BOOK REVIEW: The new age of Innovation

Author(s): CK Prahalad and MS Krishnan

The context of innovation has been over the years. In the world of business (especially the ones which are consumer centric) providing superior ‘customer experience’ has become the core, on which organizations build their competitive advantage. However building this customer experience (which varies from one customer to other) is not easy to build from the organization point of view, as they may not have all the necessary resources to do that. This is precisely where leveraging global networks (thanks to the power of Internet) and co-creating value along with customers become very critical, thus forming the new age of Innovation. In the book titled ‘The new Age of Innovation’ authors CK Prahalad and MS Krishnan provide a framework for building this new age of innovation in organizations, which is essential to stay competitive.

Before jumping into details of the book, let us understand the concept with a simple example: The iPhone ecosystem. Given the fact that Apple iPhone (and Apps) are used by millions of customers worldwide, they will have unique set of application requirements depending on their need (ex: App for a local eCommerce site). However Apple alone cannot achieve it by developing millions of applications as they may not have the necessary resources to do that. In order to address specific customer needs, releases a Software Development Kit (SDK) using which can be used by any individual for developing applications and host it as a part of the App-store. This is precisely what authors call it as N = 1, R = G model of innovation. In order to address a unique requirement of a customer (N = 1) firm can leverage Resources (R) that are available globally (G).  In the similar lines of Apple, many organizations are innovating around this N =1, R = G model, some of the examples being Wal-Mart (retail) and ICICI (Banking).

After introducing this new model of innovation, authors dive deep into intricacies in subsequent chapters by taking various aspects and case studies. The first aspect talks about having robust business processes, which lay foundation for innovation as it integrates business strategy, business process and operations. The very process of doing a business activity differently can act as a competitive differentiators, thereby enabling innovation. ICICI Bank in India is a classic example where they transformed the face of Indian banking system by being successfully executing the business process innovation. Also by consistently building on the process they are able to introduce services like internet banking, online trading account, cost-effective support system etc. The subsequent chapter talks about deriving useful insights (ex: customer behavior and expectations) with data analytics by listening deeper into customer transactions. The analytical information derived can be used to take specific actions (ex: Dynamic configuration of resources, continuous improvement, strategic redirection) in order to meet customer/market expectations. Especially for organizations like UPS or FedEx, deriving useful intelligence information from global supply chain becomes critical.

Third aspect of innovation is about having robust Information and Communication Technology (ICT) architecture where building scalable and intelligent systems for responding to unique customer demands.  For example, Google accesses 40 billion distinct pages to create unique personalized experience (N = 1) for its customers, which is aided by strong internal ICT architecture. All the above mentioned three aspects (business process, analytics, ICT architecture) cannot be successfully implemented if organization and its people are not flexible and adaptable enough to cope with changing business environment. In order to achieve the desired results, strong organization commitment should be there in terms of senior management evangelism, strong accountability with alignment and clear understanding of ICT architecture, which is covered in subsequent chapters.

The people goal can be achieved only when the organization evolves by taking real time decision backed up with strong data-points, strong yet flexible organizational structure and pro-actively addressing customer issues. The other key point is to improve the capability of the organization by understanding and continuously making competency improvement in the organization. Authors explain various case studies (ex: Madras Cements) and how they have leveraged the people part to gain business advantage out of it. The final chapter of the book talks about a list of agenda those global managers to adapt for making the innovation work in their teams and organizations.

In my opinion, the context of Innovation has changed to a larger extent recently. What was initially considered as a “cool product” may not necessarily innovative in business sense as it may not make the organizational business successful. Taking customers and their unique experiences into account is a very important for innovating in business today, where many aspects mentioned in the book can be handy. Another very interesting observation is to see many case studies from various Indian companies and their innovation models, which is quite inspiring.

BOOK REVIEW : The Long Tail

 

Price: 275 INR

Author: Chris Anderson

The Business world has gone through disruptive changes during the past decade – one of the main reasons being content (ex: music, books, photos) is created, maintained and consumed. Internet was instrumental for fueling this change, thanks to digitization of anything and everything. The new ‘digital’ way has literally changed (in some cases ruined) many traditional business models, which is been working for decades together. One classic example is Apple iTunes, which has democratized the way music is created and shared across billions of people across the world. Another major aspect of digitization is about providing equal opportunity for niche players by connecting them with niche audience, which did not exist previously. As the digital infrastructure can be scaled overnight (that too with global availability), many innovative models are emerging around it.

In his book ‘The Long Tail’ author Chris Anderson introduces a new model which he calls as ‘endless choices creating unlimited demand’. He explains it with the power law graph (see image on the right). The left side of the graph is about ‘hits’, which has maximum number of non-niche customers. The right hand side is about ‘non-hits’ which reaches niche customers, which also has a huge number, at least comparable to mainstream non-niche customers. The ‘Long Tail’ of business is about selling to niche customers, aided by digital infrastructure.

Let us take an example of creating and distributing rock music in the form of albums. During earlier days, a particular rock band will create an album and approach some or the other major music distributors for making a production (in form of CD/DVD) and distribution out of it. From the distributor’s point of view, they will take a very stringent approach for short-listing these bands as they want to really ensure that the album becomes a hit. This is mainly because the distributor needs to make an upfront investment of creating the physical network (CD/DVD creation, distribution to channel partners/retailers, staff expenses etc…). While this ‘hit’ based world/approach still exists, the niche based items also gaining high importance due to the digital transformation. Today any rock band can still create the music, edit is using freely available tools, make an album out of it and upload into the Internet (ex: MySpace). By doing this, they are completely getting rid of traditional distributors, thereby targeting niche audience who are bored with popular bands and interested to explore something new.

According to Chris the ‘Long Tail’ is created because of three factors:

  • Democratization of tools for production (MySpace online tools)
  • Democratization of tools for distribution (Internet)
  • Connecting the demand and supply (MySpace social networking platform)

The similar model can be extended to other industries, using which organizations like Apple (iTunes music, iPhone Apps), Amazon (Online retailing, which can literally list infinite number of items), Google (Ad-sense, Ad-words), Wikipedia (democratic content ecosystem) has become a global success by leveraging Long Tail customers. From the consumer side, the behavior has changed as they are expecting more and more choices which can be met only by such system.

Throughout the book, author explains above mentioned aspects in detail across different chapters, thereby giving complete perspective to readers. In few chapters I felt he repeated same information multiple times, but he takes examples from different industries makes it an interesting read.  In order to understand the recent business changes, aided by Digitized Internet, Chris Anderson’s Long Tail provides an excellent framework where one can put things into perspective.