CK PRAHALAD

C. K. Prahalad is Harvey C. Fruehauf Professor of Business

Administration, Professor of Corporate Strategy and International
Business at the University of Michigan and an independent consultant..
He is best known for his collaborations with fellow strategy expert
Gary Hamel. Together they wrote The Core Competence of the
Corporation, which became one of the most highly acclaimed articles
ever to be published in the Harvard Business Review. This was
followed by their bestselling business book, Competing for the Future:
Breakthrough Strategies for Seizing Control of Your Industry and
Creating the Markets of Tomorrow (1994). His latest book, The Future
of Competition: Co-Creating Unique Value with Customers, waas
published early in 2004.

Competing for The Future was written in 1994 and had a huge
impact on how companies think about strategy. How has your
view of the world changed since then?

Competing for the Future was a very company-centric view of the world. We were still focused on the firm. We
were also very product and service centric. Think about what has happened since then. Competing for the Future
was written before ubiquitous connectivity became common. Whether it is the PCs or wireless, the book was pre-
connectivity. Also the business world was not as well developed in terms of convergence of technologies and
industries. That process was just starting.

What has changed in the intervening period?In the last ten years, several forces have changed the way we think
and live.One is tremendous deregulation. Consider what is happening to wireless around the world. It's going crazy.
Today there are more wireless phones than landlines. Ten years ago wireless was just a blip.

A second force is the increasing role of emerging markets today. China and India are driving wireless and the
development of wireless devices as much as the developed world. Actually, I would argue that poor people have
driven wireless more towards success than rich people. We have fundamentally new business models, like prepaid
cards, where I don't have to own a home in order to get a telephone. I can be poor and still get access to a telephone.

What impact do you think these changes have had on the relationship between corporation and consumer?

Deregulation, emerging markets, new forms of globalization, convergence of technologies and industries, and
ubiquitous connectivity, these have changed many aspects of business.They have also changed the nature of
consumers. Today you have consumers who are informed, networked, active and global. As a consumer, I don't have
to leave home in order to be globally connected and active.At the same time they have changed the nature of
companies. Today firms can fragment their value chain in ways that they could not have done before. Not just the
physical products, but the intellectual part of my company - the business processes, management processes,
including research and development, engineering - all that can be fragmented. Some of it can be in India, some of it
can be in the UK and the United States.

Combine digital technology and the telecommunications revolution, the nature of consumer-to-consumer, and
consumer-to-company interactions, the nature of business becomes very different. It changes the very basis of all
transactions- the interaction between the consumer and the company. The consumer is interacting differently with
the firm, and not only that, consumers are interacting differently among themselves.

Could you give an example of how these interactions have changed?

There is a medication called Lotronex. It's used by people with irritable bowel syndrome. After about 250,000
people had taken the medication various side-effects became apparent. So the Food and Drug Administration
( FDA ) suggested they withdraw the medication. But soon the people who were taking the medication organized
themselves, and appealed to the FDA saying 'we understand there are risks but we are willing to take the risks
because the alternative is even worse for us'.

So you find an activist consumer community emerging which is challenging the FDA, and the FDA has reinstated
the medicine. Now the medication is available for a very selective subset of people. The doctors, the pharmacy, the
company, GlaxoSmithKline in this case, the patients and the FDA have all come together and agreed on the risks,
how to make those risks explicit, and how to make sure that the medication is given under a fair level of supervision,
higher than it used to be before. All the parties understand what the implications are. It is an intelligent way of
taking risks. Let us reflect on what has happened here. The consumers, the patients, have created the ability for
GlaxoSsmithKkline to remarket the product and create value for themselves. So have the patients. They are creating
value for themselves. This is a "win-win" for both, an excellent example of co- creation of value, where the
consumer is actively engaged.

In the new book you talk about the consumer as a co-creator of value. What exactly does this mean?

We are moving to a new form of value creation, when value is not created by the firm and exchanged with customer,
but rather when value is co-created by the consumers and the company. So the first question is: how do you go from
a unilateral view of value creation by the company, to co-creation of value by consumers?

Co-creation of value is a very different thing from being consumer oriented. This is not about the firm targeting
consumers and being more sensitive to them. It is about enabling consumers to be equal problem solvers, so that
collectively they create value, and collectively they extract value. So that the consumer is helping the company to
create value and also taking value away by extracting value through either explicit or implicit bargains.

So, the first big idea is the concept of co-creation of value. It's no longer just unilateral creation of value by the firm
to be exchanged with customers.

The second big idea is that it is no longer all about the product, but it is about the experience. The product becomes
the artifact around which an experience is created. If you think about Lotronex, the experience is about feeling well,
and having a good relationship with the community of people who suffer from the same problem. So it is the
experience that is of value, in addition to the medication. Medication is clearly the carrier, but the value is in the
experience.

Thirdly, individuals do matter. Consumer communities, and the interaction with the consumers among themselves,
and between the consumer communities and the company, are of great importance in thinking about value creation.
So if you think about the transition we've made, we have moved away from a firm and product-centric view of value
creation, to an experience-centric view of co-creation of value. It's a huge distinction; from looking at consumers as
targets, to looking at consumers as co-creators of value. Looking at consumer networks, which are autonomously
involved, with or without the sanction of the company, as an integral part of how we create value.

How significant is that shift?

My sense is that Competing for the Future was a clear conceptual and managerial break from the previous view of
how to create value. Co-creation is an equally fundamental break from a firm-centric view.

