The Transformation of Business

From Chapter 1 of The New Age of Innovation, by C.K. Prahalad and M.S. Krishnan

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There is a fundamental transformation of business underway. Forged by digitization, ubiquitous connectivity, and globalization, this transformation will radically alter the very nature of the firm and how it creates value. No industry is immune to this trend. It will impact traditional industries such as education, insurance, health care, automobiles, and footwear, as well as emerging industries such as video games, search engines, and social networks. Coming to terms with the implications of this change is critical for survival and growth.

This transformation, as we will examine in this book, is built on two basic pillars:

1. Value is based on unique, personalized experiences of consumers. Firms have to learn to focus on one consumer and her experience at a time, even if they serve 100 million consumers. The focus is on the centrality of the individual. We will designate this pillar as N = 1 (one consumer experience at a time).

2. No firm is big enough in scope and size to satisfy the experiences of one consumer at a time. All firms will access resources from a wide variety of other big and small firms—a global ecosystem. The focus is on access to resources, not ownership of resources. We will designate this pillar as R = G (resources from multiple vendors and often from around the globe).

This view of value creation is 180 degrees different from the model that started the industrial revolution. The Model T from Ford, the icon of the industrial revolution, was built on two premises that are the opposites of N = 1 and R = G. Consumers were treated as an undifferentiated group, and hence the famous dictum "Any color is OK as long as it is black." All resources had to be within the firm to capture value. Ford was one of the most vertically integrated firms, and its River Rouge plant in Dearborn, Michigan, was the model. While no business today operates along the lines of the original Ford model, we must recognize that model as the precursor of modern business models. Most businesses today are variants of that model. That model served us well. It will not as we move forward.

Let us consider a very traditional business: specialized tutoring of children in high school.

Little has changed in this relationship for decades. Students attend classes at predetermined times. Typical lessons are broken into periods of one hour, each devoted to a particular subject, such as language, mathematics, and history.

Students around the world get homework assignments, which they do on their own, with their parents, with study groups, or with their girlfriend or boyfriend, if they're lucky. Periodic tests and quizzes provide feedback to the teachers and the students about how well they are doing. This system assumes that one learning process will suit all students. Any debate about individualized attention rapidly turns into a discussion of class size and cost.

Now, consider an alternative called TutorVista, a small startup. Here, each student chooses the time when he wants to be tutored. He also chooses the subjects in which he will receive help. He prioritizes his needs. He can also determine how many hours and how intense the tutoring has to be on any topic. He can also choose his teacher! His tutor may be geographically located in India or some other remote location. The tutor will begin the orientation with specific tests to evaluate the student's understanding of the subject and then develop a specific course of study oriented for that student. The lessons are personalized for that student.

All the tutors are independent, well-educated men and women who do this as a part-time activity. To qualify as TutorVista tutors, all potential candidates have to go through a training program briefing them in effective practices in providing remote personalized education. This process, including accent training for teachers, can take from 60 to 100 hours.