The same was true for the central idea in The New Age of Innovation, which had to do with customizing for each purchaser individually (“N=1,” as we called it), but with global resources (“R=G”). We published it just as social networks were emerging, and as all the ideas about Connect + Develop [Procter & Gamble’s open innovation strategy] were emerging. But the concept had been brewing for quite some time. It went back to “co-creation” and “future competition” from the early 1990s. It did not come overnight.
S+B: What makes a topic worthwhile in your view? How pragmatic does it have to be?
PRAHALAD: I take the pragmatic value as a given. I look at the manager’s point of view, not the academic point of view. It also has to be very parsimonious — precise in its thinking. I can take any of my books and give you a flowchart in one page on the substance of the book.
Just for fun, let’s look at The New Age of Innovation this way. We start by talking about the external forces changing business. The first is: Four billion people are connected through wireless telephones. Five billion will be connected by 2015; that’s almost all of humanity, for the first time in human history, communicating with one another. The second force is that the cost of digitization is going down. I can buy a 16-gigabyte thumb drive for $10 and a cell phone for $20. This means access to technology is not anymore a problem, for the rich or the poor. The third is the convergence of functions in every type of product. Cell phones, computers, maps, calendars, TV, radio, watches, cameras — these are all one device. Yogurt is now both a food and a source of bacteria that help people resist aging. The fourth is social networks. As a corporate leader, you need to understand how to deploy these technologies in a way that furthers the dignity of the individual. If you do it right, it can be a very unifying thing in a less-than-unified world.
Together, these trends allow for democratizing commerce. They make consumers more powerful than they used to be. But to what extent will consumers be equal in power to the firms that serve them? To answer that, we look at new firms, like Google and Facebook. Then the logical question is: What is the impact of this new, stronger consumer on old industries, like tires, cars, and healthcare?
Everything before this point in our thought process is obvious; it’s already happening. But we need to look ahead. That leads us to a logical proposition: that companies will use this social and technical architecture to build new capabilities.
We go on to ask: What is the essence of entrepreneurship in this context?
S+B: And your answer…?
PRAHALAD: Having aspirations greater than your resources. That’s universal. Whether you’re Sam Walton or Narayana Murthy [founder of Infosys Technologies Ltd.], if your aspirations are not greater than your resources, you’re not an entrepreneur. For large companies to be entrepreneurial, they have to create aspirations greater than their resources. You can call it “strategy as stretch” or “strategic intent.”
S+B: Is any group with aspirations higher than its resources entrepreneurial?
PRAHALAD: They have the potential. But this is not enough; they have to do two practices well in addition. One, they have to know how to manage and use their resources — not just capital, but intellectual resources. That’s the essence of a core competency. Two, they have to draw these resources from a wider area than most companies do: from partners, suppliers, customers. That’s part of the logic of The New Age of Innovation as well. Then we go on to look in more detail at the new business models, new industry characteristics, and new ways of tackling market inefficiencies implicit in this approach. Those became sections of the book on strategic architecture and expeditionary marketing. The whole book can be summed up in a diagram with all these elements.