Managing in Turbulent Times

1

• Managing in Turbulent Times
• C.K. Prahalad
• Harvey C. Fruehauf Professor of Corporate
  Strategy
• The University of Michigan Business School

June 12, 2002
2
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
3
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
4
Business TransformationForces of Change
Deregulation, Globalization, Emerging Markets
Emerging Strategic Space 1995-
Strategic Space 1990
Known Game, Efficiency
New Games, New Rules, Innovation
Convergence, Internet,
5
Basic Assumptions
Strategy is About 1. Searching for New Sources
of Competitive Advantage, 2.
Being Unique, 3. Creating Wealth
Reduce Risk, Investment and Time, 4.
Inventing New Rules and New Games
Strategy is About Discovery of Wealth
6
Competitiveness Problem is Changing.
Cost, Quality, Cycle time Efficiency, Existing
Business Models
Deregulation, Privatization, Global
Industry Restructuring New Business Model(s), Sc
ope and Size ?
Digital Convergence, unclear industry Boundaries,
Multi-tech Integration
New Game, New Rules
7
Convergence of Technologies
and Markets
Computing, Communications, Components, CE,
Software, (e.g. Philips, Sony, Dell, Microsoft,
..) Chemical and Electronics (e.g. Kodak)
Mechanical and Electronics (e.g. Ford, ABB) PCP
and Pharmaceuticals (e.g. PG, Revlon,
UL) Commodity Products and High Tech (e.g.
Cargill) Retailing, F. Services and Databases
(e.g. Walmart, Citicorp., Tesco, ..)
Fusion of New and Old Knowledge, Creation of
Hybrids, Forgetting, Learning,
Harmonizing, and Investing.
8
Competitiveness Problem is Changing.
Cost, Quality, Cycle time Efficiency, Existing
Business Models
Deregulation, Privatization, Global
Industry Restructuring New Business Model(s), Sc
ope and Size ?
Digital Convergence, unclear industry Boundaries,
Multi-tech Integration
Emergence of New Industries
Evolving Game
New Game, New Rules
9
Implicit Assumptions

• Value is Exchanged between the Firm and a
  Customer
• Value is Created by the Firm.
• Value is embedded in Products and Services
• Value Chain represents the Value Creation Process
• It is Sequential and Linear
• 4. Innovation is about technologies/products/proce
  sses
• 6. Customers have a choice- to buy or not to buy
• Managers job is to persuade them to buy

10
The Current Paradigm Value Efficiency
The Firm
Suppliers
Channel
SCM ERP CRM Quality
Cycle time
11
Consider the Following

• Napster and Music Industry
• Sumerset Houseboats and the Boat Industry
• Lego Mindstorms and Fun
• FedEx and Logistics
• Patients and HealthCare

12
Transformation of the Elements of Exchange
Transactions
Exchange
Price Performance
Choice
Consumption
13
The Basic Transformation
The Firm
Suppliers
Channel
SCM ERP CRM
Nodal Firm
14
New Assumptions

• Value is created at the point of Exchange
• Value is Co-Created by the Consumer and the Firm.
• Value is embedded in Experiences
• Products and Services are carriers
• Experience Fulfillment Webs not a Sequential and
  Linear
• Value Chain
• Innovation is about Experiences
  technologies/products/
• processes are critical but not the goal
• 6. Customers make a choice

15
So What Implications for Value Creation?
Building Blocks

• Transparency
• Access
• Dialogue
• Harm (Risk) Reduction
• Personalized Experience, not product
• Active, evolving Community(ies)
• Roles of the Moment and not
• predetermined Categories
• 8. Co Creation of Value
• 9. Consumers as a source of Competence

16
What are the Underlying Issues ?
Access
Thematic Communities
Informed Choice
Value Creation Space
Dialogue
Transparency
Co - Developing Innovation
Trust
Harm Reduction Safety, Green,Sustainability
17
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
18
New Assumptions

• Value is created at the point of Exchange
• Value is Co-Created by the Consumer and the Firm.
• Value is embedded in Experiences
• Products and Services are carriers
• Experience Fulfillment Webs not a Sequential and
  Linear
• Value Chain
• Innovation is about Experiences
  technologies/products/
• processes are critical but not the goal
• 6. Customers make a choice

19
The Value Creation Process?
Transactions
Consumer Centric Exchange Space
Price Performance
Dialogue
Choice
Co- Creation of Value Space
Transparency
Access
Consumption
Risk
20
Co Creation of Value
Efficiency Innovation
Quantum Jumps Beyond
Products Resource Leverage
21
We can Identify an Innovation Continuum
Enhanced Network Customers
Locus of Competence
Extended Network
Corp. As a Source
Products Solutions Experiences
Locus of Innovation
22
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
23
What Challenges to To ManagementBuilding New
Strategic Capital?
Understanding Dominant Logic The Genetic Code
of the Organization
The Nature of the Discontinuities What to
Forget? What to Learn?
Creating New Capabilities New Games New Rules
Harmonizing Old and New Knowledge
Speed, Scope, Scale of Retooling the Entire
Organization
24
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
25
Perspectives on Capacity to Lead Industry
Transformation ABC Corp.
Extent of Change in your industry
Low Moderate
V. High
1 2 3 4 5
Extent of change in your Strategic direction
1 2 3 4 5
Capacity for Change in your firm
1 2 3 4 5
Quality of infrastructures for Facilitating
change
1 2 3 4 5
Urgency for change at all levels In the
organization
1 2 3 4 5
Agenda for Top Mgt
26
What is the Tension About?
Variable Bus.Charters, Less reliance on
Structure, non traditional solutions
?
Zone of Opportunity
Fixed Bus. Charters, Clear Structure, Traditional
Solutions
Zone of Comfort
Slow pace, Few Variables Easy to understand
Fast pace, Many Variables Complex
27
The Challenge to Leaders
Managing the Present
Selectively Forgetting the Past
Refuelling for the Future
28
Changing Nature of Diversified Firms
Corp.
Corp.
Evolving and Changing Roles of Business Units,
Network, VELCRO Organization Ambiguous and
Changing Control over Resources and
Missions, Value Creation is based on Linkages and
speed of Reconfiguration
Predetermined Corp- Business Unit Roles,
Hierarchy, Clarity to Resources, Clarity to Score
Cards, Value Creation is based on Efficiency of
Business Units...
29
Nature of Tensions
1. There are Multiple Transitions not one 2.
Each transition puts a different pressure on
the organization 3. Developing an intellectual
Framework is a prerequisite 4. Transitions
and action steps need to be sequenced 5. We
need to collapse the Time Frame 6. We need to
grow and be profitable at the same time
30
What have I learned about Transformation?
1. Transformation is about Invention 2.
Transformation must engage the Total
Organization 3. Transformation must deal with
values, beliefs, skills 4. Transformation must be
cemented by new management processes 5.
Managerial models -cognitive maps- of managers
are conditioned by their experience 6.
Transformation is a continuous process 7.
Transformation is about becoming different 8.
Transformation is about sustaining and enhancing
competitiveness
31
The Agenda for the Session
(5)
Changing Competitive Landscape
T H E R O L E O F
(4)
L E A D E R S
(1)
The Need for A New Infrastructure
New Capabilities Needed
(2)
Organizational Transformation
(3)
32
Manager as
Captain (Accountability)
Coach (Values)
Intellect (Direction)
Player (Involvement)
Referee (Due Process)
Promoter (Excitement)
33
Transformation Requires
Imagination Passion
Courage Humanity Humility
Intellect Luck !