C.K. Prahalad Discusses His New Indian Management Venture
Internationally recognized as one of the most influential thinkers on business strategy, he has been among the top 10 management thinkers of the world in every survey for over 10 years
His Harvard Business Review paper of 1990, 'The Core Competence of the Corporation,' is surely one of the most influential works on business strategy ever to have been written. His notable management books, which garner much more than the usual attention, have included Competing for the Future (with Gary Hamel, Harvard Business School Press, 1994) and The Fortune at the Bottom of the Pyramid (Wharton School Publishing, 2005). Now C.K. Prahalad, the Harvey C. Fruehauf professor of business administration at the University of Michigan, has set up a research center at the Indian Institute of Information Technology at Bangalore to study the almost revolutionary developments happening in India. CKP, as he is often called, told IEEE Spectrum contributor Seema Singh what he hopes to accomplish at his Center for Global Resource Leverage.
Why do you want to do research in India?
The whole point of doing research here is our strong belief that fundamental changes are taking place in India and that India is becoming a source of innovation, not only for the country itself but for the world.
How can a developing country be a source of innovation?
Here's an example. ITC, the Indian subsidiary of British American Tobacco that has now branched out into hotels and the paper and food industries, has a novel program going on in India called e-Choupal [”electronic village meeting place”]. Sourcing farm products from scattered and subsistence farmers through intermediaries was proving to be inefficient for ITC, and so it decided to build an information network around the soybean belt in India.
A successful farmer was picked up from each village, given a PC and Internet connectivity, and made responsible for information dissemination among the villagers. Both ITC and farmers have now done away with intermediaries and are reaping the benefits of a transparent, two-way logistics system. ITC has built a large network not only for sourcing agricultural products from subsistence farmers, but also, in reversing the flow, selling them its products, like seeds, pesticides, and lubricants.
To take another example, today's wireless revolution is not driven by rich people only. In poor countries, handsets have to be made very robust and extremely inexpensively, and the wireless minute has to be very cheap, too. India today has the cheapest wireless minute in the world and one of the fastest-growing markets. It's an open question whether, five years down the road, given the size of India's market, India will be a critical player in the development of the next-generation wireless standards. What looks like a poor country may end up influencing as much the development of global standards. It's only a matter of time.
What is the next generation of issues that you are looking at?
I see it as the development of the Holy Grails of Artificial Intelligence in the IT community, which is starting to think about user interface. In fact, all the applications that you find in India are very heavily communications-oriented, another reason why India can become the laboratory of the world.
Any other reason for coming here?
India is demonstrating how to marry the social and the technological, and that's bringing about transformation in society. If you look at the call centers [servicing people in rich countries], you realize that these centers need to understand remote delivery; you also need to understand how to recruit and train large numbers of young men and women in a very short period of time, teach them accent neutralization as well, and help them accept a tremendous number of rejections day after day after day. So they are building a whole set of skills. Social innovation is happening along with technological innovation.
What do you hope to accomplish at Global Resource Leverage?
We decided fairly early that we wanted to be here because we want to influence and shape events based on our research. We will take the knowledge we acquire here back to the rest of the world. That's a totally different model from ”We in the West know the answers, we'll go and teach them,” which has been the practicing model for the last 50 years. This also means a dramatic shift [in teaching].
You seem to strongly support the call center industry. But don't you think when such a large number of young college goers give up higher education for quick bucks, India might lose the head-start space it has had in IT?
I think young college students who join call centers are learning more rapidly how the world works; they have more understanding of the rest of the world than somebody who could have gone and gotten a Master's degree. They learn new ways of dealing with complex problems. They deal with conflicts, with disappointments. I think they are better off as human beings. We in India associate learning with credentials and not life experience, which in fact is a bigger teacher.
You say that the question U.S. firms should be asking is how they can leverage the talent and markets in China and India to enhance competitiveness worldwide. If these firms came to you, what would you advise them?
I'd say the same thing. I am a big promoter of people moving their R&D to India. It's common sense. Lower operating costs alone will give you five times' return. You will also have improved quality, and get better speed in reaction as vendors and customers work in different time zones. And your capacity to innovate will improve, as you will have access to a higher quality of skilled people. The skill to fragment complex management processes and then reintegrate them into the whole is an entirely new ability.
In the short term, outsourcing allows U.S. firms to take advantage of the talent outside the United States; in the longer term, it will allow them to cope well with the emerging labor shortage in developed markets.
If the benefits are so obvious, why is there so much opposition to it?
You have to separate Lou Dobbs [the CNN journalist who hosts ”Exporting America”] and politics from reality.
All the U.S. business schools starting to do research in India want to study Indian health care. Why do they (including your center) want to study Indian health care when everybody knows how inadequate and inefficient this health care system is?
Health care, like everything else in India, is a paradox. Overall, health care in India is pitiable. But we have islands of world class. The Aravind Eye Hospital in Madurai, in Tamil Nadu, treats the largest number of eye cases in the world: 200,000 surgeries and 1.2 million outpatients in a year. Their outcomes are better than any large system, including Britain's National Health System, but their cost is one-hundredth that of large systems (OK?). So here is a health care delivery model, a patient acquisition model, and a capital- and volume-intensive model that is extremely profitable.
Are you also looking at Bangalore-based Narayana Hrudalaya, which is one of the largest heart hospitals in the world, as a model?
Yes. Has anyone asked why Narayana Hrudalaya is so cost-effective? Do people know that its chairman, Dr. Devi Shetty, uses high school graduates as echo-cardiology technicians? Can you tell the world that you do not need an M.D. to read an ECG; you don't need this credential? You need skill building, and you can create skills to read ECGs with high school men and women. Dr. Shetty has made a lot of innovations in building teams: he has put world-class skilled doctors with high school graduates or even school dropout , and he has trained nurses in-house. Nobody in the world believes me when I say this. We want to study this.
But these are only pockets of quality health care? What about the rest of India?
These pockets will change the way delivery is done, and one day, in spite of the government, health care will improve. Kiran Majumdar Shaw [chairman of the largest Indian biotech company, the Biocon group] and Dr Devi Shetty have come together to introduce a one-rupee drug for the poor, with no brands. [Biocon, which is also the largest producer of cholesterol reducing drug called statins in India, procures various generic drugs from Indian drug manufacturers and packages, and distributes to the patients directly at a discounted price under the Biocon generic brand. The onus of quality lies on Biocon.]
Aren't all these developments changing the rules of the game? You have a system of micro health insurance, acquisition of care using tele-cardiology, world-class patient care in large hospitals, medication and subsequent care at one rupee a day. You put all this together. Is that a good delivery model?
Do you think this kind of delivery model works in India because we do not have a stringent agency like the U.S. Food and Drug Administration (FDA) overseeing the health care system?
No, I don't think so. I think we are inventing something and we better take credit for it. We have the second-largest number of FDA-certified pharmaceutical companies in the world, and more and more American companies are coming here for clinical trials.
In other words, there are two views of India--one, nothing works; two, there are nuggets. I am looking at nuggets.