Managing in Turbulent Times:
 Restructuring or Revitalization?

                      C.K. Prahalad
     Paul and Ruth McC...
Part I
The Underlying Causes and
Consequences of Volatility



                                     2
                   ©...
The Start of the Crisis;
           Financial System in the United States
1. Markets do not extinguish risk but distribute...
The “Collapse” of the Financial System
1. Geographical Impact   : Europe (Iceland, Ireland,
                           UK,...
Implications to Industry Structure
1. Firms Declaring Bankruptcy     (e.g. Bears Stearns,
                                ...
Global Restructuring of Industries
1. All major Players in Financial
   Crisis; Will be burdened with
   “govt. systems” –...
Global Restructuring of Industries
1. All major Players in Financial
   Crisis; Will be burdened with
   “govt. systems” –...
Impact of Current Crisis on Indian Firms

                          Global                                          4
    ...
Volatility is everywhere…
                 Focus on Climate
                 Change, Inclusion
Volatility                 ...
What are the Managerial Demands?

      Focus on Volatility and
         Discontinuities
     Focus on Disruptive
   Busin...
What are the Managerial Demands?

       Focus on Volatility and
          Discontinuities
                               ...
Traditional Managerial Challenge

   Manage Trends:
Future Resembles Past           How to
                               ...
Traditional Managerial Challenge

   Manage Trends:
Future Resembles Past           How to
                               ...
Managing in a Volatile Environment




                                        14
                      © C.K. Prahalad
Volatility and Managerial Antidotes




                                                         Clarity to Long Term Dire...
What to do “Here and Now”
1. Conserve Cash
2. War on Waste                 Increasing the capacity to
       Receivables, ...
Part II
Do We Need a New Methodology?




                                      17
                    © C.K. Prahalad
Two Contradictory Requirements

                   Operational
      Strategic
                   Agility and
     Clarity...
Two Contradictory Requirements

                          Operational
      Strategic
                          Agility an...
The Volatility Sandbox

                   Continuous Churning of
                     Business Models


Low Capital      ...
The Volatility Sandbox

                       Continuous Churning of
                         Business Models


Low Capit...
The Capabilities to Focus on…
1. Anticipation of New Opportunities/ Problems

2. Capacity to Reconfigure the Organization:...
Anticipate New Opportunities




                                      23
                    © C.K. Prahalad
The New Age of Innovation:
        The Basic Thesis

                +                 =

                                ...
Price-Performance Envelopes are
Changing Faster than anyone Expected
                               1970   80      90     ...
The New Age of Innovation:
                    Core Drivers:
            Connectivity, Convergence,            No
        ...
Consider Cardiac Pacemakers




Patient



                                           27
                         © C.K. P...
Consider Cardiac Pacemakers
             Your Doctor



                           Experts’
                             C...
The Value of the Pace Maker?

1. Experience of the Patient?
2. Integration of the Experience for the Patient,
       Docto...
Car as a Stand Alone Product or a
  Node in Seamless Connectivity?
High Capacity
  CC Node




                           ...
Transformation of Traditional Industries:
             Truck Tires
Sell a tire                                   Transacti...
Transformation of Traditional Industries:
             Truck Tires
 Sell a tire                                  Transacti...
The Key Drivers of Value:
   1.   Personalized Experience
   2.   Co Creation
   3.   Individuals
   4.   Thematic Communi...
Value Creation Process in:
1. Google
2. Li & Fung
3. Netflix
                             One Consumer at
4. Starbucks
   ...
The Basic Transformation


                  The Firm
Suppliers                          Channel

            SCM    ERP  ...
The Emergence of Nodal Firms

1.   Intellectual Influence
2.   Network Infrastructure
3.   Standards
4.   Consumer Interfa...
The New Innovation Process:




              Creating and Sharing Value
              Orchestrating the Flows of
        ...
Active Involvement of the Consumer
 Changes the Innovation Dynamic
  The Sources of Competence is Changing
               ...
The Meaning of Innovation
      is Changing

                           Customer
              Customer
  Product         ...
We can Identify an Innovation Continuum

         Enhanced
         Network:
         Customers

Locus of
Competence Exten...
Experience Innovation….

   1. Enlarges the Innovation Space
   2. Changes the Meaning of Innovation
   3. Changes the Pla...
The New Game:

                        N=1
         ( Co creation of Personalized Experiences)



                        ...
The Transformation from a Product/Firm
    Centric View to N=1: R=G




  1910                              2010
         ...
New Source of Competitive Advantage?

                                Table Stakes:
 Efficiency and Innovation    Access t...
What are the Impediments to
          Building New Capabilities ?