What co-creation is saying is, because of the changes that have taken place during the last decade we can no longer
be firm-centric. We have to be experience-centric, and co-creation centric. That I think is a big change.
Earlier you touched on the influence of emerging markets. How does this process of co-creation roll out to the
developing world, or does it just pass them by?

That's a very interesting question. The most interesting thing for me is that we cannot deal with the markets of the
poor, or the bottom of the pyramid, without a view of co-creation. Because the poor are very value conscious. The
poor cannot afford to take risks with their purchases. By definition, they are going to be a lot more concerned about
their experiences with products. There is a lot more word of mouth, and a lot more community-based activism in
making buying decisions.

So actually co-creation is more natural, not among the rich but at the bottom of the pyramid. Because the rich in
developing and developed countries behave alike. So when they buy something the attitude is:"if we don't like it, it
is no big deal, it won't break the bank". On the other hand if you're very poor you can't afford to take that attitude.
You have one shot, at buying something, you'd better make sure that it is absolutely what you want, and therefore by
definition, they do a lot more networking and word of mouth discussion before they make any choices.

While we are on the subject of emerging economies, you have in the past spoken about the huge potential of
the Indian economy. Do you foresee a major change in the economic world order?

I think three forces are changing the world order:

One is the co-creation of value we have just been talking about.Second is the importance of the 'bottom of the
pyramid' markets. There are five billion people at the bottom of the pyramid. They have been below the radar screen
of large companies, or not on the radar screen at all. But now they are asserting themselves. If you look at the
number of television sets, the number of radios, and wireless devices that are being consumed by them, it is quite
phenomenal. You suddenly find the Chinese poor, the Indian poor and the Brazilian poor are changing the basic
dynamics of industries worldwide.

The third thing, which I think is usually reported, unfortunately, as outsourcing, whether it's call-centers, or research
and development, or engineering, or IT. What I think is happening is a new willingness of companies to fragment
their value chains in search of speed, low cost, and quality. Improved quality is one theme that we don't see so much
of in the press, as all outsourcing is seen as primarily leveraging the asymmetry of wage rates in India and China, for
example, compared to those in the UK and the United States. Yes that's part of it. But the quality levels are far
superior in IT, for example, in terms of what can be done in India, compared to a lot of companies here in the UK or
the US.

And then of course there is access to a huge talent pool which I think as a manager you have the obligation to
access.

So if you take these three:

A willingness to access talent pool and quality for speed and revenues and cost reduction worldwide.

The emergence of 'bottom of the pyramid' markets as agents of growth and change in the global economy.

And, co-creation, where active consumers become a resource for companies and become equal problem solvers to
create new business opportunities.

These three forces will collectively change the world economic order.

So do you see, as a corollary, a diminishing of the relative competitive position of the United States?

I think that would be premature. The United States is a funny place. They complain a lot but they also change very
rapidly. For example, when manufacturing started moving out of United States in the 1980s, we had the same
complaints and calls for protectionism to stop the import of Japanese cars and television sets. It was popular at the
time to go and smash television sets in front of the Capitol building. So we went through that. Then people
understand. This transition is inevitable and we have to do something. Now nobody is complaining about
manufacturing jobs being lost as much, instead it's about high-end jobs going to India, and high-end jobs going to
other places.

I think there is an immediate reaction, and I think that America is inventive enough to build new business
opportunities, and new kinds of businesses. The leverage is the inventiveness of the community. Because after
complaining and saying it is unfair, Americans are clever enough to realize that they are the ones pushing for
globalization and their agenda is working. The only surprise is that they didn't think that if globalization worked
they would also get hurt. And now globalization is working. Americans are hurting a little bit. But we have to move
on. We cannot stop these forces.

 Related Topics:
 Global business, 
 Strategy, 
 Innovation 

The late C.K. Prahalad was more than an academic; he was one of the foremost business thinkers
of our time. He was the Paul and Ruth McCracken Distinguished University Professor of Corporate
Strategy at the Ross School of Business, where he taught for more than three decades. He was elected as
the most influential living management thinker in 2007 and 2009 by Thinkers 50, compiled by The Times
of London and Suntop Media. During his long career, he wrote five seminal books on strategy. His 1987
book, The Multinational Mission (coauthored with Yves Doz) set the framework for understanding global
business. His book with Gary Hamel, Competing for the Future, hailed as the best business book of 1994,
first introduced the idea of "core competencies." He coauthored (with Venkat Ramaswamy) The Future of
Competition in 2004. Business Week described it as a book "full of disruptive ideas". Business Week and
Strategy + Business voted it as one of the best business books of the year. His book The Fortune At The
Bottom Of The Pyramid was voted the top business book of 2004 by The Economist, Fast Company and
Amazon.com editors. As the book's title suggests, Dr. Prahalad pointed out that the corporate sector can
help the poor — profitably. He coauthored (with M.S. Krishnan) The New Age of Innovation: Driving
Cocreated Value through Global Networks in 2008. He won the McKinsey Prize four times for the best
article in Harvard Business Review and received honorary doctorates in economics (University of London),
engineering (Stevens Institute of Technology), and business (Tilberg, The Netherlands and Abertay,
Scotland). He was a member of the UN Blue Ribbon Commission on Private Sector and Development. He
worked with CEOs of the world's leading companies and sat on the boards of NCR Corporation, Pearson,
plc., Hindustan Unilever Limited, TVS Capital, The World Resources Institute, and The Indus
Entrepreneurs.