Inside the mind of the Guru

Updated: Jan 21 2002, 05:30am hrs
Coimbatore Krishna Prahalad, has for long been recognised as one of the foremost thinkers and visionaries on corporate strategy in our times. So, when he speaks, the entire management world sits up. In the past, he has shaken up companies and the way they function through some pathbreaking thoughts and ideas, ranging from core competence to that of co-opting customer competence.

Coimbatore Krishna Prahalad
Today, he wears many hats. He is the Harvey C. Freuhauf professor of corporate strategy and international business at the Graduate School of Administration at the University of Michigan. He is also the chairman of a leading edge consulting firm, styled Praja Inc. Further, he is one of the most sought after strategists to companies in India and abroad. It was then, no wonder that his latest thoughts on global restructuring and transforming economies holds the promise for another major debate and application not only in India, but across the world.

He believes that there are five drivers for global restructuring today that includes search for new sources of revenue, the need for speed and greater quality. He predicts that as companies across the world get into a major push for revamp, India will also necessarily need to get its act together. Critically, he exhorts Indian companies and the government to think and act big. Prof Prahalads prescription: aim to create 10 to 15 million jobs a year and have a target of 10-15 per cent growth in the economy. To his gasping listeners, he advises that these mind-numbing targets are achieveable. And how For one, Indian companies need to scale up the level of the activities and economies of operations hugely. It is only they do that, does he believe that companies will be able to reduce costs by as much as 50 per cent. That he says, is the need of the hour for corporates. Some of these steps may also be necessary precursors to larger inflow of foreign direct investment. Another major strategy for companies would be to target the lower end of the market, which he believes has been untapped.

Every few years, Prof Prahalad has come out with breakthrough ideas. Today, he is exhorting companies in India to look at untapped markets like Dharavi in Mumbai, which he has analysed as an example of an island of prosperity with a huge market potential.

But, importantly, today, he is not only asking companies to look at the future, but is also trying to take them to the past. He believes

that it is by understanding the rich legacy and history of our country, that Indian managers can understand the trends for tomorrow. Thats radical. But he says, that is one of the secrets of success of the Chinese and the Americans.

Critically, then what makes Prof Prahalad tick How does he generate his winning and often provocative thoughts and ideas India Inc. get into the mind of the man in a frank conversation.

Curiousity is central to the way I work

Every few years, you have come out with seminal ideas that transform the way companies and industries work and function. How do you pick out these ideas How do you generate them

There are probably three or four things that I personally think are valuable for me. It may or may not work for everybody else. One, I am curious. We tend take a lot of received wisdom as given, but I try not to do that. For example, if I go to a supermarket, I want to know how they make money. If I drive around, I ask myself, what has changed here and why

You cited the example of Dharavi in Mumbai as a case study of a high growth market area. How did you hit upon a place like Dharavi, the largest slum in Asia

You cannot avoid it if you are driving from Mumbai airport to city. I am curious about things on which nothing substantive is written. After I wrote the book, Competing for the Future, I decided that I would not pursue the same line of research. So I took a year off and did not write anything at all. That was very helpful. A lot of people after a successful book want to write more right away. My attitude is: a book is a way of expressing a point of view. It takes time to cultivate new ideas and I find it helpful to reflect before writing another major piece.

How does this study fit into the new concept and theory that you have propounded on global restructuring of industries

In my research, I enquired about what are the big issues that managers, large companies and countries at large were struggling with. It became clear to me, that with all the moneyalmost a trillion dollars spent on the poor globally in the last thirty yearsvery little has improved. Actually, the difference between the rich and the poor has widened, both around the world and inside countries. So, I felt that there had to be a different way of trying to address this issue. I first started to understand the environment of the poor around the world. I also brought a different mindset to this effort. And this is important. You have to look at the poor with respect and humility, rather than assuming that, because they are poor, they must be stupid. I realised that the poor have to be smart, otherwise, they would not have been able to live. I also tried looking at what is the underlying logic behind their choices. I looked at the dynamics of their lives. In short, you read some, you talk to people, you travel, you go and look at what people are doing. For example, I also studied the dhabawallas. It was fascinating. Their systems of management is so unique. This ignited my curiosity. Over a period of time, it became very obvious, that dealing with the bottom end of the pyramid is going to be the next big challenge. This challenge is for companies and societies as a whole. But I am looking at companies as the instruments of change and not just governments. The NGOs do a great job.