Social Infrastructure               Tech. Infrastructur...
Access to New Sources of Advantage….
                                 Global Search for
                                  ...
We Need New Capabilities
            for N=1; R=G
                                Flexible Systems,
Managerial Mind sets,
...
The New House of Innovation
                                     The Social
                               Architecture of...
Transformation Requires:
      Imagination
        Passion
       Courage
       Humanity
        Humility
        Intelle...
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C K Prahalad, Professor of Strategy, University of Michigan

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NASSCOM Events, Conference, Leadership forum, Grand Hyatt, Mumbai, Day3,SSession 18: Managing in Turbulent Times, C K Prahalad, Professor of Strategy, University of Michigan

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C K Prahalad, Professor of Strategy, University of Michigan

  1. 1. Managing in Turbulent Times: Restructuring or Revitalization? C.K. Prahalad Paul and Ruth McCracken Distinguished University Professor Stephen M. Ross School of Business The University of Michigan February 13, 2009 1 © C.K. Prahalad
  2. 2. Part I The Underlying Causes and Consequences of Volatility 2 © C.K. Prahalad
  3. 3. The Start of the Crisis; Financial System in the United States 1. Markets do not extinguish risk but distribute it Markets do not extinguish Leverage A System Ready for Failure 2. Complexity and Conspiracy of Denials Pressures for Growth, Profitability, Compensation 3. Regulatory design: Unfettered innovation Poor regulatory Oversight 4. Systemic Risk: VaR calculations 5. Underestimating Complexity. Individual deals Vs. a complex Interdependent set 3 © C.K. Prahalad
  4. 4. The “Collapse” of the Financial System 1. Geographical Impact : Europe (Iceland, Ireland, UK, Spain,……..) Japan, China, S. Korea,…. 2. Industry Impacts : Mortgages, Credit, Credit Card Crisis (?) Automotive, Retail, Capital Eqpt. Employment Impacts : layoffs in USA, Europe, Japan, China, and others USA alone over 2 million in a year Currency Impacts : $ to Rs; #$ to or £ and € 4 © C.K. Prahalad
  5. 5. Implications to Industry Structure 1. Firms Declaring Bankruptcy (e.g. Bears Stearns, Lehman Brothers, Circuit City) 2. Forced/opportunistic Mergers (Countrywide + M.lynch + BOA, Wachovia + Wells Fargo, Pfizer + Wyeth, Chrysler + Fiat?......) 3. Governmental Bailout (Citi, BOA, Wells Fargo, AIG, GM, Chrysler, RBS, ….. De facto Nationalization) 4. Massive layoffs Fin. Services Auto, Retail, Electronics, Hospitality,… 5 © C.K. Prahalad
  6. 6. Global Restructuring of Industries 1. All major Players in Financial Crisis; Will be burdened with “govt. systems” – Impact of Bailouts (“Nationalization”) 2. All of them are focused on Portfolio and Operational Restructuring 3. Focus on Traditional Developed Markets? 4. Lots of Churn in Senior Management 6 © C.K. Prahalad
  7. 7. Global Restructuring of Industries 1. All major Players in Financial Crisis; Will be burdened with “govt. systems” – Impact of Bailouts (“Nationalization”) Is there an Opportunity to 2. All of them are focused on Change the game? Portfolio and Operational Buy distressed Restructuring Assets? Use Increased Access to Talent Pool? 3. Focus on Traditional Developed Markets? 4. Lots of Churn in Senior Management 7 © C.K. Prahalad
  8. 8. Impact of Current Crisis on Indian Firms Global 4 2 Market (Revenue) Focus IT majors 1 3 Domestic Single Highly Business Diversified Portfolio Focus 8 © C.K. Prahalad
  9. 9. Volatility is everywhere… Focus on Climate Change, Inclusion Volatility Terrorism, genocide, In Financial Pandemics, Markets Do we need a New Approach To Managing? Governments: Unpredictable USA, India, Consumer Japan, Europe, Reactions Volatility in Russia Commodity markets (e.g. oil) 9 © C.K. Prahalad
  10. 10. What are the Managerial Demands? Focus on Volatility and Discontinuities Focus on Disruptive Business Model Innovation Focus on Cycle Time, Speed Focus on Productivity, Cost Focus on Quality 10 © C.K. Prahalad
  11. 11. What are the Managerial Demands? Focus on Volatility and Discontinuities Innovation Sand Box, Focus on Disruptive BOP Markets, 4 As Business Model Innovation Business processes, Focus on Cycle Time, Speed Leveraging Core Comp. Training, Systems, O/H Focus on Productivity, Cost Analysis, Restructuring TQM, Training, Focus on Quality Empowering all 11 © C.K. Prahalad
