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BUSINESS BOOK SUMMARIES

The New Age of Innovation

By C.K. Prahalad and M. S. Krishnan

Summary by Leslie Johnston, Business Book Summaries

In The New Age of Innovation, authors C.K. Prahalad and M.S. Krishnan focus on the nature of innovation. Traditionally, it was assumed that companies create value and exchange it with customers. This firm- and product-centric view is being replaced, however, by customers' personalized experience with products and services, which leads, therefore, to a co-creation view of value. This focus on personal experience extends to industries as diverse as toys, financial services, travel and hospitality, retailing, and entertainment. Even if a company is dealing with a hundred million customers, each manager must focus on one customer experience at a time, with the company providing the platform around which customers co-create their own experiences. Prahalad and Krishnan call this phenomenon N=1.

While in the past most large firms were vertically integrated, now most have moved to global supply chains to access specialty and low-cost suppliers. This trend toward access to resources is increasingly becoming multi-vendor and, in many cases, global. It is a trend the authors designate as R=G. Companies should, therefore, build capacities to access the global network of resources to co-create unique experiences with customers. No industry is immune to this trend-traditional industries as well as emerging industries.

No single company can provide the range of skills to create the N=1 world. There will need to be a nodal firm at the center, influencing the entire ecosystem through a shared framework as well establishing the standards and customer interfaces, but all of them have to work together. The connection between strategy, business models, and business processes must be carefully understood, and the broad understanding of the basic business model must be translated into business processes. Business processes affect and are affected by the technical architecture (information and communication technology systems, or ICT) and the social architecture (organizational structure, decision-making processes, and performance management systems).

Competitiveness favors those who spot new trends and act on them expeditiously. Spotting new trends requires understanding consumer expectations and behaviors and technological changes as well as the nature of the supply chain and opportunities for its improvement. Therefore, today's competitive landscape requires continuous analysis of data for insight. Digitization of business processes, the Internet, and evolving ICT architecture enable real-time predictive modeling. It is these capabilities that are the heart of effective management in an N=1 and R=G world.

Visibility in the global supply chain is a prerequisite for managing the complex web of products and information. The visibility of processes and data is critical for dynamic reconfiguration of resources. Innovation and flexibility must coexist, however, with efficiency and reliability. The challenge rests on the capability of internal business systems to support both efficiency and innovation.

The focus must be on the skills of individuals as well as on the competence of teams and the ability to continually reconfigure task-based teams with the best talent. The key message is that for the transformation to N=1 and R=G to be effective, managers must focus on mobilizing talent from both within and outside a firm. The patterns of resource reconfiguration depend on the nature of the projects and where the firms can find the appropriate skills, and these patterns will change continually. The phenomenon can best be described as a dynamic configuration of talent based on the specificity of needs. The core platform for value has shifted from product and service to solution and experience for the customers. Each co-creation opportunity (customer interaction) can be viewed as a specific project involving a unique configuration of resources.

Privileged access to talent, not ownership of talent, will be the defining characteristic of this transformation. The move toward N=1 and R=G is an evolution. Future sources of competitive advantage will rest on how systematically firms shape these capabilities to the demands of N=1 and R=G, and how business processes can seamlessly connect consumers and resources and manage simultaneously the needs for efficiency and flexibility.

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