The New Age of Innovation
Encyclopedia
The New Age of Innovation: Driving Cocreated Value Through Global Networks is a book by University of Michigan
Ross School of Business
Professors C.K. Prahalad and M.S. Krishnan published in April 2008. The book outlines a new strategic path for companies in the 21st century.
; that there are new managerial demands in business, requiring new sources of value creation. They argue that these demands have created an N=1 and R=G environment, where companies need to customize their product for each customer by gaining access to a new array of suppliers.
The book argues that the old sources of competitive advantage -technology, labor, and capital – are fading and that new sources are emerging. Prahalad and Krishnan suggest an internal capacity to reconfigure resources in real time by focusing on clearly documented, transparent, and resilient business processes (the link between strategy, business models and operations) has become a strong differentiator. They also argue that a focus on co-creation
, by developing an R=G supply network and emphasizing analytics which identify trends and unique opportunities can create a strong competitive advantage. The technical architecture required to develop these flexible and resilient business processes and strong analytics capabilities is outlined in the book.
The last four chapters describe how to implement these new strategies. Recognizing that many companies have fragmented and archaic systems, the book describes typical problems that occur when migrating to an N=1 and R=G friendly system. Prahalad and Krishnan emphasize the importance of a social architecture with strong linkages between managers and the technical architecture. They also outline the necessity for companies to recruit new skills from around the world and use globalization
to its advantage.
with their consumer base.
. The focus is on obtaining access, rather than ownership, to resources from an array of suppliers both inside and outside the firm. R=G provides the best opportunity for firms to leverage the necessary resources to co-create a personalized experience for each customer. R=G is often mistaken as a suggestion to outsource, however this is often not the case, as there are many notable instances where it makes sense for companies to leverage local resources to fulfill a personalized demand model.
University of Michigan
The University of Michigan is a public research university located in Ann Arbor, Michigan in the United States. It is the state's oldest university and the flagship campus of the University of Michigan...
Ross School of Business
Ross School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan. Numerous publications have ranked the Ross School of Business' Bachelor of Business Administration , Master of Business Administration and Executive Education programs among the top in the country and the...
Professors C.K. Prahalad and M.S. Krishnan published in April 2008. The book outlines a new strategic path for companies in the 21st century.
Book Summary
In the first chapter, Prahalad and Krishnan outline their central thesisThesis
A dissertation or thesis is a document submitted in support of candidature for an academic degree or professional qualification presenting the author's research and findings...
; that there are new managerial demands in business, requiring new sources of value creation. They argue that these demands have created an N=1 and R=G environment, where companies need to customize their product for each customer by gaining access to a new array of suppliers.
The book argues that the old sources of competitive advantage -technology, labor, and capital – are fading and that new sources are emerging. Prahalad and Krishnan suggest an internal capacity to reconfigure resources in real time by focusing on clearly documented, transparent, and resilient business processes (the link between strategy, business models and operations) has become a strong differentiator. They also argue that a focus on co-creation
Co-creation
Co-creation is a form of market or business strategy that emphasizes the generation and ongoing realization of mutual firm-customer value. It views markets as forums for firms and active customers to share, combine and renew each other's resources and capabilities to create value through new forms...
, by developing an R=G supply network and emphasizing analytics which identify trends and unique opportunities can create a strong competitive advantage. The technical architecture required to develop these flexible and resilient business processes and strong analytics capabilities is outlined in the book.
The last four chapters describe how to implement these new strategies. Recognizing that many companies have fragmented and archaic systems, the book describes typical problems that occur when migrating to an N=1 and R=G friendly system. Prahalad and Krishnan emphasize the importance of a social architecture with strong linkages between managers and the technical architecture. They also outline the necessity for companies to recruit new skills from around the world and use globalization
Globalization
Globalization refers to the increasingly global relationships of culture, people and economic activity. Most often, it refers to economics: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import...
to its advantage.
Key Concepts
The book argues that "the industrial system as we know it has been morphing for some time. Now it may have reached an inflection point.” Prahalad and Krishnan outline the approach that firms in the new economy must take to survive and become successful. The previous choice between low cost and differentiation is rarely the chief strategic choice anymore, firms must achieve what Prahalad and Krishnan call N=1 and R=G.N=1
N=1 requires companies to focus on the importance of individual customer experiences and tailor their product accordingly. It requires that companies have resilient, dynamic and flexible business processes. They also emphasize the importance of strong analytics which allow management to discover trends and unique opportunities and enable the company to engage in product co-creationCo-creation
Co-creation is a form of market or business strategy that emphasizes the generation and ongoing realization of mutual firm-customer value. It views markets as forums for firms and active customers to share, combine and renew each other's resources and capabilities to create value through new forms...
with their consumer base.
R=G
R=G advises firms take a horizontal approach to supply rather than vertical integrationVertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
. The focus is on obtaining access, rather than ownership, to resources from an array of suppliers both inside and outside the firm. R=G provides the best opportunity for firms to leverage the necessary resources to co-create a personalized experience for each customer. R=G is often mistaken as a suggestion to outsource, however this is often not the case, as there are many notable instances where it makes sense for companies to leverage local resources to fulfill a personalized demand model.
External links
- The New Age of Innovation blog The authors expand on ideas presented in the book and engage in discussion with readers
- Center for Global Resource Leverage: India Jointly directed by the authors
- C.K. Prahalad video interview Interview with Informationweek on New Age of Innovation
- Times Online: Get ready for the future A podcast in which CK Prahalad talks about ideas presented in the book
- Review of the book in BusinessWeek
- Review of the book in Fortune
- Review of the book in the Economist
- Review of the book in The Economic Times of India
- C.K. Prahalad Ross School of Business faculty page
- M.S. Krishnan Ross School of Business faculty page
- The book on Amazon