C.K. Prahalad: Top And Bottom Of The Pyramid

CK Prahalad

As a family, we are deeply grateful, honored and excited to see C.K. Prahalad included in the Management Hall of Fame. He devoted his life and to the idea that organizations could be places where we went to put our values into practice, not into hiding. We also hope that his call to action to ensure that benefits of capitalism and innovation extend to everyone, not just a few, is carried forward by the next generation of management thinkers and doers.

Warm regards
Gayatri, Murali and Deepa Prahalad
September 20, 2018

In April 2010, all of us at the Thinkers50 were deeply saddened by the news that C.K. Prahalad had died after a short illness. In CK, the business world lost both a great mind and a great man. By then he had achieved so much – a string of highly influential books and concepts, including the introduction of core competencies into the management lexicon and his seminal book Fortune at the Bottom of the Pyramid. And yet… his work showed no sign of tailing off. If anything it was still on an upward trajectory. At 69 he was as intellectually curious and upbeat as ever. It felt like his best work still lay ahead of him.

I was fortunate to get to know CK over the years and always found him engaging and generous company. He topped the Thinkers50 rankings in consecutive rankings in 2007 and 2009, a worthy winner. He was unique among the management theorists I have met. He combined the intellectual detachment of a business school professor with the humanity of a social activist.

On first meeting him, one was struck by his razor sharp intellect. At Thinkers50 we meet a lot of very clever thinkers, but CK stood apart as a true intellectual. He was also highly articulate, with the Indian knack for expressing ideas in a logical and often irresistible way.

When I asked him whether his homeland India was still an emerging nation, he replied in characteristic style with the story of the five blind men touching an elephant. Each grasps a different part of the beast – the trunk, a leg, an ear, a tusk the tail — and describes a different animal. “India is like that,” CK said, a twinkle in his eye.

But it was his interest in people of all kinds that was compelling.

An enduring memory of CK is something that happened after filming a Thinkers50 interview with him. The interview had gone well. The interviewee (CK) had given a brilliant performance. But the interviewer (me) had stumbled over some of the questions. Despite the fact that he was tired after a long day and had a plane to catch, CK uncomplainingly did several retakes. Finally, the interview was in the can and he was free to go. Most gurus would have left with barely a backward glance. But CK turned to the camera crew and asked: “Did I make sense to you? Because if I didn’t then I’m not doing my job properly.”

The camera crew had been drafted in at short notice. An hour earlier they had probably never heard of him. Certainly, they had never read any of his books or articles. Yet the response was emphatic. They had understood. More than that, they instinctively recognized that here was not just a clever man — but also a great man. It is the only time I can remember a camera crew spontaneously ask for the autograph of a business school professor.

That was CK. “The hidden thread that runs through my work is the idea of the democratization of commerce,” he told me when we last spoke. “That is what I care about.” He cared passionately that his ideas were understood not just by academics and MBAs, but by everyone. CK’s reasoning was compellingly simple: his ideas were for everyone.

A passage from India
Coimbatore Krishnarao – CK — Prahalad was born in the town of Coimbatore in Tamil Nadu in 1941. He was one of nine children. Growing up in India, he said, had been an extraordinary preparation for management. “You grow up in large families so you always have to make compromises; you have to learn to accommodate. And India is a very diverse culture, in terms of languages, religions, income levels, so you start coping with diversity at a very personal level as a child.”

CK knew that he was fortunate. “My father was a judge and a great scholar,” he said. “He told us very early in life, there is only one thing that when you give more, you have more – and that’s knowledge. That has stuck with me.”

His thirst for knowledge eventually led CK into academia, but not before he had tasted management for himself. He studied physics at the University of Madras (now Chennai), followed by work as a manager in a branch of the Union Carbide battery company.

“In the plant in Union Carbide, I had to work with communist unions –and negotiating with them taught me a lot,” he later observed. “They were very clever and I learned not to see them as adversaries but as collaborators.”

