But if you looked closely, exactly the opposite was happening in business. A selective set of small companies were successfully taking on larger ones. Canon took on Xerox; Sony took on Philips. Toyota took on GM. By probing this, Gary and I concluded that these new competitors were leveraging their intellectual resources — as groups, not as individuals. That is how the idea of core competencies [as published in Competing for the Future] was born.
The same thing happened with the bottom of the pyramid. The prevailing assumption was: What is the underserved market in emerging countries? Most companies assumed this market was largely made up of the middle class, which represented about a billion people. A more interesting question was: Why are another 5 billion people not being served? How can you say you’re a global company and not serve 80 percent of humanity?
Then when we started looking around, we suddenly found some examples of people serving that market of 5 billion. So we looked at the logic. Doing business with the bottom of the pyramid meant having a different cost structure and different marketing practices. Rather than the familiar four Ps of marketing — product, price, place, and promotion — we came out with four As: awareness, access, availability, and affordability.
Every one of my research projects started the same way: recognizing that the established theory did not explain a certain phenomenon. We had to stay constantly focused on weak signals. Each weak signal was a contradictory phenomenon that was not happening across the board. You could very easily say, “Dismiss it, this is an outlier, so we don’t have to worry about it.” But the outliers and weak signals were the places to find a different way to think about the problem.
If you look historically at the strategy literature, starting with Alfred D. Chandler Jr.’s Strategy and Structure: Chapters in the History of the Industrial Enterprise [MIT Press, 1962], the most powerful ideas did not come out of multiple examples. They came out of single-industry studies and single case studies. Big impactful ideas are conceptual breakthroughs, not descriptions of common patterns. You can’t define the “next practice” with lots of examples. Because, by definition, it is not yet happening.
S+B: You have to create a story out of what doesn’t exist yet.
PRAHALAD: Yes, and therefore you have to make it conceptually strong. The data is only an illustration. For example, with the “Twenty Hubs and No HQ” article [which described a proposed structure for multinational companies], we didn’t prove the value of this system through examples, because we didn’t have examples. But we laid out a logic about how it might work, connecting the dots, showing a new pattern. I believe that conceptual breakthroughs come when you see a new pattern. And you use stories or companies’ work as examples and illustrations of the concept, not as proof of good practice. In The New Age of Innovation, for instance, I write about Aravind’s remarkable cataract surgery practice, but I use it as an example, not as proof. I never say, “Because of Aravind’s example, we know this should work.” Current practices, however successful they are, may not be robust enough to stand the test of time.
Timing and Logic
S+B: One interesting thing about The Fortune at the Bottom of the Pyramid was its timing. By choice or luck, it came out just as the possibility of a huge emerging middle class became visible.
PRAHALAD: That is true. But the idea was not new then. It was on websites in 1998. A few companies picked up on it: Hewlett-Packard, Intel, some research groups. But nobody wanted to publish it until strategy+business did, and then not until 2002.