C.K. Prahalad cites the innovative efforts to replace smoky chulha stoves (seen above) as an example of the “fundamental reset” that’s occurring in the business world today.
A sari clad housewife in rural India coughs as she cooks over a smoky “chulha” stove, burning wood or cow dung for fuel. The walls around the cooking area, like her lungs, are smeared with black residue. The amount of toxins she breathes in while preparing meals for her family each day is equivalent to 20 cigarettes. She coughs again, her eyes burning from the smoke. She wishes there were another way to cook, but she, like millions of other poor people in the world, can’t afford a better stove.
A new product was recently unveiled, designed specifically for the needs of the poor. The Combination Chulha is smokeless, can use biomass or natural gas, is durable, and most significantly, it’s affordable. It is also better for the environment (it has less carbon emissions than her previous method of cooking) and good for the local economy, as housewives are becoming entrepreneurs, selling the stoves.
What’s brilliant about this story is easy to overlookâ€”a company saw the opportunity embedded in poverty. It’s a concept that has transformational significance, says C.K. Prahalad, who is excited about the opportunities that exist at the bottom of the wealth pyramid. Opportunities to make money, yes, but also to change the world.
Prahalad, an author, educator, and businessman of renown, recently spoke to students at Mays Business School about the changing landscape of global business.
“I believe we have a huge opportunity to build a world that’s totally different from what we’ve inherited. We cannot get to this place through analysis. We must imagine this world. We must have personal courage, passion, humanity, and humility. We cannot analyze our way into this opportunity, we must imagine our way into this opportunity.”
— C.K. Prahalad
Need spurs invention
Volatility is everywhere: Climate change; terrorism; genocide; pandemic flu; unpredictable consumer reactions; wild swings in commodity markets such as oil; major shifts in government in the United States, India, Japan, and Russia; and let’s not forget the global recession. “It’s not just a financial crisis,” says Prahalad, The crisis is all encompassing
But don’t panic. With adversity comes innovation. The opportunity before us now? The total transformation of business.
“In a range of industries there is a fundamental reset that is taking place,” says Prahaladâ€”a boon for young people entering the marketplace, as they will be on the cutting edge of this change, with the opportunity to influence the way we do business in the future. According to Prahalad, a new economic model is rapidly emerging, one that will be characterized by low capital intensity and increased customer intimacy, paired with new consumption patterns.
As in the example of the combination chulha, Prahalad says we are moving from a firm-centric society to a consumer-centric societyâ€”one where consumers dictate what products are made and at what price they are sold, and businesses respond with products tailored specifically to the needs of their audience.
Prahalad points to the Build-a-Bear Workshop as another example as it’s a highly customized product, tailored to the individual customer (an “n=1” business model). While the product is a teddy bear, what consumers are spending their $80 on is an individualized experience. This is in direct opposition to the traditional toy industry model, which focuses on mass production of a homogenized item at low cost.
As the recession makes paupers of more and more of the population, Prahalad says that businesses need to figure out how offer Build-a-Bear service at a price that is affordable to the world’s poorest. Like Jaipur Foot (jaipurfoot.org), an Indian company that creates high-quality prosthetic limbsâ€”an n=1 product, as each limb must fit the patient preciselyâ€”for about $35 a piece. That’s mere pennies on the dollar for what an amputee would pay for a prosthetic in the U.S., where artificial limbs can cost $10,000 to $15,000.
How is it possible to offer a quality product at that kind of price? It’s the old adage, “necessity is the mother of invention.” Prahalad says in the U.S., where people have money and insurance, there isn’t such a focus on super-low design cost. In India, where extreme poverty is widespread, engineers are forced to work smarter to create a product at an affordable price.
Because if it’s not affordable, it won’t sell. If it doesn’t sell, the business dies.
Connectivity fuels the future
In addition to innovation from the bottom up, Prahalad sees connectivity as the major transformative element in business today. How would it change business, he asked, if every person in a company contributed to projects in a wiki format, so that the talents of each are fully utilized?
On a larger scale, Prahalad asked his audience to consider how to improve a cardiac pacemaker. If they aren’t improved via obvious meansâ€”making them smaller, cheaper, or with a longer battery lifeâ€”how could they be made better? By making them an n=1 product: monitor the activity of each patient’s pacemaker; when it’s activated due to a heart problem, a computer would send an automated text message to the patient; if medical attention is needed, the patient would receive directions to the nearest hospital, where the staff would be notified of his impending arrival and his medical records would be sent so that his care would be immediate and accurate.
This sort of service can’t be offered by one provider, but it is possible with a network of providers working together in a complex ecosystem. Eventually the idea of a supply web will replace the traditional supply chain. And that, says Prahalad, is the future of business. As consumers demand more personalized products, connectivity can make it possible.
We are in a new age of innovation, he says, one where every consumer has a voice and where information and commerce are becoming democratized. “I believe we have a huge opportunity to build a world that’s totally different from what we’ve inherited,” he said, commenting that every person must have access to high quality products and services, as well as the means to buy them. “We cannot get to this place through analysis. We must imagine this world. We must have personal courage, passion, humanity, and humility. We cannot analyze our way into this opportunity, we must imagine our way into this opportunity.”
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