Generous collaboration
Generous collaboration would become CK’s trademark, writing his books with a string of talented co-authors. He continued his education in the United States, earning a PhD from Harvard. He taught both in India and America, eventually joining the faculty of the Ross School of Business at the University of Michigan, where he held the Harvey C Fruehauf chair of Business Administration and subsequently the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy.

At Ann Arbor, CK met Gary Hamel, then a young international business student and the first of his highly productive collaborations. It led to the publication of The Core Competence of the Corporation (Harvard Business Review, May–June 1990), which introduced the term core competencies; their bestselling book Competing for the Future, set the strategy agenda for a generation of CEOs.

In 2004, CK published two books. The Future of Competition, written with Venkat Ramaswamy, introduced the notion of “cocreation”, while The Fortune at the Bottom of the Pyramid, argued that the world’s poor (the “bottom of the pyramid”) represented an untapped market worth anything up to $13 trillion a year.

The Future of Competition moved the strategy debate from a firm and product centered view of value to a view of value based on the co-creation of unique personalized experiences. In it, Prahalad argued persuasively that the balance of power was changing. Not only were the rules of the game being transformed, so were the roles of the players. The “customer” was a more powerful and pro-active figure. Customers were no longer abstractions to be satisfied. Thanks to the internet, they were agents creating and participating in transactions. The concept of value had also changed. It was no longer inherent in products or services, but had to be co-created with consumers.

Co-creating the future
The idea of co-creation ran through the rest of CK’s work. It was and is an important idea. “What it says is that we need two joint problem solvers, not one,” he explained. “In the traditional industrial system, the firm was the centre of the universe, but when you move to the new information age, consumers have the opportunity to engage in a dialogue and be active and, therefore, they can shape their own personal experiences.”

Alongside his work on co-creation, CK Prahalad wrestled with the perplexingly complex and political issue of poverty. In The Fortune at the Bottom of the Pyramid he identified the world’s poor (the “bottom of the pyramid”) as a potential untapped market for companies. “The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers,” he observed. “It is the billions of aspiring poor who are joining the market economy for the first time.”

His final, powerfully prescient book, The New Age of Innovation, written with MS Krishnan (2008), brought together the ideas in the Future of Competition and The Fortune at the Bottom of the Pyramid. In it, CK anticipated the rise of two-sided networks and the effect of large-scale platforms made possible by the internet and the internet of things.

CK described a new competitive landscape based on two simple principles – N=1 and R=G. “Think of Google. Google does not tell me how to use the system; I can personalize my own page, I can create iGoogle. I decide what I want. Google understands that it can have a hundred million consumers, but each one can do what they want with its platform. That is an extreme case of personalized cocreated value. We call that N=1.

“On the other hand, Google does not produce the content at all. The content comes from a large number of institutions and individuals around the world. Google aggregates it and makes it available to me. So resources are not contained within the firm, but accessed from a wide variety of institutions; therefore resources are global. Our shorthand for that is R=G.”

With co-creation consumers could personalize their own experiences and the firm could benefit. In the short hand N=1 and R=G, CK Prahalad predicted a new business world order that would be the pattern for the future. Looking today at the likes of Amazon, Apple, Facebook, Twitter and Netflix, he was remarkably prescient.

Co-creation, he said, involved three important transitions in thinking. The first was a shift from a firm-centric view – where the firm is the critical unit of analysis — to accepting the centrality of the individual consumer as the critical unit of analysis.

The second principle was the interdependence of institutions – they should no longer try to do everything themselves. In the future, even giants like IBM, GE, P&G or Unilever would have to depend on a large number of other institutions. In this new world, he predicted, ecosystems would compete, not individual companies. The second principle was the enactment and consequence of R=G.

And the third, and most interesting of all, was how value is created. The traditional way of thinking about value creation was as a value chain that was captured by the supply chain. So, value was created and captured in a product, which the consumer paid for. In this traditional type of transaction, the consumer played no part in creating the value. But if the consumer is involved in co-creating value then firms had to recognize that in their pricing. They had to recognize that a portion of the value is created with the consumer at the point of interaction. In this, CK foreshadowed the rise of Facebook and other social media and technology platforms.

