C K Prahalad — the man who knew strategy

May 4, 2010

Versions of this were published by the New Indian Express on Apr 22nd at
http://expressbuzz.com/opinion/op-ed/man-who-changed-strategies-in-the-business-
world/167215.html and by rediff.com business at
http://business.rediff.com/column/2010/apr/21/guest-c-k-prahalad-the-man-who-knew-
strategy.htm

CK Prahalad – the man who knew strategy

Rajeev Srinivasan considers the legacy of the man who popularized strategic intent and the Bottom
of the Pyramid

The term ‘guru’ is casually tossed around to denote anyone who has managed to jump on the
bandwagon of some idea as it became popular. But there are some genuine thought-leaders in the
business world who have created truly earth-shaking ideas; C K Prahalad of the University of
Michigan, who passed away this week at the age of 69, was a giant of that kind.

Prahalad was responsible for propagating not one, but at least three outstanding ideas. In addition,
as an extraordinary speaker and communicator, he influenced thousands of students and hundreds
of companies with his vision and perspectives. Along with the late Sumantra Ghoshal and a few
others, Prahalad was part of a phalanx of Indian-origin stalwarts making waves in business schools in
the West.

As a professor of strategy, Prahalad was perhaps peerless; he teamed up with Gary Hamel to come
up with the seminal idea of the “core competence of the corporation” in a famous Harvard Business
Review article from the 1980s. According to Prahalad and Hamel, “stick to the knitting” made a great
deal of sense – they suggested that a company figure out its true strength (an almost Shakespearean
“to thine own self be true”), focus on building up its ability to become impregnable in that area, and
then produce a slew of products all based on this core competence.

Furthermore, they felt that creating competing strategic business units would lead to unhealthy
competition and the hoarding of resources within the units, whereas it would be more optimal for all
human resources were to be available wherever in the firm’s far-flung operations they could be
most useful.

The duo followed this up with the even more stunning paper on “strategic intent” – a true HBR
classic. Impressed by the then seemingly-unstoppable Japanese invasion of the automobile sector
and the electronics sector, Prahalad and Hamel argued that unlike short-term-focused Americans,
Japanese planned a long-term strategy based on an intent that was clear, easily articulated, and
around which all its activities could revolve.

This research led to a resource-based perspective of a firm’s strategic direction, which nicely
complemented the incumbent theory of competitive advantage as articulated by Harvard’s Michael
Porter. Porter’s theory held that a firm’s competitive strategy was determined by external, market
issues: the bargaining power of suppliers and customers, the threat of new entrants and substitutes,
etc.

Prahalad and Hamel articulated the resource-based perspective of how a firm could pursue its long-
term by incrementally improving its capabilities. They used examples such as Canon (core
competence in optics) and Sony (in miniaturization and packaging) which used them to expand into
adjacent markets – such as laser printers and video recorders respectively.

Thus, by deciding a priori on where they would invest their resources, and by working towards
ambitious stretch goals (for instance earth-moving equipment maker Komatsu had the singular goal
to “Beat Caterpillar”, its entrenched and much bigger competitor), Japanese firms outsmarted their
American rivals who were more focused on short-term goals related to stock price and thence
executive compensation.

Intriguingly, the idea of intent can be applied to nations too: those that have strategic intent do well,
which those that do not flounder about with no direction. The contrast between the performance of
China and India can be explained by their respective strategic intents (China intends to be number
one, India lamely wants to be an also-ran).

This body of work would have been enough for Prahalad to be considered a serious thinker, be
lionized and become a favorite on the lecture circuit, as usually happens with the one-trick ponies in
the business hall of fame of the moment. But Prahalad was not content, and his next idea was even
more compelling. And timely, just as poor nations were metamorphosing from ‘less developed
countries’ to ‘emerging’.
Prahalad’s insight was into the nature of poor societies. He may not have invented the concept of
the purchasing power of the masses – quite possibly development economists had recognized it
already – but it was certainly he who popularized the idea of the Bottom of the Pyramid, in
eponymous books and essays.

