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Published: August 9, 2010

 
 

The Life’s Work of a Thought Leader

In interviews conducted before his untimely death, C.K. Prahalad — the sage of core competencies and the bottom of the pyramid — looked back on his career and talked about the way ideas evolve.

Coimbatore Krishnarao (C.K.) Prahalad would have celebrated his 69th birthday on August 8, 2010. He was one of the most influential and original strategic and management thinkers of the last 50 years. He was also a friend to strategy+business and, most significantly, a friend and mentor to management thinkers and practitioners all around the world — particularly in India, where he was born and educated, and in the United States, where he lived for most of his career until he passed away from a sudden lung illness on April 16.

Starting in 1977, Prahalad held a post as professor (the Paul and Ruth McCracken Distinguished University Professor of Strategy) at the University of Michigan’s Ross Business School, while building a body of groundbreaking work on the most significant themes in business today: strategy, emerging markets, innovation, and organizational structure. His book Competing for the Future (Harvard Business School Press, 1994), coauthored with Gary Hamel, established core competencies as a strategic enabler, and strategic intent as a managerial purpose; The Fortune at the Bottom of the Pyramid (Wharton School Publishing, 2005) anticipated the remarkable growth of emerging markets; and The New Age of Innovation: Driving Co-created Value through Global Networks (McGraw-Hill, 2008), coauthored with M.S. Krishnan, proposed that the most value-added corporate activity would occur across hierarchical boundaries. Along the way, C.K. wrote three of s+b’s most prescient articles: “The Fortune at the Bottom of the Pyramid” (First Quarter 2002, coauthored with Stuart Hart), “The Innovation Sandbox” (Autumn 2006), and “Twenty Hubs and No HQ” (Spring 2008, coauthored with Hrishi Bhattacharyya).

C.K. and I conducted two conversations in 2009 — face-to-face in New York on January 26 and by phone on June 19 — about the nature of thought leadership and the evolution of his own ideas. During these discussions, he spoke intimately about the ancient ideas that inspired his management and strategic beliefs, described the process by which his thinking evolved, and offered a clearheaded vision of his greatest hopes for the future. We recorded these conversations without quite knowing how s+b might publish them; we knew only that it would be good to have a record of C.K. Prahalad’s perspective on thought leadership. Now, we are very gratified to be able to offer an edited version.

Big Ideas from Simple Questions

S+B: Which of your ideas have had the most impact — and how did you develop them?
PRAHALAD:
One would be the idea of core competencies in a corporation. That has had a long life. For example, it reappears as capabilities-driven strategy. Others included the bottom of the pyramid [the profitability in targeting the 2.5 billion people who make less than US$2.50 per day], co-creation [companies and customers innovating together], constrained innovation [typically used to develop very low-cost but functionally sophisticated products, like the Tata Nano], and dominant logic [the idea that companies are held back by their prevailing view of how to conduct business]. Everybody now talks about shifting mind-sets, which is essentially a dominant logic argument.

In developing all of these ideas, I learned not to start with the methodology, but with the problem. A lot of times, research tends to start with the methodology. I prefer to start with a problem that’s of interest and apply whatever methodology is appropriate.

S+B: For example?
PRAHALAD:
To me, the problems of greatest interest are things that you cannot explain with the current prevailing theory. Core competencies was like that. Gary Hamel and I were doing work in the mid-1980s at ICL [International Computers Ltd., a computer hardware and services company that was later acquired by Fujitsu]. The company had enormous technical capabilities, but it was tiny compared to IBM. We asked a simple question: How does a small company take on the dominant competitor in an industry? Management theory at the time said this was not possible. Honda could not take on GM. CNN could not compete successfully with NBC, Walmart with Sears, or Dell with IBM. The theory said that size matters. The underlying logic of unequal balance — relative market share and barriers to entry — would prevent smaller companies from succeeding.

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.

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.

With every book or major article I write, I start by looking for a logical structure. It must be as simple as Euclid: The shortest distance between two points is a straight line. Once you have this logical framework, everything else, all the examples, are just illustrations.

S+B: How do you deal with the need for precision in your language?
PRAHALAD:
You revise. I’ve never published anything that has not gone through six or seven rewrites. A lot of people hide behind math, even if their thinking is not very precise. I find that trying to say something in English forces you to be more precise. You cannot escape it. That is why, for me, the test of a good, powerful piece is when people say, “But it’s so obvious.” You agonize and agonize and then somebody says, “But it’s obvious.” When I was younger, I used to get so irritated by that. Now I think it’s the highest compliment you can get.

