In the '90s you have to think 'different', says the man who wants to make elephants dance.
'The 90s', explains CK Prahalad, sounding more like the other CK (the one who gets a bad press for using skinny models), 'are all about being different.' And that is the first thing you notice about Prahalad: he doesn't speak as you'd expect a management guru to speak. Certainly, he is an A-list business thinker but the way he expounds his ideas in that soft, mellow, slightly difficult-to-place Indian-American accent makes them so easy to understand that, after 20 minutes or so in his company, you feel that even your granny would have a pretty good idea about which companies are going to be winners and which will be losers over the next decade.
Prahalad came to management thinking - one of the softest, fuzziest 'sciences' - from physics, the hardest and most precise. En route he worked as an industrial engineer, picked up an MBA at the Indian Institute of Management, and took a DBA at Harvard, where his interest in global business crystallised. All this eventually led to a book, Multinational Mission, on managing global businesses, resource allocation and the like. 'But, the more I thought about multinationals and competition, the one persistent theme was that smaller companies with less resources are often able to out-compete larger ones,' he says.
The trite and obvious response to this statement is, 'Well of course smaller companies can often outflank their larger stablemates - their size means they're more agile and responsive.' But Prahalad thought this overly simplistic - larger companies do, after all, have far more in the way of resources and this led to his seminal 1994 work with Gary Hamel, Competing for the Future. Here, the duo examined what created entrepreneurial drive in both small and large businesses. Their fundamental conclusion, says Prahalad, was that a company's aspirations should always lie outside its resource base - its goals should always be more than it can deliver, a stance that is far easier to take in a smaller company with its inherently limited resources. This, he explains - underscoring his point with rapid, expansive hand gestures - leads to the idea of 'stretch' and is accomplished by innovating and leveraging your resources more creatively than the competition. Thus, he surmises, 'The underlying structure of everything in Competing for the Future is leveraging and reshaping.'
But that was way back in the early '90s when the world was a very different place. Naturally Prahalad has moved with the times: 'Now, my thinking goes one step further. What I'm saying is that in the last five years the world has seen an enormous number of discontinuities - fundamentally disruptive changes to the existing world and industrial order.' He lists the collapse of communism, the liberalisation of countries like China and India, the relentless rise of digital technology and the deregulation of industries such as telecoms and financial services. 'You can look at these disruptive changes and say that they are upsetting our current ways of working and therefore it's a problem. Or you can shift that argument around and say, "Now I can take on the established players because the rules of the game are fundamentally different".' So, while the '80s were all about efficiency, downsizing and cutting the corporate flab, the '90s business bien pensant quite simply, thinks 'different'.
A business, he continues, can no longer save its skin simply by being more efficient. For a start, as we all know, we got most of our downsizing out of the way in the '80s: cut much more and we'll reach the bone. Second, the nature of the new challenges means that doing what we do 'betterfastersmarter' is no longer enough. Prahalad illustrates this with Amazon, the Internet-based bookseller. For a traditional bookseller with a chain of 400 shops and all the overheads that entails, improving, say, delivery times is hardly an adequate response to the challenge: the market is changing and new entrants are doing things fundamentally differently. So, confronted by such bolt-from-the-blue challenges, what should established players be doing?
'Well,' offers Prahalad, 'I think they have one of three responses. One is total denial, which is probably the worst thing to do.' The second is to acknowledge the need to experiment but to encourage customers, suppliers and the like to stick with the status quo as long as possible - effectively delaying the inevitable. Unsurprisingly, he dismisses the myopic first option and has little time for the second. Of course, there is a third way and it is this he champions: 'This is saying, "I'm going to push the frontiers - that means I have to break some eggs - I have to come to terms with the existing infrastructure and I won't be overly concerned. I should be concerned about some cannibalisation because the substitution will take place even for me but that's OK - I'm going to experiment."' The few companies that take this tack, he believes, are often those which are pushing the frontiers anyway. Microsoft, for instance, has a huge number of pressing facilities for floppies which, with the growth of the Net are beginning to look like yesterday's technology. 'So, they're closing them down,' he exclaims with an evangelical grin. True enough, I counter, but what about the several years Microsoft spent in Internet denial? 'Yes', he replies, patiently, 'but the good news was that once they'd decided that it wasn't going to go away, they moved massive resources to make it happen for them. The shoe's on the other foot now.'
Nonetheless, most would agree that Microsoft is a pretty special company.
The question is how can we get run-of-the-mill large companies to act like small ones in terms of speed and responsiveness? 'It's a making-the elephants-dance type of question,' as Prahalad puts it. I suggest that to allow a company's individual businesses to 'dance', a very loose, federal structure is the way forward. Partly, he rejoins, but if you give businesses within a company freedom without some pre-conditions, the result is anarchy: 'I call it let loose with constraints - you need to define the sandbox and then give them enough freedom to invent their own games but if there's no sandbox ... The question is really where to centralise and where to decentralise and how to take these to the extreme. Corporate values, centres of excellence, and so on - these should all be extremely centralised. Responding to customers, pricing strategies and where to invest can be extremely decentralised.' Virgin, he says, is such a company - with its myriad, disparate products, all very decentralised, all held together by a mutual set of values, chief among which is a rather 'contrarian' view of the industries it enters.
So, perhaps it's businesses like Virgin which will be the alpha companies in Prahalad's brave new business world. Big, but with a devolved power structure, innovative and nimble, and bound together by a guiding philosophy.
Crucially, this philosophy is one which is at odds with conventional wisdom - the kind of lateral thinking that allowed Swatch to break the Japanese stranglehold on the cheapo watch market by turning its products into fashion items. The past may have been all about being streamlined and playing to your strengths but, for CK Prahalad, the future's bright - the future's different.