The New Age of Innovation

According to CK Prahalad and MS Krishnan, in the N =1 world, the traditional firm confronts several critical new demands. These new demands includes flexibility; quality, cost, and experience; collaborative networks; complexity; customer interfaces; and scalability. In this post, we will examine the first three demands. The remaining will be covered in the next one.

Flexibility
By definition, if a company is focused on N = 1 and that value is cocreated with the consumer (for example, the diabetic patient), then the firm has to be flexible. For example, pricing is based on a risk assessment for each patient made periodically (say, monthly) based on his or her compliance and a resultant risk profile. The insurance company, in consultation with its ecosystem partners, may have to do capacity planning and ensure that eye, kidney, and cardiac care facilities are adequate in the geographical areas, based on a continually emerging understanding of the diabetic population it serves. Highly constrained resources will increase the cost of care. Underutilization of capacity will also lead to higher costs. So the insurance firm and hospitals may have to coordinate and continually adjust their capacities. Part of flexibility is the ability to reconfigure resources on the fly. The entire firm must embrace flexibility-be it for long-term capacity planning, monthly pricing, or daily counseling of patients. The focus is not just on traditional load balancing but on continuously balancing the load and the nature of the task with appropriate resources to maximize the experience of consumers.

Quality, Cost, and Experience

Flexibility does not mean poor quality or higher cost. The level of quality must be high. Six Sigma and low cost must be integral building blocks of the system. It must be a given. Consumers will not accept poor quality, nor will they accept a service that is not of “good” value. This means that price - performance envelopes will be constantly tested. The subscription to online movie rental model from Netflix or Apple cannot be out of line with traditional movie rental models such as Blockbuster. Furthermore, if our goal is to make the offering inclusive, then we have to make it affordable to the poor as well. For example, in the United States alone there are approximately 40 million people who are not served by banks and who are not insured because of their income levels or prior credit history. Affordability becomes a major criterion for success. The focus on the poor as active consumers will lead to breakthrough innovations in business models, as in a $25 cell phone or a $30 cataract surgery.

Collaborative Networks

No single firm can provide the range of skills to create the N = 1 world. In our example of the diabetic patient, in addition to the insurance firm, we need firms that develop diagnostic tools; firms that make the medications; specialized hospitals for kidney, eye, and cardiac diseases associated with diabetes; network operators; makers of special devices such as cell phones or watches with sensors; food processors who develop specialized food; and dietitians and fitness miners. The insurance firm can be a nodal firm-at the center and influencing the entire ecosystem through a shared framework on how to serve the patients, as well as establishing the standards and customer interfaces. But all of them have to work together. The nodal firm, in this case the insurance provider, does not own the others; it collaborates and co-opts them to provide a complex solution. This is a shift from models based on ownership and control to models based on privileged access and influence. These nodal networks are becoming the norm. OnStar, the telematics network of General Motors, is a good example of a nodal enterprise.

By C.K. Prahalad and M.S. Krishnan, Via The New Age of Innovation: Driving Cocreated Value Through Global Networks (2008)

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