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.

Until now.

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 overlook—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

C.K. Prahalad speaks to Mays faculty and students at the inaugural Dean's Distinguished Scholar Lecture.
C.K. Prahalad speaks to Mays faculty and students at the inaugural Dean’s Distinguished Scholar Lecture.

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 Prahalad—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 society—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.

TERMINOLOGY
  • Capital intensity: The amount of fixed or real capital present in relation to other factors of production, especially labor.
  • N=1 business model: A business where each product is custom made for the consumer.

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 limbs—an n=1 product, as each limb must fit the patient precisely—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
ABOUT C.K. PRAHALAD

C.K. Prahalad was the inaugural speaker of the Dean’s Distinguished Scholar Lecture Series at Mays. He has been voted as the most influential living management thinker by Thinkers 50, The Times of London and Suntop Media, and has won the McKinsey prize four times for the best article in Harvard Business Review.

His accomplishments include writing or coauthoring five highly influential books on strategy, including The Multinational Mission, Competing for the Future (hailed as the best business book of the year in 1994), The Future of Competition (voted one of the best business books of the year by Business Week and Strategy + Business in 2004), and The Fortune at the Bottom of the Pyramid (voted the top business book of the year by The Economist, Fast Company and Amazon.com editors in 2004). His most recent book is The New Age of Innovation: Driving Co-created Value through Global Networks, coauthored with with M.S. Krishnan.

Prahalad studied physics at the University of Madras (now Chenai) before continuing his education in the United States, where he earned a PhD from Harvard. He has received honorary doctorates in economics (University of London), engineering (Stevens Institute of Technology), and business (Tilberg, The Netherlands and Abertay, Scotland). He was a member of the UN Blue Ribbon Commission on Private Sector and Development, which seeks economic reform solutions to create human development.

He is active and prominent as a business consultant, and his clients include some of the world’s leading companies. He sits on the boards of NCR Corporation, Pearson, plc., Hindustan Unilever Limited, TVS Capital, The World Resources Institute (WRI) and The Indus Entrepreneurs (TiE).

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 means—making them smaller, cheaper, or with a longer battery life—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.”