The Hindu Business Line : ‘Co-create experience with individual customers’

‘Management schools need to understand the specific needs of each student and design programmes that provide opportunities for the institute and the individual to co-create unique learning experiences.’

D. Murali

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A positive aspect of management education in India is the significant increase in the number of universities and institutes offering management programmes with participation from the private and autonomous colleges and institutes, say C.K. Prahalad and M.S. Krishnan, authors of The New Age of Innovation ( www.tatamcgrawhill.com).

A serious concern, however, is the significant variance in the quality of graduates across institutes, the authors bemoan. Management education in India can deliver better, but that demands a shift in our management institutes from lecture-oriented learning to a more participative learning grounded in action-oriented experience, they suggest. “The classroom and project learning experiences need to be co-created with the students.”

C. K. Prahalad, the number one in ‘the global ranking of business thinkers’ for 2007 ( www.thinkers50.com), ahead of Bill Gates, Alan Greenspan, Michael Porter and Gary Hamel, teaches at the University of Michigan’s Business School, where he holds the Harvey C. Fruehauf chair of Business Administration. M. S. Krishnan is the Mary and Mike Hallman e-Business Fellow, and Area Chairman and Professor of Business Information Technology, Co-Director Centre for Global Resource Leverage: India, in the Ross School of Business at the University of Michigan.

Their new book, which is about ‘driving co-created value through global networks,’ revolves around two equations, viz. N=1 (one consumer experience at a time), and R=G (resources from multiple vendors and often from around the globe).

“The concept of N=1 and R=G applies to education as well,” argue Prahalad and Krishnan in a recent e-mail interaction with The New Manager. “Management schools need to understand the specific needs of each student and design programmes that provide opportunities for the institute and the individual to co-create unique learning experiences. The focus should be on shaping the capacity to think about new business models not just learning the application of well-known frameworks.”

Excerpts from the interview.

The idea you propose, N=1 and R=G, looks simple. Why did it take so long to come?

You are right. The concept of N=1 and R=G is simple and intuitive. That is the power of this concept. It is not a question of how long it took for us. It is more about the readiness of the business world for this model. For example, business models for personalised shoes or personalised sites for news and information for unique experience were not feasible 10 years back. The consumers were not ready and neither was it feasible in terms of technologies or capabilities within firms.

We believe that major trends in connectivity of three billion people through cell phones and other devices, convergence of technologies, breakdown of industry boundaries, digitisation and globalisation of business are now making the N=1 and R=G model a reality. We are already witnessing examples such as iGoogle and Apple iTunes that are economically successful N=1; R=G business models. In the book we have examples of various industries including tires, education, shoes, cement and insurance.

Is there a common thread between The Fortune at the Bottom of the Pyramid and The New Age of Innovation?

Yes. It is the co-creation of experience with individual customers. In order to cater to the BOP market, firms by definition need to access the best resources at the best price. For example, in the ITC e-Choupal model, the specific information needed on weather, fertilisers or pesticides is unique for each village and possibly also for each farmer. ITC co-creates this experience with farmers using a variety of resource bases.

What are the criteria governing the selection of companies written about in the new book?

We focused on firms that are in the forefront of the N=1; R=G business innovation model. However, it is clear that this concept is more apparent in hi-tech and purely digital business models such as Google or Apple. Hence, we have highlighted this concept in traditional industries such as tyres, cements and insurance as well. In our search for a new approach to global resource leverage and talent management, we came across several examples of large firms in the US and Europe working with smaller firms in India and other countries. In summary, the book includes examples from big and small firms and also firms from the US, Asia and Europe. Our examples demonstrate firms that have implemented one or more capabilities required in an N=1; R=G business model.

Does N=1 negate the rationale of the industrial revolution and its fruits?

The rationale of the industrial revolution was scale and standardisation. Hence efficiency in operations, managing variance in production and delivering the same product to all the customers were the norm as in Ford Model T. Our N=1 concept demands flexibility and agility in business processes. In an N=1 model, firms start with a base product or service and then co-create a unique experience for each customer.

However, this flexibility cannot be at the cost of efficiency. We need both efficiency and flexibility. The N=1 business model demands the art of managing this tension between flexibility and efficiency to achieve profitability through co-creation of a unique experience with customers. Our point is that the emerging platform for business processes and customer connection makes this possible. The Virtual works platform for business processes from Ramco Systems in Chennai and collaborative social networking platforms from Google or Facebook for customer connection are some examples discussed in the book.

