BOOK REVIEW: The New Age of Innovation: Driving Co-Created Value Through Global NetworksBy CK Prahalad and MS Krishnan; McGraw-Hill £16.99 (€21.55)
EVERY SO often, a book comes along that demands to be read: sometimes because of the author's great reputation; in other cases, because the subject is so important.
In the case of The New Age of Innovation, both are true. Prof CK Prahalad of the University of Michigan, whose previous books include Competing for the Futureand The Fortune at the Bottom of the Pyramid, is sometimes described as one of the most influential thinkers in the world. And the book deals with a pressing issue for managers today: how to compete in a time of rapid and unpredictable change.
Prahalad, who was last month appointed as a non-executive director by Pearson, owner of the Financial Times, and co-author MS Krishnan, also a professor at the University of Michigan, start by telling us "there is a fundamental transformation of business under way [which] will radically alter the very nature of the [company] and how it creates value. No industry is immune from this trend."
Two factors are driving the transformation. First, the age of mass production is over. Customers demand unique value, and businesses that supply it are winning out over those that do not. "Value is shifting from products to solutions to experiences," say the authors. Relationships are taking over from transactions as the central element of exchange. Building customer relationships means understanding customer needs - even if you have millions of them scattered around the globe.
Second, say the authors, no one business is big enough to achieve this. So, instead of seeking to control resources, companies should be using alliances and networks to gain access to resources, regardless of who owns them. Rigidly structured value chains and supply chains are a thing of the past. Instead of chains, managers should build constellations of suppliers that can be reconfigured in different patterns to meet different needs. To do this, the company needs a technical architecture within the business - not only information technology but also well-designed communications and human networks - and a management that values flexibility and is not impeded by past models.
Backing up these assertions are a rich variety of case studies of successful innovators - and not just the usual suspects. There is ING's life insurance business, where new IT architecture has made it better able to tailor products to customers' needs while reducing processing time for new insurance policies from 10 days to 30 seconds.
Then there is ICICI, the Indian bank, which has transformed itself to serve a variety of customers, ranging from big Indian conglomerates to microfinance in rural communities.
There are many other Indian examples too, and this is one of the book's better features. India is now a hotbed of this kind of management innovation.
In conclusion, managers need to get closer to customers, gather the necessary information to understand their needs, access the resources required to meet those needs, and configure how the business is organised to make everything work efficiently. All this might just seem like common sense. Managers should be doing these things anyway, so we should not need another book, even one as profound and detailed as this. Sadly, it would appear that we do. Common sense is not taught at business schools, nor do consultants offer seminars on the subject.
Managements will continue to fail if they continue to confuse technology with the potential value that technology can create; if they think of customers as a mass rather than individuals; and if they fail to realise that how they manage is as important as what they manage.
- (Financial Times service)