Learning to Think Independently

S+B: When did you first get interested in management?
PRAHALAD:
I was trained as a physicist, and I started working as an industrial engineer in a Union Carbide factory plant at age 19. Industrial engineering in India at that time was a problem-solving discipline, very much in the tradition of Frederick Taylor. The unit of analysis was work, and the people were secondary. But I was intellectually curious, so I read every book I could lay my hands on and then, over time, tried to apply some of the ideas — everything from value engineering to modeling work processes with synthetic data.

I was very fortunate to have, as a boss, a Harvard MBA. He had been one of the first Indians to be a Baker Scholar [the top academic honor at Harvard Business School]. Now he was the plant manager. I was just a trainee, but for some reason Divakaran liked me, and he would give me books to read. He had a very simple rule: When I returned a book to him, I had to tell him whether it applied in India or not. I think he was trying to get me to think independently, and not accept ideas as valid simply because they came from the United States.

The first book was The Human Side of Enterprise by Douglas McGregor [McGraw-Hill, 1960], the book that introduced Theory X and Theory Y. It sparked my interest in the general question, What motivates people? I reflected on how we might apply this concept in our plant, which had communist labor unions.

I was already fascinated by the way work and people are interrelated. I knew how to conduct time and motion studies and break work down into its constituent parts. I was reasonably good at it. But I saw that when we broke down the work, it changed interactions among people — and more importantly, the skill levels that were required of individuals. This forced me to stop looking at a company or a factory as the unit of analysis, as industrial engineers did. Instead, I started looking at people and teams.

I struggled with this quite a lot because I ran the quality department for about three months while the chief of that department was away. At age 19, I had 60 people to manage, and I had to motivate them and make sure things were going right. That forces you to think about people and what makes them do good work. I also had to worry about improving the pattern of their work. In those years, the Taylorist industrial philosophers fought against the people who talked about human beings and motivation. Nobody was yet thinking about the interrelationship between work and people.

S+B: What happened next?
PRAHALAD:
In the late 1960s, I worked for a company called India Pistons, which made automotive components. I loved teaching, so in my spare time, I taught courses on management at the Indian Institute of Technology in Madras. Then on Saturdays, for the All India Management Association, I ran computer simulation games on production planning with two other guys. I also worked over the weekends in the Vellore Hospital [the Christian Medical College and Hospital], a major facility close to Chennai, scheduling outpatients using some operations research tools and technology management.

Meanwhile, I was very keen to write. I found writing was the best way to clarify my own thinking. When you talk you can be vague, and the English language can be delightfully vague. When you sit down to write, you see whether you can express your ideas clearly or not. That habit has stayed with me. When I think I have an interesting idea, I try to write it down for myself first.

I then got an MBA at the Indian Institute of Management in Ahmedabad. I knew enough about industrial engineering by then to be dangerous. It became very clear that to be taken seriously as a teacher or writer, I had to get a good Ph.D.; it was like a union card. In strategy, the choices were very narrow at the time; you went to Harvard to get a strategy education, so that’s where I went.

S+B: What was that like?
PRAHALAD:
It was my first time in the U.S., but many of the cases were easy for me, because I had taught them before in India. I spent a lot of time trying to understand large-scale technology management. For example, with Mel Horwich at MIT, I wrote the first series of cases on the evolution of the barcode. I was also very interested in how global companies work, and in strategy. My dissertation was about how a large global chemical company allocated resources. It introduced the idea of balancing global integration and local responsiveness as an essential tension in understanding a multinational company. Corning was a big example at the time, and one conclusion was that you can’t run a diversified global company with one approach to management, because the level of integration and responsiveness is very different for television tubes than it is for cooking ware.

I worked on similar subjects through the 1970s and 1980s, with Pankaj Ghemawat, then with Yves Doz, and then Chris Bartlett and Sumantra Ghoshal. We all started with the same framework — the tension between global and local — but we approached it in different ways.

Of course, we all invented our own terms. Indeed, the biggest impediment in the growth and strategy literature is that, unlike in the financial literature, there are no standardized terms. There is no organizing thesis and principle. My bottom of the pyramid becomes someone else’s “base of the pyramid.” What’s the difference? There’s not even agreement about appropriate units of analysis. Is it one person? A team? A division? What is the fundamental building block of HR?

Changing the Strategy Paradigm

S+B: Did you go directly from Harvard to Michigan?
PRAHALAD:
No. I went to India first, but I only stayed a year and a half. There was no ability to do research there; people wanted to kill the multinationals, or at least to nationalize them — not to study them. So I came to Michigan. I met Gary Hamel there when he was a student; he got intrigued with some of the crazy ideas that I had, and our work together led to the research which led to Competing for the Future.

S+B: What do you see as the contribution that you and Gary made in that book?
PRAHALAD:
We were able to change the strategy paradigm. At the time, there were three fundamental assumptions underlying the strategy literature. The first was fitness: You have to fit your means with your goals. Instead, we argued for strategy as a stretch: by definition, creating a misfit between your resources and your aspirations.