The idea is that even though individual consumers in poorer countries may not be able to afford
much by way of discretionary spending, in aggregate they do form a tempting market. Therefore, if
you were able to create products that made sense to them, packaged in ways that they could afford,
you might open up a whole new class of consumers.

It turns out that many of the world’s potential consumers – and certainly India’s – fall into this
category. And firms which succeeded in reaching out to them have demonstrated that these are
viable customers. Examples include Nirma in detergents, and others who have created tiny one-
rupee sachets of health-and-beauty products, which would fall into the discretionary spending
power of even relatively poor people.

Prahalad was the prime mover behind the idea that large firms including multinational companies
could profitably target these customers: a version of “doing well by doing good”. There has been
criticism in some circles who maintained that Prahalad over-estimated the profits that could be
made; others suggested that there was something unethical about the very idea of, as it were,
exploiting the poor.

The fact remains, though, that the poor pay disproportionately more for what they consume. Almost
everywhere in the US, the cost of gasoline in poorer neighborhoods is higher than in tonier ones.
Grocery stores charge more and carry less healthy merchandise – there are few fresh fruits and
vegetables, and lots of high-fat, high-fructose-corn-syrup-laden processed foods. Even under micro-
finance programs, the poor in India pay much higher rates of interest than their wealthier peers.
Some of this is justified by enumerating the high costs of default, crime, pilferage, etc.

In his most recent work, Prahalad combined elements of the BoP idea with work on innovation. With
‘the innovation sandbox’, he showed how imposing constraints often engenders creativity of the first
order. For instance, there are the success stories of Aravind Eye Clinic, Narayana Hrudayala and the
Jaipur Foot, all of which offer uncompromising world-class services and products at a fraction of the
prevailing cost, through astonishing process and product improvements.
This is the true inspiration behind what has come to be known as ‘frugal engineering’. In its April
15th survey on innovation in emerging markets, the Economist magazine talks about signal
successes such as the Tata Nano, the low-cost electrocardiograph made by General Electric in India,
and other products that are changing the rules of the game, cutting costs by as much as 90%. These
products represent ‘innovation blowback’ that will discomfit established western corporations that
have not paid sufficient attention to the challenges and rewards of dealing with BoP customers.

Thus, after a lifetime of advising multinationals, Prahalad heeded the call of his roots in India.
Companies have been paying attention to the needs of India’s customers, taking his advice to heart –
for instance, the Tata Group with its successful Ginger brand of moderately-priced business hotels;
some multinationals, notably Cisco, are even setting up their innovation operations in India.

It is tragic that at a point when his blueprint of India in 2020 – his essay on India@75 — is almost
within grasp, CK Prahalad has moved on to the ages. His vision was that India could take advantage
of its demographic dividend, but only if it created 500 million skilled and trained people, he declared
at his pan-IIT keynote a few years ago. He believed in an India that could provide spiritual and not
merely technical leadership. That vision – so close to that of giants like Sri Aurobindo – is something
that Indian firms need to keep firmly in mind as they develop their strategic intent.

Management expert Gary P. Hamel has been on the faculty of the London Business School
since 1983. He coauthored seminal papers ‘The Core Competence of the Corporation’ (1990)
and ‘Competing for the Future’ (1994) with C.K. Prahalad, which later were published as
books. The two have also written Strategic Flexibility: Managing in a Turbulent Environment
(1999) together. (Bloomberg)
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It must have been around 1977-78. I had just joined University of Michigan for my PhD and C.K. Prahalad was an assistant
professor who was presenting his doctoral papers to a full room. I don’t recall the trigger, but we went on to have a giant
argument on the research. We went back and forth for about 30 minutes, going at each other hammer and tongs, with the rest
of the room probably squirming in their seats. At the end, both of us were impressed with the intellectual firepower of the
other. The paper later on became the basis for CK’s book, The Multinational Mission, that he co-authored with Yves L. Doz.
I was drawn to CK for his ability to look at things in a new way. What connected us was probably the fact that both of us felt
a little bit like outsiders at Michigan — I had come from a small town in the US and he had come from India.