However, many of their efforts cannot be replicated. You cannot solve a problem globally, if you cannot replicate learning. So you need to find a mechanism, where not only can you learn, but one that you can scale both inside the country and around the world. The multinational companies are the most logical instruments for doing this. The next logical question: why is it that they have not seen it yet The main reason is that the basic economic pyramid in the US is so different from the Indian pyramid. What we call poor there, is a rich class here. So, both sides have have tended to assume that they cannot work together. The next step is asking which assumptions need to be changed, about the opportunities in serving the bottom of the pyramid. Once you do that, then the rest of it is experimentation, discussion and more interaction. I would say that curiosity is central to the the way I work. Being a bit of contrarian helps too. You do not want to accept received wisdom, too easily.

In recent times, you seem to have talked about the value of learning from historyfrom Nehru, Gandhi and the deep values by going into history. What is the importance of this approach Is this something new in your thinking

No, these have always been on my mind. And, I do not want to look at these lightly. So when I talk about about deep values, I am asking people to go back 2000 years agonot just 50 or 100 years. The last 800-900 years of Indian history has been dominated by somebody or the other, especially in the northern part of the country. So, the question is: how do you go back to your own roots and ask what were the underlying ideas that were dominant What were the concepts that India had about obligations, state and commerce India was built on commerce. If you study the great empires of south India and examine how they built the great temples, who financed them, you will find the answer: it was because of trade.

But if you go deeper and ask how did they manage the trade routes How did the Portuguese and the Spanish break into the system Why did we not create high switching costs or barriers We may learn a lot more. South indian prosperity was totally dependent on trade. They had to have instruments of credit, management and logistics. So these people figured out regional and global logistics. But we dont study them. Also, they thought about employment and fair wage. I looked at that part of history and said that there may be a lot more wisdom. I do not do this to glorify everything in the past that was right, but to understand criticallyand I think the word is very importantcritically, as a scholar first. In India we go from totally rejecting everything Indian or totally glorifying everything Indian. The reality is somewhere in between. The question is: how do we get a balanced view What should we preserve and what do we reject I think, the Chinese do that very well. They have a deep sense of history. In india, we often lack a sense of recent history.

I will take a bet, if you ask 15 and 10 year olds in Madras who are the six people who won freedom for us What were their backgrounds, What were the relationships amongst them How was Rajagopalachari, Kamaraj and Maulana Azad related to each other What about Sarojini Naidu, Nehru, Gandhi and Subhash Chandra Bose I do not think they will not be able to give the right answer. A society which forgets its roots cannot succeed. There is a deep sense of history in the United States. People dont understand that.

Today, chief executives are grappling with daily issues of managerial survival. How do you think they will have the mindset to even look back at the past, when they are managing for today

Why is the CEO interested in daily survival. What can he or she do to improve performance on a daily basis That means, that they have not built any kind of management underneath. Then, you actually have a bigger problem. So, let us not worry about the future. Let us worry about creating management structures. Why is it that more Indian companies cannot create clean and smooth succession programme like what Infosys seems to have done. Mr Narayana Murthy said he would do it. Three years later, he has done it. He has built himself space to think about different things and contribute differently. But if all that he can do is to keep checking what are the things that are happening in the company, firstly, the company will not grow and second, you will always be overworked. I have to do the same thing in my work. I have to create space for myself and I have to create space to think and write. There is only so much that you can do yourself. You have to make commitments carefully and make sure that you do an exceptional job with those.

You spoke about balanced perspective that is needed in management. In India, after you propounded the theory of core competence, there has been a huge debate on whether companies must stick to their core competencies or miss out on diversification opportunities. Companies are actually grappling with how to manage the two. What is your advice

I think, the problem is that they do not understand what core competence means. Core competence does not mean, do not diversify. Core competence also does not mean only work with what you have. It is also about building new skills. The dominant idea idea at the time of my paper was that business units may provide focus and identity. But if you want to leverage investments, you need to go to the skill base. That may transcend business units. And that is what we call core competence. So, this is not a case against diversifications. It is a case for diversificationbased on skills. If you look at 3M, they have 60,000 products. If you look at NEC, Sony, Honda or Canon, the first thing to recognise is that core competence has nothing to do with diversification. We made a distinction between conglomerate diversification in unrelated fields or diversification in multiple businesses based on common core skills. That was the first point.

