Nyenrode & RTL Masterclass with C.K. Prahalad
On 12 March, Nyenrode and business television program RTL Z organized a master class with Prof. Dr. C.K. Prahalad, one of the world’s leading thinkers on strategy and innovation. RTL’s Rick Nieman hosted the event. In addition to his television work, Nieman is also the author of ‘De Goeroemethode’ (The Guru Method), a book based on interviews he has conducted with business thinkers.
Host Rick Nieman and Prof. Dr. C.K. Prahalad
Crisis: No panic!
After Rick Nieman’s introduction, Prof. Dr. Henry Robben, professor of marketing at Nyenrode’s Center for Marketing & Supply Chain Management, gave a lecture on the topic of innovation management and new product development during a downturn. He spoke about the current crisis and how companies should respond to it.
Prof. Dr. Henry Robben
In Robben’s view, companies should protect strategic expenditures (and re-label marketing and innovation costs as strategic costs), dial down their stress level and use downtime to enhance skills. Sometimes people need the space to excel (‘give me the ball’). In Robben’s opinion, discounts can be dangerous, as price is often not a deal-breaker. His advice: try to keep your iconic status. To attract and keep customers, companies need to create competitive advantages. These advantages do not happen overnight, Robben says; rather, companies have to create them.
According to Robben, research has shown that the best performing companies have six dimensions at which they distinguish themselves from underperformers: (1) a better vision of the future; (2) clearly award more attention to their competitive playing field; (3) have a better focus on products, markets and competences; (4) formalize the roadmap for strategic change more proficiently; (5) manage the human resources better; (6) keep better track of the progress made. Robben: “For underperformers to become winners, they must improve and step up a step on all dimensions!”
Prahalad: N = 1 and R = G
Special guest of the day was Prof. Dr. C.K. Prahalad from Ross School of Business, University of Michigan. He is the co-author of ‘The new age of innovation. Driving co-created value through global networks’ (2008, with Prof. Dr. M.S.Krishnan).
C.K. Prahalad is not interested in best practices, he says. He is looking for ‘next practices’ and in ‘amplifying weak signals’. Due to globalization and trends such as connectivity, digitization, convergence and social networks, a new approach to innovation and value creation is needed, he states. Otherwise, firms will lose their competitive advantages. The meaning of innovation has changed over the years: from products to solutions to experiences.
According to Prahalad, we now see a re-balancing of relative power from companies towards customers. In his view, companies should focus on individual customers and regard them as a single entity that they need to service (N = 1). Products will be personalized experiences that are co-created by the customers, who keep in touch through thematic communities. At the same time, companies need to think globally in their search for resources (R = G). Instead of a few standard suppliers, companies need to create a delivery network, if necessary around the globe.
New businesses are picking up this new way of thinking, Prahalad says, and traditional firms are now migrating towards this concept. To illustrate these ideas, Prahalad gives several examples. One is the ‘build a bear’ concept. While teddy bears were traditionally large volume, low cost, low margin, seasonal toys and product development was a bit of gamble, the ‘build a bear’ concept gave the bear a new lease of life. The concept allows every customer to have his or her unique bear and shape it the way he or she wants. Children can create their own personalized experience and the bear will be a high margin, year round product. Due to highly involved customers, product development can become experience based. He asks the audience: where is the value? Is the value only in the product or can we find ways to increase value through the services that come with it?
Prahalad gives several other examples of companies that act according to the N = 1; R = G principle. They deal in products and services as diverse as cardiac peacemakers, tires, insurance and shoes. Apple’s iPod is another example of this new way of thinking. Every customer can personalize the device through playlists (N = 1). Apple uses parts from all over the world, although it doesn’t produce or even assemble the product itself (R = G).
Companies that want to transform towards N = 1; R = G need imagination, passion, courage, humanity, humility, intellect and luck, Prahalad says. Innovation is important and the good news is: it doesn’t always have to cost money. Nonetheless, he gives the audience a warning: “Get on the train now. Don’t wait for the next train!”
Again: Crisis
The current crisis is a fundamental reset of the economy, Prahalad believes. “You can’t do more of what you did before.” At the moment, the cost of one cup of coffee is the same as five shares in GM. No one could have predicted that, he says. When the world recovers, it will not be the same, he believes. For instance, a major shift is going on in the world. Postwar institutions, such as the IMF and the World Bank, have decreased in importance, while a G20 is now replacing the G8. In the 1950s, China had the largest middleclass in the world. In the 1970s the U.S., Europe and Japan took over and now the balance is shifting towards China and India again. That is a fact the West has to face. Again, innovation is the key word. “If we don’t innovate, even the CEO’s can lose their jobs.”
Prof. Dr. C.K. Prahalad