Our next major association was in 1981-82 when we went on a consulting assignment to General Electric that was looking at
globalising one of its businesses. Based on that experience, we wrote a case study on how companies should work towards a
global strategy, something that generated a good response.

I soon left University of Michigan for the London Business School, but our association continued. An executive education
programme that we jointly taught for a British communications and technology company in London was to become the
wellspring of our thinking. For the 10-12 weeks of the programme, CK became a regular visitor to the UK. From six in the
morning to late at night, we would be debating management concepts. A lot of the ideas that we would ultimately write
about started to take shape here. We used to continuously scribble on yellow pads, fill 40-50 pages. One of us would then
write out the first cut. Post-dinner, our conversations would continue over sessions of good whisky and cigars.

Sometimes, I went over to Michigan and spent 3-4 days at CK’s lovely house facing the lake at Ann Harbor. His wife
Gayatri was a wonderful hostess. This is how articles like ‘strategic intent’ and ‘core competence’ started being put to paper.
It was hard to keep a partnership going across the Atlantic. Remember, these were the days before e-mail and instant
messaging.

(BW Pic By Tribhuwan Sharma)

When we wrote Strategic Intent it was to counter the thought that most people took
an analytical approach to strategy. Great strategy actually starts with aspiration,
and innovative strategy is born out of the gap between resource and ambition. We
found that most large corporations were resource-rich but aspiration-poor to
unleash the spirit of competitive purpose and ambition amongst employees. We
sent the article to Harvard Business Review and it was rejected. Theodore Levitt, a
senior marketing professor, was editor of the HBR at that time. In 1988-89, the
editor changed, our article got published and even won the McKinsey prize.

Core Competence was a result of CK and me working independently on a couple

of assignments. I was working for Carrier air-conditioners and CK was with
Philips. We came to a point of view that senior executives tended to think of
corporations as a portfolio of businesses by the markets they serve, rather than look
at them as a portfolio of competencies. After all, markets come and go. We then researched Japanese companies like Canon
and concluded that the real identity of a corporation is the deep knowledge it applies and not about products. Core
Competence worked extraordinarily well. The last time such an impact had been created in the world of management was
when Michael Porter wrote on the five forces of strategy.

Our ideas resonated with managers probably because both of us worked inside big corporations, and were connected and
practical rather than being highly theoretical. Both of us took risky career choices of writing on topics that would resonate
with businesses rather than being purely academic. We never targeted the acclaimed academic journals and chose
publications like the HBR that were seen as a magazine for managers. Our work was not the deep statistical variety that
would be found in the academic journals. CK used to joke that in his doctoral dissertation the only numbers that could be
found were the page numbers, though that might not be entirely true.

In a way our risky strategy paid off as we could move seamlessly from the academic settings to the boardroom. One big
regret that CK had, and I share the same concern, is that strategy research is disconnected from the world of practice. CK
could stand right in the middle of the bridge that connected academics and the boardroom. And there are not many people
who have been able to do that. In the US, B-schools never saw themselves as professional schools. They did not understand
the insides of an organisation and so the research was not very relevant barring a few exceptions. Management research is
merely describing reality and not fundamentally changing things.

In the mid-1990s, around the same time I came back to the US, Competing For The Future was published. We were also
realising that both of us had developed an entrepreneurial urge. Without any fights or disagreements, our paths started to
diverge. I was more interested in diving deeper into the future of management and analyse the DNA of modern management.
For CK, it was the noble challenge of using the innovation of business to eradicate global poverty.

CK was a contrarian thinker, with a courageous heart and a compassionate spirit. He would examine things upside down,
inside out, focus on the unexplored assumptions to create impact with a different way of thinking. For him life was too short
for working on inconsequential problems. So he set out to harness innovation to help the world’s poor. He was very
challenging and forthright. Nobody suspected his intention, as they believed that he had their interest in his mind. There was
never a selfish bone in his body. That gave him the licence to say things that he could otherwise not have said. Many people
have truly excellent minds. But there are not many with excellent minds, who apply them to create a global impact.