  12. 12. Traditional Managerial Challenge Manage Trends: Future Resembles Past How to Well Known Differentiate a. Growth rates, Methods Ourselves? b. Seasonality c. Competitor’ behavior d. Consumer Preferences 12 © C.K. Prahalad
  13. 13. Traditional Managerial Challenge Manage Trends: Future Resembles Past How to Well Known Differentiate a. Growth rates, Methods Ourselves? b. Seasonality c. Competitor’ behavior d. Consumer Preferences Manage Need New How to Cope Discontinuities: Methodologies? and Thrive? Past is not a predictor 13 © C.K. Prahalad
  14. 14. Managing in a Volatile Environment 14 © C.K. Prahalad
  15. 15. Volatility and Managerial Antidotes Clarity to Long Term Direction Wild Swings in: Agility in the Short term Input Costs, Reassessing Priorities Capacity to hold on Revenues, Scale up/down to Operations, Product/ Geo. Mix Ability to: Sudden shifts in: Social Preferences, Technologies, Crisis (sentiment) 15 © C.K. Prahalad
  16. 16. What to do “Here and Now” 1. Conserve Cash 2. War on Waste Increasing the capacity to Receivables, support operations Inventories Logistics, Energy 3. Do not Build for Stock Reduce the impact of 4. Lower B/even swings 5. Shift to Newer Businesses Mitigate Risk in the portfolio lower Risk Can learn fast 6. Business portfolio Choices 7. Focus on Core Competencies 16 © C.K. Prahalad
  17. 17. Part II Do We Need a New Methodology? 17 © C.K. Prahalad
  18. 18. Two Contradictory Requirements Operational Strategic Agility and Clarity and Resilience Consistency 18 © C.K. Prahalad
  19. 19. Two Contradictory Requirements Operational Strategic Agility and Clarity and Resilience Consistency Shift Management Focus from: Wait and React Sense and Respond Anticipate and Create 19 © C.K. Prahalad
  20. 20. The Volatility Sandbox Continuous Churning of Business Models Low Capital Focus on Intensity: Anticipation; Building an New Game Ecosystem Capacity for Real time Reconfiguration of Resources 20 © C.K. Prahalad
  21. 21. The Volatility Sandbox Continuous Churning of Business Models Low Capital Focus on Strategic Intensity: Anticipation; Intent Building an New Game Ecosystem IT Systems and Analytics Capacity for Real time Reconfiguration of Resources 21 © C.K. Prahalad
  22. 22. The Capabilities to Focus on… 1. Anticipation of New Opportunities/ Problems 2. Capacity to Reconfigure the Organization: Velcro 3. Ability to Change the Product/service Portfolio at low Cost: Core competence 4. Building an Eco System: Capital Intensity 5. IT Architecture and Analytics: Insights 6. Science based Strategies 7. Focus on Enterprise Risk 22 © C.K. Prahalad
  23. 23. Anticipate New Opportunities 23 © C.K. Prahalad
  24. 24. The New Age of Innovation: The Basic Thesis + = A New Approach Connectivity, Globalization To Innovation & Digitization, Value Creation Convergence, Social Networks 24 © C.K. Prahalad
  25. 25. Price-Performance Envelopes are Changing Faster than anyone Expected 1970 80 90 2006 1. Transistors/chip 103 106 109 2. Decrease in size of micro-devices 10-1 10 -6 3. Computing power 1011 1015 4. Cost per MIPs($1000) 1 1M 5. DNA sequencing cost ($/BASE PAIR) 10 0.05 6. Magnetic data storage 104 1011 (bits/dollar) Source: Ray Kurzwell 25 © C.K. Prahalad
  26. 26. The New Age of Innovation: Core Drivers: Connectivity, Convergence, No Digitization, Social Networks No Shifting Balance of Power: C < F to C ≥ F Traditional Firms Loose New Firms Migrate to Competitive N=1; R=G N=1; R=G Advantage Build New Capabilities: Social and Technical Architecture Talent Matters IT Matters 26 © C.K. Prahalad
  27. 27. Consider Cardiac Pacemakers Patient 27 © C.K. Prahalad
  28. 28. Consider Cardiac Pacemakers Your Doctor Experts’ Conference Doctor on Location Patient Away Hospital Spouse 28 © C.K. Prahalad
  29. 29. The Value of the Pace Maker? 1. Experience of the Patient? 2. Integration of the Experience for the Patient, Doctor, Family, others…? 3. Do we need a Network of Providers to Create an Experience Environment? 4. Is the Pacemaker a Part of but Distinct from the Experience? 5. What can you Monetize? How? 29 © C.K. Prahalad
  30. 30. Car as a Stand Alone Product or a Node in Seamless Connectivity? High Capacity CC Node 30 © C.K. Prahalad
