June 13, 2005
C.K. Prahalad Describes India as a Laboratory for Innovation
Points to vast, emerging markets in developing countries
LOS ANGELES - C.K. Prahalad, the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Ross School of Business, brought his vision of world class products for the world's poorest consumers to UCLA Anderson in his keynote address at the 2005 SABA Conference. Developing countries, he said, may leapfrog developed countries with new products and services since the challenges are so complex that they require radical innovation, and change is not stymied by legacy systems.
The best-selling author described India as a laboratory for innovation in which a large number of poor and uneducated people co-exist with a growing number of highly-skilled scientists and engineers. Jumping from illiteracy to cutting-edge knowledge work, he said, is what innovation is all about. Prahalad presented examples of radical innovation in India, inviting the audience to imagine modern hotel rooms for $20 a night, artificial limbs for $25, cataract surgery for $30 and other revolutionary products and services designed for those at the bottom of the economic pyramid (BOP).
Prahalad challenged the audience to see five billion people in developing countries, 80 percent of the world's population, as a market opportunity. "How do you serve a consumer market when all you can see is abject poverty," he asked. Seeing a market at the bottom of the pyramid, said Prahalad, requires imagination rather than analytics. "If you use the analytical tools we teach you," he said, "you will not see a market."
Opening the market at the bottom of the pyramid fundamentally challenges every assumption we have made about how to serve the world's richest societies, said Prahalad. Entrepreneurs and researchers, he said, must learn to marry low cost, good quality, sustainability and profitability at the same time. The result, he predicted, could be a market as transformative as the Internet.
Watch a video of C.K. Prahalad's keynote address (Windows Media).
indiOne Reinvents the Business Hotel
"Indians travel. That's a fact," said Prahalad who noted that India's hospitality industry is largely undeveloped. "It's like all of Scandinavia, and then some, on the move every day." Prahalad described the conceptual process that led to the creation of indiOne Hotels. "You can't take a five-star hotel and start taking things away. That just produces a budget hotel." Ground rules included a minimum room size, affordable pricing, modern features, and scalability up to 100,000 rooms. The first indiOne Hotel is open in Bangalore, India and ten more are expected to open in the coming year. Each will offer clean rooms with LCD TVs, business centers, exercise equipment, ATM machines and pleasant surroundings for about $20 per night. Indian consumers want world class quality at local prices, said Prahalad. The first indiOne Hotel was profitable within a month, and Prahalad calls it a model for global expansion.
India to Challenge Automakers in Developed Countries
India's auto industry is growing, said Prahalad, with most new cars priced from four to five thousand dollars. Prahalad noted that India's manufacturers, recipients of many quality awards, have learned to produce automobile components for a fraction of what they cost in the United States. "So then, I ask whether there is a market for a $3000 car," he says. Given the gap between a $5,000 new car and a $1000 motorcycle, the market is obvious, he said. "If you go from $5000 to $3000, that represents a five to six times price advantage over the United States," he said, noting that American cars start from $15,000 to $20,000. "If you were an American automobile marketer, would that bother you?" he asked.
And something else is happening, he said. The three areas in India where automobiles are made are the same locations where India's technology development is taking place. Prahalad suggested that India could revolutionize the automotive industry by combining automotive knowledge, manufacturing quality, small batch capability, low cost and embedded software.
Doing Well and Doing Good
Prahalad turned to the large number of people in India and the developing world who have lost arms or legs in war or to landmines. "If people can afford shoes, they cannot wear them in a temple or kitchen, so an artificial foot must look like a foot," he said. "A patient must be able to squat on the floor and walk on uneven ground, and you must be able to provide custom fitting for a patient in a single visit.
"Overall specifications for prosthetics in India are more stringent than in the United States. So, if prosthetics cost $12,000 in this country, how much should one be in India?" A Jaipur Foot, he said, costs about $25 in India. Prahalad again urged listeners to think about the opportunity for extraordinary innovation in serving the bottom of the pyramid.
"I want you to think about innovative, high-tech solutions at new price and performance levels," he said. "Not five percent less, but five percent of what it costs here. This is the sandbox that the bottom of the pyramid forces you to play in ... But you can't do this unless you have imagination, passion, courage, deep sense of humanity and humility. We can do well and do good at the same time."
About C.K. Prahalad
Prahalad is a best-selling author as well as an influential management professor and consultant. He is the Chairman and Founder of The Next Practice, a strategic advisory firm that enables the world’s leading companies to leverage the emerging trends that are reshaping the face of competition.
Professor Prahalad's books include Competing for the Future (1994), co-authored with Gary Hamel. The Future of Competition: Co-Creating Unique Value with Customers (2004), co-authored with Venkatram Ramaswamy. The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profit (2004) was selected as one of the best books of the year 2004 by the Economist, Fast Company and Amazon.com.
He is a member of the United Nations Commission on Private Sector and Development. Professor Prahalad has consulted with the top management of many of the world’s foremost companies, such as Ahlstrom, AT&T, Cargill, Citicorp, Eastman Chemical, Oracle, Phillips, Quantum, Revlon, Steelcase and Unilever. He serves on the Board of Directors of NCR Corporation, Hindustan Lever Limited and the World Resources Institute.
About UCLA Anderson School of Management
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Established in 1935, UCLA Anderson School of Management provides management education to more than 1,400 students enrolled in MBA and doctoral programs, and some 2,000 executives and managers enrolled annually in executive education programs. Recognizing that the school offers unparalleled expertise in management education, the world's business community turns to UCLA Anderson School of Management as a center of influence for the ideas, innovations, strategies and talent that will shape the future.