|Book Review: The New Age of Innovation|
The New Age of Innovation: Driving Cocreated Value through Global Networks
Written by: C.K. Prahald and M.S. Krishnan. New York: McGraw Hill, 2008. 278+viii pages.
The late professor C. K. Prahalad was a globally known figure who made significant contributions to the field of management. He was the father of pioneering concepts such as core competencies and the fortune at the bottom of the pyramid. His last contribution is the bookThe New Age of Innovation, written in collaboration with M. S. Krishnan, an information technology scholar.
The New Age of Innovation focuses on how information technologies and access to a global network of resources present a new competitive environment for companies, creating new opportunities and prerequisites for successfully achieving and sustaining continuous change and innovation. In more than one way, this book can be compared to Tom Malone's The Future of Work (2004). Both books focus on how technological and economic factors—especially the rapidly diminishing cost of communication—are enabling and demanding changes in business organizations. But whereas Malone focuses on organizational structure and coordination efforts, Prahalad and Krishnan focus on innovation processes inside (and outside) the firm and on technological architecture. The New Age of Innovation is also different from classic handbooks on product development and portfolio management (e.g., Cooper, Edgett, and Kleinschmidt, 1998; Terwiesch and Ulrich, 2009), since it doesn't have the objective of presenting basic tools and practices to enable successful innovation efforts. The focus here is on the future of the field, what is new in the area, and the implications of these novelties.
The first four chapters of the book focus on what changed on the competitive landscape and innovation space and why. In the first chapter, the authors point out that many of the solutions to poverty that treat the poor as an undifferentiated mass have failed, whereas approaches that recognize their unique circumstances and needs by creating logically responsive and personalized solutions have worked. Many examples are given. The “new house of innovation” is presented and discussed. Such structure has a roof composed of the social architecture of the firm, two pillars named “N=1,” or personalized cocreated experiences and products, and “R=G,” or global access to resources and talent. The base or foundation of the house is made of the technical architecture of the firm. This trend can be found in a wide variety of industries, and following this trend imposes a series of managerial demands.
In Chapter 2, the authors identify the new sources of competitive advantage in a world where the traditional sources of advantage (namely, access to technology, labor, and capital) are no longer unique differentiators for most firms. It is suggested that the new source of competitive differentiation may lie in the internal capacity to reconfigure resources quickly, in real time. The focus here is on business processes—the link among strategy, business models, and operations. The authors argue that clearly documented, transparent, and resilient processes are a must.
But the N=1 and R=G world demands more than transparency. According to Prahalad and Krishnan, managers must develop a deep sense of consumer behavior, consumers' needs and skills (to enable cocreation), and the capability of their large network of global suppliers to make R=G a reality. Chapter 3 focuses on analytics; focused analytics that can identify trends and reveal unique opportunities for managerial intervention is a critical capability.
In Chapter 4, the authors describe the specifications for the technical architecture of the firm that may enable it to develop resilient business processes and focused analytics and to anticipate competitive trends and opportunities. The business specifications include confronting reality, evolving capabilities, compliance and change, and enabling foundations.
Chapters 5 through 8 focus on an approach to taking stock of where a firm is in its transformations. The authors believe that most firms are moving in this direction; they argue that certainly most firms are moving toward R=G in search of cost reductions and present a methodology for an orderly and systematic migration from where a firm is to where it needs to be. They argue that this transformation need not be traumatic. Small steps, taken one at a time, can lead to significant new capabilities over a short period of a few years. But these changes, according to them, must be directionally consistent. Examples of these changes in many companies are given.
In Chapter 5, the authors start with this perspective as a point of departure. They identify the typical legacy issues and the problems of migrating from where a firm is to where it needs to be to compete effectively in an N=1 and R=G world. The basic idea is that small steps can lead to big changes over time.
In Chapter 6, linkages are identified among managerial skills, mind-sets and authority and decision structures, and the technical architecture of the firm. Approaches to managing the tension between flexibility and efficiency are discussed. The characteristics of both flexibility and efficiency-oriented business processes are listed, in terms of social architecture and technical architecture.
In Chapter 7, the authors identify the need for accessing new skills from around the world to stay competitive. And finally, in Chapter 8, an agenda is built for managers to move forward in the N=1 and R=G world of competition and value creations. Such an agenda demands clarity of direction, willingness to discover, clear milestones, and speed and stamina to be successful. Many examples of new models (companies) for collaborations and personalized access to information are listed and analyzed.
In sum, Age of Innovation shows how new information technologies are enabling more efficient and effective innovation efforts by firms. It focuses both on the current and on the future impact of these technologies and on the strategic challenges they impose. By presenting a wide variety of real-world examples, it can significantly contribute to managers trying to keep up with the fast-changing environment and with the current challenges of innovation.