  31. 31. Transformation of Traditional Industries: Truck Tires Sell a tire Transaction Price ? 31 © C.K. Prahalad
  32. 32. Transformation of Traditional Industries: Truck Tires Sell a tire Transaction Price ? Relationship Sell Usage, Personalized Co Created Experience, New Business Model 32 © C.K. Prahalad
  33. 33. The Key Drivers of Value: 1. Personalized Experience 2. Co Creation 3. Individuals 4. Thematic Communities 5. Experience Platform 6. Delivery Network 33 © C.K. Prahalad
  34. 34. Value Creation Process in: 1. Google 2. Li & Fung 3. Netflix One Consumer at 4. Starbucks A time (N=1); 5. Amazon Multiple Vendors 6. Aviva (R=G) 7. Nike 8. ICICI- Prudential 9. Automotive -OnStar 10. Bridgestone 11. Medtronics 12. UPS 34 © C.K. Prahalad
  35. 35. The Basic Transformation The Firm Suppliers Channel SCM ERP CRM Nodal Firm 35 © C.K. Prahalad
  36. 36. The Emergence of Nodal Firms 1. Intellectual Influence 2. Network Infrastructure 3. Standards 4. Consumer Interface 5. Privileged Access, not ownership 36 © C.K. Prahalad
  37. 37. The New Innovation Process: Creating and Sharing Value Orchestrating the Flows of Ideas, products, services Setting the Agenda; Consumers Supplier And And Talented Consumer Individuals Communities 37 © C.K. Prahalad
  38. 38. Active Involvement of the Consumer Changes the Innovation Dynamic The Sources of Competence is Changing Enhanced Extended Network of Corp. as a Business Supply suppliers, Portfolio Of Units Network Partners, Competencies Consumers Pre 1990 1990 - 1995- 2001 - 38 © C.K. Prahalad
  39. 39. The Meaning of Innovation is Changing Customer Customer Product Experiences: Specific Innovations Co Creation Solutions Pre 1995 1995 - 2001- 39 © C.K. Prahalad
  40. 40. We can Identify an Innovation Continuum Enhanced Network: Customers Locus of Competence Extended Network Corp. As a Source Products Solutions Experiences Locus of Innovation 40 © C.K. Prahalad
  41. 41. Experience Innovation…. 1. Enlarges the Innovation Space 2. Changes the Meaning of Innovation 3. Changes the Players who influence Innovation Experience Multiple Learning Redeploying Technologies x as a x across new Innovation = Network Opportunities 41 © C.K. Prahalad
  42. 42. The New Game: N=1 ( Co creation of Personalized Experiences) R=G (Multi-Institutional and Multi –Geographic Access to Resources) 42 © C.K. Prahalad
  43. 43. The Transformation from a Product/Firm Centric View to N=1: R=G 1910 2010 43 © C.K. Prahalad
  44. 44. New Source of Competitive Advantage? Table Stakes: Efficiency and Innovation Access to Capital, Co Creation Raw Materials, Rapid Reconfiguration of Technology Resources Real Time Action Advantage Intelligent Products Link Between Low Cost; High Quality Strategy and Operations: Cycle time Quality of Global Scale Business Processes, Flexible Logistics Analytics 44 © C.K. Prahalad
  45. 45. What are the Impediments to Building New Capabilities ? Social Infrastructure Tech. Infrastructure Business Of the Firm: Of the Firm: Processes Legacy Mindsets Legacy Systems Analytics Dominant Logic Skills, Attitudes and Databases Behaviors ICT Architecture Decision Processes Applications Access to Incentives Talent 45 © C.K. Prahalad
  46. 46. Access to New Sources of Advantage…. Global Search for Talent Access to Talent Cost, Quality, Mobilizing Talent Speed, Innovation Collaborative & Integrative Capacity Not Exporting Jobs; Importing Competitiveness 46 © C.K. Prahalad
  47. 47. We Need New Capabilities for N=1; R=G Flexible Systems, Managerial Mind sets, Measurement Leveraging Global Talent Visibility to Values, Skills, Flexible and Resilient Training, Performance Business Processes and Measurement, Incentives… Focused Analytics Social Architecture IT Architecture 47 © C.K. Prahalad
  48. 48. The New House of Innovation The Social Architecture of the Firm: (Values, Skills, Attitudes, Decision Processes, Performance Metrics in the firm) Personalized Co Created Global Access to Resources and Experiences: Flexible and Resilient N=1 Business Processes and R=G Talent : Focused Analytics The Technical Architecture of the Firm: (Information and Communication Technology –ICT- Backbone of the Firm) 48 © C.K. Prahalad
  49. 49. Transformation Requires: Imagination Passion Courage Humanity Humility Intellect Luck ! 49 © C.K. Prahalad

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