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 the previous post, we have examined the first three demands. The remaining will be covered in this one.

Complexity
The need for flexibility and continuous resource reconfiguration and the management of a collaborative network of big and small players with valuable but fragmented contributions to overall customer experience can lead to a new level of complexity. This complexity can be managed only through a sophisticated system of technology architecture and its attendant business processes. This level of complexity also calls for all employees to recognize the need to cope with an interesting and continuously evolving set of opportunities and problems resulting from the focus on each individual customer. No two problems may be identical. In an N = 1 world, variations are constant, requiring significant analytical support that transcends the traditional dependence on managerial intuition.

Consider, for example, the revenue generation pattern of a new movie released on a DVD. It is known that 75 percent of DVD rental revenue happens within the first two weeks of a release, then 10 percent of revenue is earned during the next six months, and the rest over multiple years. If vendors do not align their resources to capitalize on the first two weeks, the release is a dead duck. How do we allocate resources every half day, across hundreds of branches and stores across a vast market such as the United States? What analytic understanding, in real time, is needed to pinpoint the opportunities to make a difference to revenue streams? How then do we get managers to use these actionable insights? This is not a back-of-the-envelope exercise. Procrastination in this case can translate into major shortfalls in revenue. Managers with access to a shared database and solid analytics will outperform human intuition most of the time!

Customer Interfaces

While managers have to cope with a complex system-be it the number of alliances and collaborations, the technological back end, or the analytical models used-the consumer’s experience must be simple and intuitive. Given a wide variety of consumers and their skills and motivation levels, a simple interface is critical. Consider the OnStar interface. You simply press a button, and you are connected to a human being on the other side. Furthermore, for promoting dialogue with.and among consumers, a simple interface is a prerequisite. Consumers are increasingly a source of competence. Accessing consumers as a source of competence also requires a focus on interfaces. The intuitive interface of Apple’s iPod and iPhone are other examples that underscore the importance of interface in enabling consumers to cocreate their experiences.

Scalability

As organizations expand across the globe, the diversity of languages,customs, and norms must be matched with the sheer scale of operations. Wal-Mart, for example, has more than 100 million customers walk through its stores every week. However, every Wal-Mart store has different products on demand-umbrellas in rainy Seattle and shorts and tank tops in San Diego. The five different formats and sizes of stores need different configurations of resources. More than 100,000 stock-keeping units (SKUs) are involved. The supply chain is global. China alone supplies products worth $20 billion for Wal-Mart worldwide. These provide a dramatic example of scale, standards, global integration, and local responsiveness at the same time.

The implications of the N = 1 principle are profound. It is natural to ask if the N = 1 world is a very expensive proposition. How can businesses sell to customers? How will all this engagement translate to change? Can we make money ifwe move to this model? These are legitimate questions. Yes, N =1 requires a new approach to access and use resources. This leads us to the second principle of the new approach to value creation.

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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