S+B: This was your point about entrepreneurs before.
PRAHALAD:
Yes. No entrepreneur starts with adequate resources for his or her aspirations. If you want to create entrepreneurial drive in a large company, you have to create aspirations that lie outside your resource base.

The second assumption had to do with resources; everybody assumed this meant financial resources. We argued that accumulated intellectual knowledge — the intellectual capacities in organizations called core competencies — represented a new form of currency. This idea had some antecedents in terms of capabilities, but calling it a new currency had important implications. Like any currency, core competencies could be used to create new businesses, and to reduce risk.

S+B: You’re saying that core competencies have intrinsic value as mediums of exchange?
PRAHALAD:
That’s right. Look at the components that companies sell each other, like optical drives. These are nothing but the embodiment of intellectual capabilities that are exchanged for cash.

Interestingly, the idea of core competencies has been appropriated over the years by two different functional groups. To R&D teams, it’s about technology and the organization of work. To HR, it’s about people and teams. It was supposed to be a unifying concept, but as these two different groups appropriated the idea, they separated it. Underneath it all is the same theme I was looking for when I was 19 years old: how to integrate the patterns of work with human motivation and excellence.

S+B: What was the third assumption you challenged?
PRAHALAD: It had to do with the idea of strategy as positioning a company in a given industry space. Instead, Gary and I said strategy is about creating new competitive space. This foreshadowed ideas like strategic architecture, shaping your future, expeditionary marketing, and so on.

The Individual and the Organization

S+B: What happened in your life after Competing for the Future came out?
PRAHALAD:
It was a tremendous success, and it created a new level of visibility for the work that Gary and I did. Over the next year, I came to the conclusion that it would be very easy to stay on course and keep mining these ideas and writing more about them — but then I was likely to write a mediocre next book. I think many writers fall into that trap.

So in the late 1990s I started looking for the next big idea. I knew it would have something to do with the opening up of markets, such as China and India, that had been dominated before by the Soviet Union. From there, it was very simple to get to The Bottom of the Pyramid. Here are companies desperately trying to grow in new markets, and here are people desperately trying to participate in the benefits of the global economy. So, if you put them together, there must be something good that can happen. I also began researching The Future of Competition: Co-creating Unique Value with Customers [with Venkat Ramaswamy; Harvard Business School Publishing, 2004] at that time, about the rebalancing of power between consumers and the company.

S+B: These seem like very different ideas.
PRAHALAD:
Yes, but both are about the movement of ordinary people into new relationships with power. I started as an industrial engineer, but all along I’ve been struggling with the same question: What makes societies work?

S+B: Now that you mention it, it seems like each one of your ideas is about the fundamental viability of human beings: as consumers making a life for themselves, employees offering their skills as part of a bigger competency, or innovators rising to an impossible challenge. It’s as if you’re putting the benefit of the doubt on the human being.
PRAHALAD:
Yes. If I had to characterize my deepest belief, I would say it’s the centrality of the individual.

Institutions are not central. Institutions are different ways of combining skills and capabilities of the moment. That, of course, is the opposite of the traditional way of thinking, starting from Max Weber and Frederick Taylor in the early 20th century. They posited that institutions were central to society, not individuals. I believe the contrary is true.

Maybe this comes from my philosophical training in India, with Hinduism, in which there is no central authority. The religion is highly distributed and decentralized, held together by its beliefs. Hindus are taught that individuals must improve their situation by what they do. You may have no choice in how you are born, but you have tremendous choice in what you do.

For example, in the Kartikeya story [from Hindu mythology], there is a conversation between Arjuna the warrior and Krishna the god. Arjuna asks questions and Krishna answers, and then finally Krishna says, “I’ve shown you the truth. Now, you choose.” He never says, “You must do this.”

S+B: How does this affect the way you think about strategy?
PRAHALAD:
Conventional strategy didn’t even consider individuals. When a company looked at its resources, it considered its financial situation: could it afford another employee or not, for example, rather than what kind of new employee must it bring aboard.

But when you look at an organization’s core competencies as its most valuable resources, you can begin to think of learning, creating strategy, and innovation as parts of a single long journey. The journey is iterative, interactive, and full of small steps. Nobody gets a big aha one day. Instead, there is searching; there are missteps, experiments, and doubt.

For all of these reasons, it takes time to develop a new idea. If you are a writer, like me, then what you write on any given day may be only a fragment of what you know or what you believe, because you may not be ready to write down everything you have to say. There are breakthroughs, but they happen over a long period of time.

Author ProfileS:

  • Art Kleiner is the editor-in-chief of strategy+business and the author of The Age of Heretics (2nd ed., Jossey-Bass, 2008).
 
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