For India, we talked about two other related issues. Core competence under discontinuous change can create a core rigidity. Under the license raj, the core competence of a company may have been government lobbying. Under open markets, you cannot compete on the basis of lobbying. Quality and costs are the drivers. This is the second point. The third principle is simple: we need to distinguish between core competence that we have and core competence that we need. That means, we need to learn to build new skills at low cost. The trick is in accepting that new skills are needed and why. These are the three simple principles. There is no rocket science, but people do not take the time to understand it. We are always looking for, what I call, the fashion of the week. It takes time to digest new ideas and their implications. I always get asked the same question. Is core competence now obsolete How can fundamental skills as a basis for growth become obsolete. The skills may change, but the notion that skill are a basis for growth is still relevant.

So, when skills change, how do you keep yourself relevant

You must build the ability to learn at low cost. That is when concepts like partnerships and alliances come bringing in the whole methodology of how you learn at low cost. Skills are a basis for change and the required skills change with the environment. Diversification based on skills allow you to leverage what you have learnt in one business and use it in other businesses. It may not be 100 per cent, but 90 per cent. That is very different from saying, I am going to do financial engineering. My attitude is that if you are going to do financial engineering, the market can do it as well. So, why are you more efficient than the market. In other words, the value-added must be that you ought to be more efficient than the market. It means that you must be transferring something which the market cannot transfer on its own. That is a pure, simple market theory. So what happens is that people do not take the time to think through logically and then, somebody says core competence does not work.

Somebody asked me, is core competence still valid So, I said, let us assume it is not. So what I feel good. If nothing new has come out in the last ten years, that means that we have made no progress. That is awful. No scientist, no scholar, no single idea will live for ever. In 1990, the core competence paper did something simple. It looked at the business unit as a unit of analysis. But now look at it as a portfolio of competencies. That was the first paper. Two years ago, I wrote another paper called co-opting customer competencies. The second transformation was from corporate to suppliers. The third transformation is corporate, suppliers and key customers. So, all of them become source of competencies. That is what I am saying now. How do you get into the enhanced network, how do you get into the supply base which have multiple business units.

What is the next big idea that you are working on

On the transformation of the economy. I am working on a book. Hopefully, we will see that next year.

You also raised a lot of debate with your article in HBR about multinationals approach of corporate imperialism. MNCs seem to have realised what you have been saying. What more should they be doing

I dont think they have addressed those issues. A few like Hindustan Lever, maybe. Pepsi is really is not going to the bottom of the pyramid. Dharavi is a very good market for HLL. Dharavi is a very good market for them. It is a very rich place.

Dharavi is an unorganised market. Can corporate managers legitimately work there

Sure, the unorganised market is one of privileges. They are not just going to hand it over. But, why is it any different from entering any market in the United States If you want to enter the import-export market in the United States, you still have to worry about mafia there. If you want to enter into the city based business in the United States, you still have the gangs. The same thing is here too. My attitude is: sorry, you have to work hard in creating visibility.

For example, we did the same thing with oilseeds and in milk at Anand, Dr V Kurien had something started by Vallabhbhai Patel. People forget. Amul was actually started by Vallabhbhai Patel. Dr Kurien inherited an organisation which he turned into an extraordinary organisation. This is not to take anything away from Dr Kurien. He made it what it is today. But he had to face opposition in order to build something great. Even with his track record, when he went into oils seeds, he faced the same problems. The money lenders wanted to kill him.

Why cant you make ice creams cheap You have set a simple goal. Ice creams for Re 1. It is a simple goal. But you need to have good quality. That you cannot escape. Then you also need wide distribution. That also you cannot escape. These are the givens. Why cant we go and tell the young people to go and invest in the system But today, all the debate is not about what can be done, but about why things cannot be done.