A Tribute to CK Prahalad

Winnovation: Rowan Gibson's April Column
By Rowen Gibson
Of all the management “gurus” I have met and worked with, CK Prahalad will always stand tall. His sad and sudden departure a week ago has robbed the world not only of a great mind, but also of a great heart. I bid him farewell.

Rowan GibsonCK and I first joined forces in 1995, when I was writing the manuscript for Rethinking The Future. Our conversations back then taught me a great deal about strategic renewal – the capacity to maintain continuity by constantly creating new sources of profit. In fact, this principle went on to become a cornerstone of my work in the field of business innovation. I therefore feel I owe it to CK to repeat some of those strategy lessons here by way of a tribute. Think of the following words (which are CK’s own) as a last lecture – a legacy – from a true intellectual giant:

“With the tremendous turbulence and the speed with which industries are changing today, you can’t just sit around and wait. While high levels of profits from existing businesses are a must, companies need to be reinvesting in a consistent fashion to create new businesses, and new products, and to shape the pattern of market evolution. They need to imagine new markets for tomorrow, and to build new core competencies that will give them an advantage in those markets.

So it’s about creating a virtuous cycle in the organization, where you are continuously increasing the capacity for leverage and profitability within existing businesses, but you are also continuously redeploying resources to invent new sources of profit – new strategic growth opportunities.

Senior managers should therefore be spending less time looking inward and backward, and more time looking outward and forward. They need to be thinking about the implications of new trends and technologies, and about how their industries might be different in five or ten years. Of course, operational issues are important and legitimate – how to reduce overheads, how to respond to a competitor’s last move, how to improve quality or reduce cycle time – but unless you are growing new markets, new businesses, new sources of profit, you will find yourself on a treadmill, always trying to improve the ever-declining margins and profits from yesterday's businesses.

It’s not enough to imagine the future – you also have to build it. Many companies have had incredible industry foresight, but they lacked the capacity to execute it. Xerox has probably had more technology, and yet missed more opportunities, than any other high-tech company. In order to build the kind of future business which you have imagined, you need to develop this capacity for execution. You need to make a strategic blueprint for turning the dream into reality – a link between the present and the future. You need to carefully work out which new competencies you should be building, which new customer groups you should be trying to understand, which new distribution channels you should be exploring, in order to create a winning position for yourself in a new opportunity arena.

Two things seem to characterize most of the companies that succeed in capturing future opportunities. First, they have aspirations which lie outside the resource base of the company, and they manage to stretch and enlarge their resources in order to succeed in this new market. Second, successful companies have come to a view of the future that provides a sense of direction, a sense of common purpose, a sense of destiny, a single-minded and inspiring challenge which commands the respect and the allegiance of every person in the organization. The role of senior management is to make sure that the company develops this broad aspiration, and in addition that it is clearly articulated, understood and continuously reinterpreted. Every two or three years, management should again interpret its aspiration and say, ‘This is what it means to us in the next two years’, so the challenge is always renewed but the overall strategic intent remains consistent.

A company must also learn to look at itself as a portfolio of competencies, of underlying strengths, and not just as a portfolio of business units. Business units are focused on products and markets, whereas core competencies are focused on customer benefits, such as Apple’s ‘user-friendliness’. Organizations should identify their core competencies and ask themselves what strengths they could leverage in new ways as they move into the future, and what they could do that other companies might find difficult.

Companies are going to have to unlearn a lot of their past – and also to forget it! The future will not be an extrapolation of the past. Like a space rocket on the way to the moon, a company has to be willing to jettison the parts of its past which no longer contain fuel for the journey and which are becoming, in effect, excess baggage. That is particularly difficult for senior managers – those who actually built the past, and who still have a lot of emotional equity invested in it. If you want to escape the gravitational pull of the past, you have to be willing to challenge your own orthodoxies, to regenerate your core strategies and rethink your most fundamental assumptions about how you are going to compete. Most often it takes a crisis before a company is willing to do that. It takes a sense of urgency, a sense that the company's future success is not inevitable.

Of course, to create the future you do not have to abandon all of your past. There is a need for selectivity. But essentially, the success recipes from your past may no longer be the success recipes for your future. For example, quality was a source of competitive advantage in the past. That is where the efforts of many companies have been focused. But quality is now merely the price of market entry, so there is a need to move on. The most important source of competitive advantage for the future is the capacity to create fundamentally new products and businesses.

With new product development costs escalating, if you want an appropriate return on your investment, you have to develop products for a global market. In other words, you have to get access to critical channels of distribution around the globe and then quickly drive the new product to the market in as many of these countries as possible. In other words, the issue becomes not just time to market but time to global preemption. Ed Artzt, former Chairman of P&G, put it this way: ‘If we don't do it early on globally, someone else will.’ Ultimately, the race to the future becomes a mad dash to the finish line.

Go back and look at the Fortune 500 or the Fortune 100 over the last 50 years, and ask yourself how many companies have disappeared from the list, and what the survivors do to stay in that league. You will find that they are continually looking forward, not backward. They are continually changing the rules of competition, rather than following the accepted rules. They are regularly defining new ways of doing business, pioneering new product concepts, building new core competencies, creating new markets, setting new standards and challenging their own assumptions. They are taking control of their future. You can’t do that if you are not willing to change and to move from where you are today. The opportunities are out there for everyone, but capturing new business opportunities is like shooting flying ducks – you can’t do it with fixed gun positions.”

Since CK first spoke those words to me over one and half decades ago (and they are just as relevant today as they were then), my respect and admiration for his insights has only grown. After his seminal HBR article The Core Competence of the Corporation, and the incredible global success of Competing For The Future, co-authored with Gary Hamel, he went on to pioneer the concept of “co-creation” with an organization’s customers in The future of Competition. But the crown of his achievements was undoubtedly The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, which was both brilliant and humanitarian. With this masterstroke, he changed forever the way global corporations view emerging markets, and helped improve quality of life for countless underprivileged people, particularly in his homeland, India.

I will remember CK Prahalad as a man who made our world a richer place, not just in terms of business knowledge, or in terms of company profits (for those who were smart enough to listen to him), but also in terms of economic prosperity in the Third World. Thank you, CK. You will be sorely missed.

© Rowan Gibson 2010
www.rowangibson.com

Rowan Gibson is a global business strategist, a bestselling author and an expert on radical innovation. He is also one of the world's most in-demand business speakers. Rowan's books have been translated into over 20 languages. His new book Innovation to the Core (co-authored with Peter Skarzynski) was published in March 2008 by Harvard Business School Press. Rowan may be contacted at rg@rowangibson.com

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