Click to Enlarge

C.K. Prahalad and M.S. Krishnan – The New Age of Innovation: Driving Co-created Value Though Global Networks. McGraw-Hill, 2008

C.K. Prahalad is widely regarded as one of the world's leading management thinkers. During the last several decades, his books and his articles in the Harvard Business Review have pioneered a number of ideas with a significant influence on management practice. His 1994 book with Gary Hammel, Competing for the Future, introduced the concept of core competency as competitive advantage and quickly became a management classic.

Currently the Paul and Ruth McCracken distinguished professor of strategy at the University of Michigan's Ross School of Business, Mr. Prahalad has joined with M.S. Krishnan, another Michigan faculty member, in producing this thought-provoking and often complex volume.

This book explores the dramatic competitive transformation underway as a result of the digitization of business processes, ubiquitous access to information and an increasingly informed and active consumer base. It describes the strategies companies will need to create value and prosper in this new environment.

This transformation is being driven by the so-called "Facebook generation" which, the authors argue, expect to be provided with personalized customer experiences while also co-creating those experiences. This is causing business models based on mass production to often become obsolete, instead forcing firms to develop new models to support the co-creation of personalized experiences. While this is hardly an original insight, this book's major contribution is helping companies understand what they need to respond to this transformation.

The book's central thesis is based on what Mr. Prahalad and Mr. Krishnan call the two emerging pillars of innovation, identified as "N=1" and "R=G." N=1 represents the ability provided by the Internet to interact with individuals to co-create value with them, whereas R=G represents the access provided by global supply chains to resources and talent anywhere in the world.

They describe this combination as "the resources of many to satisfy the needs of one."

N=1 requires companies to focus on the importance of the individual, and tailor their products accordingly. To do this successfully they need resilient, flexible and dynamic business processes and strong analytics to identify consumer trends and unique opportunities, and to engage in product co-creation with their customer base.

Conversely, R=G requires companies to build a global network of suppliers that can be reconfigured in real time to meet individual customer needs. This demands both speed and flexibility and a different approach to constructing value chains, an approach emphasizing privileged access to resources as opposed to their ownership.

The authors provide examples of companies from a range of industries, old and new, who have adapted their business models to this new reality. No sector is completely immune from the changes taking place, they say – some such as Google, eBay and Amazon are well-known, but others like the Pond's Institute – which develops skincare products based on a customer's particular skin condition and budget – may be less so.

Indeed, the chapter titled "IT Matters" provides an excellent discussion of the strategic importance of a company's information architecture and capabilities in supporting the business processes and analytics required, while examining why standard IT solutions are likely to be inadequate for this purpose. This is a chapter that every CEO should read, particularly those who tend to delegate IT issues to their chief information officers.

Dynamic business processes must also be supported by the firm's organizational culture and structure. Here, the authors introduce a concept they cleverly call "the Velcro organization."

This describes an organization where people move in and out of task-based projects as needed, and where they can be reassigned without too much trauma or organizational disruption. This is a concept familiar to readers of Nirmal Pal and Daniel Pantaleo's book, The Agile Enterprise.

While this book offers some excellent insights, however, the authors seem to run out of gas at the end. Despite the complexity and comprehensiveness of the changes they propose, the final chapter – titled "An Agenda for Managers" – is quite banal and formulaic, and provides little in the way of useful advice for executives looking for help in making the transition discussed. n

Micheal J. Kelly is dean of the University of Ottawa's Telfer School of Management.