Can R=G face hurdles in the form of tariff walls? What can the other hurdles be?

Our R=G concept is about global resource leverage and access to talent. Globalisation of business is here to stay. The tariff can be a hurdle (if at all) only in the short-run. It will be ironed out in the long-run. The other challenges that firms will face are related to intellectual property rights and contractual issues for micro-transactions. Firms are now used to long-term fixed relationships with suppliers and partners. But R=G calls for a “Velcro” network model where firms will seek the capacity to engage and disengage with partners on a need basis to deliver the N=1 customer experience.

Will an existing organisation, deeply entrenched in mass manufacture for mass markets, find value in switching over to N=1 model?

The answer is yes. A lot of examples in our book are about existing companies that are in the process of making this transformation. Examples of tyre, shoe or insurance firms in our book were companies selling their products and services to traditional mass markets. The important point to note here is that senior management needs to embrace this inevitable change.

As discussed in the final chapter of the book, managers need to build a vision of the N=1 and R=G model for their business and make this transformation in incremental steps that are directionally consistent.

Do you foresee that adopting the N=1 approach can lead to an unmanageable abundance of variety, from the perspective of the customer at the one end and company logistics on the other?

By definition N=1 will increase the complexity and demand capability to manage variety. If firms attempt N=1 with the same old traditional approach to management of resources and talent, they will not be able to cope with this enormous complexity.

Managers need to deeply understand the capabilities required for this transformation. We identify resilient business processes and analytics enabled by flexible social and technical architecture as some of the basic capabilities.

Senior managers need to decode the dominant logic entrenched in their beliefs and values and make appropriate changes. For example, managers may be used to being rewarded for economies of scale and standardisation of processes.

But in an N=1; R=G model, managers need to be allowed to experiment in order to co-create a unique experience for customers, which by definition demands variety in some business processes. Similarly, if all the business processes are trapped in the “best practices” delivered by packaged ERP software vendors, firms will find it challenging to adapt to a N=1 requirement.

On the customer side, we believe that they learn faster and will embrace the N=1 model as long as they find value for the price they are paying. In summary, this transformation to N=1; R=G will demand new levels of information transparency and business process flexibility and agility.

For a country like India, will the new approach to innovation as you have suggested lead to greater employment?

We believe that this new approach to business innovation can open enormous opportunities for countries like India. First, many Indian firms do not have the rich legacy in mindset and systems.

Hence, they may be able to adapt faster. Second, with a large talent pool in India, a number of Indian firms will have the opportunity to partner nodal firms such as Google, Amazon, Microsoft or Nokia as a part of their platform for N=1 and R=G.

We will also find more Indian firms leveraging local resources to serve global customers as in the case of ICICI.

What is the role of advertising in The New Age of Innovation?

Advertising will be more focused and contextual in an N=1; R=G model. There is a reason that advertising dollars are moving to the online world faster than we expected.

The emerging digital platforms help firms identify the specific needs of their customers better and, hence, improve effectiveness and efficiency in advertising. We discuss some examples related to this in our book. Let us consider the online advertisement platforms of Google, Yahoo or Facebook.

Here, firms have the capability to understand specific consumer interests based on their search patterns or interest groups. Advertisers are able to reach consumers contextually at appropriate times.

Once again, such focused advertising needs a new approach to business processes and analytics so that firms can better understand customer behaviour patterns and co-create a unique advertisement experience for them.

Customer experience, personalised… When it is technology that makes all these possible, isn’t there an eerie absence of the human element that a customer may well want in the product or service?

While technology certainly is a central enabler of the N=1 and R=G model, the concept of N=1; R=G is about the centrality of the individual (both customers and employees within the firms). Co-creation of experience cannot be always delivered with technology alone. It requires access to the “right” employees in terms of talent, skills and temperament. As we discuss in Chapter 7 of the book, firms need to have an N=1 approach to their employees in talent management. They need a set of systems and processes to enable and track the development of the specific skills, capabilities and values of each employee to play an active role in the co-creation of unique experience with customers.

Have you considered how the secondary market for products will be impacted by the N=1 idea?

It is a very good question. By definition, N=1 means a unique experience co-created with customers. However, there may be residual value for a product or service co-created with a specific customer, and this may further need co-creation with the new customer for the right price, as for example on eBay, which is often a secondary market.

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