve, but equally important is the forgetting curve — the rate at which we unlearn old habits that hinder our ability to spot emerging opportunities.

The fact is, emerging economies today are becoming the laboratory for new business models. Countries like India are resource constrained so you just have to be innovative here. 800 million Indians live in poverty — can they become a source of innovation and growth? Aspiring young consumers want world class goods and services at low prices. The challenge is to figure out how to do it.

There’s a market for everything in India be it laptops or packaged food. For example, India presents a new challenge and an opportunity for those in the healthcare business; a poor country with over 45 million people with diabetes. How do we get the life long service for diabetics who are poor at a price they can afford? There are big opportunities for building disruptive business models. Today, thanks to new technologies, connectivity and globalisation, price-performance envelopes are changing faster, in every industrial sector, than anyone would have expected.

A truly disruptive business model radically alters the economics of the industry. In the emerging markets, cell phone services offer an excellent example of disruptive innovations that have altered the economics of an entire industry. Bharti Airtel, for example, is adding three million new connections to its network every month, which will make it the largest cellular service provider in the world next to China Telecom, which operates as a monopoly.

Another characteristic of disruptive innovations is that they enlarge the size of the market. They improve functionality and make it difficult for incumbent players to react swiftly. And being based on logical, internally consistent business principles, they are sustainable in the long run.

Emerging market companies offer examples in the field of IT, ITES, pharmaceuticals and FMCG that fit all these characteristics. In India, we have disruptive products like the one cent shampoo sachet, the $20 hotel chain (Ginger), the $30 cell phone, the $35 DVD player, the $30 cataract surgery (Aravind Eye Hospitals) and the $2,000 car (Tata Motors). These products have taken things from the rich to the masses. They’ve used what RA Mashelkar calls ‘Gandhian engineering’, embracing resource constraints in the quest to do more with less for more people.

When you look at the companies that have achieved this, you find their aspirations are greater than their resources. Here, it’s stretch and strategic intent that drives the innovation process. Imagination constraints, I’ve found, are far worse than resource constraints.

Disruptrive, resource-constrained innovation necessarily starts with a perspective best described as : “Price-Profit = Cost”. It makes use of advanced technology and leverages assets that are unique to the market. It has scale and logistics and it has the capacity to collaborate with other players.

For those who create the theories of management — us academicians — there’s a need to cultivate curiosity about new phenomenon and emerging markets and pass this to the next generation of scholars. Instead of the usual denominator management that we’ve come to be so good at, we need to focus on next practices, look for the new, the outliers. We need to think of strategy as innovation, tighten the academic-business link and build a new research connection. What’s needed is a transition in our thinking, to an inclusive model of growth where you do more with less for more people.

(The article is based on the opening address by the author at the Strategic Management Society conference at ISB, Hyderabad)

(The Economic Times)

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