CK also predicted accurately that incumbent companies would find the transition challenging. “These are not difficult transitions, but they are hard to do in one leap. So, you must have a point at which you aim to transform your company. But that doesn’t mean you have to go from A to B in one fell swoop, you can migrate systematically. So I say small steps, directionally consistent steps, are what companies need to take.”

A bigger picture
The Future of Competition, where the cocreation idea was born; The Bottom of the Pyramid, looking at five billion under served consumers; and The New Age of Innovation – the N=1 and R=G idea – were all parts of a larger argument. “I had to separate them into bite-sized concepts,” CK explained, “so the message didn’t get confused. But now you can see how they fit together.”

“If you look at the opportunity for companies, I’m making three simple points in all three books. One: look at six billion people as your market, not just the billion at the top of the pyramid. Look at six billion people as potentially micro producers, micro innovators and micro consumers.

“The second thing I’m saying is if you want a very good way of serving the consumers and, therefore, retaining consumers, then you have to understand the uniqueness of each one and create a unique personalized experience. That means you cannot just give them a product and think of the relationship as a transaction. You have to build a relationship that is more enduring. That’s the cocreation idea.

“And third, in The New Age of Innovation, I’m taking these two ideas and then saying, how do you do it operationally? What is the glue? The glue is information architecture, or IT architecture, and the social values that you create are the social architecture, in terms of skills, training, approach to talent and so on.

“So they all come together and I believe that we are on the verge of the largest growth opportunity that any firm has ever seen. Just imagine: even if you don’t take six billion people as your market, if you can just go from one to three billion — that’s still the biggest growth opportunity people have ever seen. I think we are on the verge of something extraordinary.”

Moral leaders

The new ways of thinking, he said, also challenged or notion of leadership. “First, leaders must lead. You cannot lead unless you’re future oriented. Leadership is about the future; leadership is about a point of view about that future; and leadership is about hope.

“The second point about leadership is that it’s not about the leader. The metaphor I like to use is that of a sheep dog — not the shepherd. A sheep dog has to respect some rules. Number one, you always lead from behind. Number two, you can bark a lot, but don’t bite. And number three: don’t lose any sheep.”

For CK, a true leader was someone who brought out the best in others, not the best in themselves. Mahatma Gandhi exemplified this new style of leadership. “If you really think about Gandhi, looking at him, looking at his physical stature, looking at his clothes, nobody would have said he would have left a fundamental imprint on human history. But he was a great innovator – his leadership was about change, it was about hope, it was about freedom, it was a very personal thing. But he made every Indian realize their own personal ability to contribute to that effort. And, very importantly, he set some non-negotiables. It was not an armed struggle; it was a peaceful struggle, and that was non-negotiable. So that would be my third principle: some things are non-negotiable. Moral authority comes from having clear non-negotiables. And that takes courage.”

For CK, leadership was a point of view, the ability to mobilize people and make them achieve their very best, and to have moral direction. It was not just technological capability and economic strength, it was about morality as well.

Ultimately it is for the humanity of his ideas that Prahalad should be celebrated. A market at the bottom of the pyramid could be co-created by multi-national and domestic industry, non-governmental organizations and, most importantly, the poor themselves. They would then have choice over their lives and the products they use. He pointed to early exemplars such as Hindustan Lever’s success in marketing soap-powder and detergents in smaller, cheaper units, which created prosperity downstream through new distribution mechanisms.

He believed that capitalism, if harnessed to moral leadership, could democratize commerce and eradicate poverty. Too often poor people are patronized, but CK Prahalad wanted them to have real power in the marketplace. As always, his thinking was inclusive.

Des Dearlove is co-founder of Thinkers50 (Thinkers50.com) and the co-editor of the Financial Times Handbook of Management.

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