So here is the latest book from Prahalad and one with ‘Innovation’ in the title so this was a must read for the Ruminator. The book’s main theme is driving co-created (between customer and company) value by leveraging global networks of employees, suppliers, and even customers. The innovation is therefore not just a product, but how products will be/are being co-created for customers, one at a time. Thus the book illustrates this concept as N=1. That is, customers are no longer to be grouped, clustered or segmented along demographics, psychographics, and whatevergrahics – customer are now individuals who can help define the product or service they need/want. The other half is R=G or Resource=Global. In order to satisfy N=1, you need R=G. That is, you need the design from one source, the low cost manufacturing from another source, and the value added Information Communications Technology (ICT) from another source – all potentially globally distributed. Beyond the what of N=1 and R=G, the book goes on to explain the social and technical infrastructure required to support it – and how to transition an organization towards this vision of continuous innovation.
The concept of N=1 is defined as creating one ongoing experience at a time. This also means a shift from traditional transaction based relationships where companies exchange products for one time payment to companies exchanging services for ongoing payments. In the automotive world, a good example is http://www.zipcar.com where you can easily rent private transportation instead of buying a car outright. By moving to a more service oriented value proposition, there is more opportunity to add ongoing value for the customer preventing your product from becoming a price only commodity. Interestingly, the concept of co-creation or N=1 was quite popular in the 90’s but termed differently. Then it was called Mass Customization in the automotive industry. Some of the premium brands were able to succeed here (Mini for example) but many did not. Currently, people still buy cars much the same way they did decades ago. The book explains that this failure was due to insufficient supporting back end infrastructure (business processes and logistics) which seems quite true given the complexity of a large scale automotive business.
The concept of R=G seems on the surface to be just BPO or business process outsourcing. But it is more than just farming out simple, repetitive tasks to low wage countries. The benefits are growing as capabilities around the globe increase in sophistication. For example, you could hire a firm to develop complex analytics – to better understand a customer based on buying patterns and other available data so you can send them targeted marketing messages. A current example is Amazon.com which tracks your buying and shopping habits and then configures what it shows you and emails you. It is an automated personal shopper if you will. How many other websites have that level of sophistication? You can also find someone to develop software that monitors changing employee skills, directing workload and training to individual employee based on experience – to drive totally transparent work processes so you know everything about a customer and can match consumer needs with employee skills. For both the employee and the customer, it seems like there’s less and less anonymity – and nowhere to hide… The goal is to know exactly what the customer needs and when he needs it and then communicating it to him using the channel or representative most able to close the deal!
To enable the above, you need to evolve or develop the necessary Information and Communication Technology infrastructure for an N=1 and R=G world. ICT needs to be integrated fully into management decisions vs. current popular thinking where IT is something to be cost reduced and outsourced. This concept did open my eyes a little regarding IT. I agree with the authors that if line managers better understood the capabilities that ICT can provide, much of the business processes we have today would be turned upside down!
Prahalad and Krishnan sum it up best: ‘As we move to an N=1 and R=G world of value creation, we believe that competitive advantage will depend on a firm’s approach to business processes that can seamlessly connect consumers and resources and manage simultaneously the needs for efficiency and flexibility. Firms will compete in providing a unique quality of experience in their products and services to each customer. It will be a race to provide a unique customer experience at the lowest cost… every business process is enabled by the underlying ICT architecture. It is the combination of such ICT platforms and business process capabilities aided by analytics that delivers contextual insights and cuts short management latency for action.’