To survive in the modern business world, companies even in traditional industries must innovate and think in more consumer-focused, interactive ways.
New business: use it or lose it
To survive in the modern business world, companies even in traditional industries must innovate and think in more consumer-focused, interactive ways. That is the message of CK Prahalad, a professor and management adviser who has written many books on the subject. Whether it is shoes, lorry tyres or auto insurance, Professor Prahalad says, there are always ways to fine-tune business models to better cater for today's demanding consumers. "Take the pacemaker," he said at a recent lecture at the Emirates Palace hotel in Abu Dhabi. "It's a complex device. I mean, the heart is complex. "What would happen if somebody could monitor me remotely? They know me as a person, as a patient, they know my conditions, they establish the control charts. If it goes beyond the control limits, they ask C K to sit down. Don't talk. Not good for you. Or alternatively, get to the hospital because we need to check you out." That, Prof Prahalad said, is precisely what a US company called Medtronic has done. Rather than focus purely on making and selling pacemakers, the company has formed partnerships with software makers and mobile phone providers to make the business much more flexible and responsive to patients' needs. The result: Medtronic became what Prof Prahalad calls a "nodal firm"; one that takes a high-tech approach to customer service, involving the people who use its products every step of the way. "The pacemaker is important," he said. "This does not diminish the importance of pacemaker as a product but it enhances your experience because of the ecosystem or the network that you've created." A greater example of interactive innovation, Prof Prahalad said, was the Nike Plus system. Runners who buy and wear the right equipment receive access to a website that monitors their day-to-day progress remotely and automatically. They can compete with other Nike Plus users in their neighbourhoods and continuously challenge themselves to better personal records for distance and speed. The results link in with Google's interactive maps. "It's an interesting way to think about a business model," Prof Prahalad said. He said the most innovative companies were also doing less of their own work in their own factories. They were instead acting as glorified designers, farming out production to wherever it could be done best and cheapest. This, in essence, is the model Apple uses when it produces its computers and iPods. Apple makes virtually none of its equipment inhouse, but it is able to navigate the global supply chain so slickly that its products look like they must have been put together in one place. Apple extends that approach to its iTunes service, where the experience is largely customer-controlled and Apple does not produce any of the music on offer. Firms such Medtronic, Nike and Apple share some key characteristics, Prof Prahalad said. They focus on personalised experiences, they involve the user in the creation of the product, they welcome communities of users and they offer a reactive network for delivering services. As examples, he cited companies such as Netflix, a US firm that delivers rented DVDs to customers' homes through the mail; Amazon.com, an internet retailer; and Norwich Union, an auto insurer in the UK. "It all depends on you," Prof Prahalad said. "That is the system I think we are moving to." Of course, making that transition is not always easy, especially for firms in old industries with hierarchical power structures and well-established bureaucracies, where even if people in middle management are ready to try new things, pushing for change at the top can be impossible. For people in that situation, Prof Prahalad advised a little creative thinking. Do the work you are assigned to do, he said, but experiment on the side. Eventually, your ideas might gather enough momentum to convince even the most inflexible bosses that change is necessary. "If you are a leader you must have a vision of the future," Prof Prahalad said. "You can start with that and take small steps. After somebody has done it, it looks delightfully simple." firstname.lastname@example.org