Int : Can I begin by asking you what it is like being the #1 management thinker in the world?
CK : First I would say, I am happy to be in that slot. If one is in that list it is better to be #1. But it is a very humbling situation because when one is ranked #1 people think that he knows the answers to everything. One must have the humility to say “No, I don’t”. Therefore I think I have become a lot more humble. And more importantly a lot more cautious on what I say. Therefore I would say it is more a burden.
Int: You grew up in India andI understand you were one of nine children. You worked with Union Carbide at the age of nineteen. How do feel that those early experiences have influenced your thinking?
CK: I think growing up in India is a very extraordinary preparation for management and thinking about management for three reasons. One, you grow up in large families so you always have to make comprises. You have to learn to accommodate. India is a very diverse culture, in terms of languages, religions, income levels. So you start adjusting and coping with diversity at a very personal level, even as a child. So you cannot say “I don’t like this” as you might not have had any choice on whom you have to work with in school and whom you want sit next to in school. It is not a monoculture. Therefore if you have to have some interpersonal competence and inter-cultural competence, it (India) is a very good laboratory for doing it.
I was also very lucky because my parents were very academically oriented. My father was a judge and he was also a great scholar. So he told us very early in life that there is only one thing which when you give more you would have more. If you have lot of money and you give money away you would have less for yourself. On the other hand knowledge is the only thing which when you share more you get more. So that has stuck with me because I saw him using his scholarship in a very profound personal way. So that has rubbed on for a long time. So the early experiences were great.
When I worked in the plant in Union Carbide I had to work with communist unions. I learnt a tremendous amount from the union Stewarts. I had to set rates. I was an young industrial engineer. Negotiating rates with the unions taught me a lot. Contrary to what people think they are very smart people. They are very thoughtful. And if you are fair and honest you could deal with them in an interesting way. So it taught me that don’t think of these groups as adversaries but collaborate, be honest and be fair.
Int: In your new book 'The new age of Innovation', you talk about a transformation that is going across industries right across the globe. Can you tell us a little bit about that?
CK: I think it is based upon two very simple principles. One, treat individuals as unique, allow them to create their personalized experiences. That is the source of value. We just call it N=1. Just look at Netfalkes, Google, Starbox or iPod. You create your own portfolio of music. That is N=1.
On the second hand if you look at Apple. Apple doesn’t produce the content, it doesn’t even produce the device. It just designs it. Somebody in China makes it, the LCD’s come from Japan, semiconductors from Korea or Taiwan. It is assembled and sent to us in the US. And if you actually turn it around, it says that it is proudly designed in California. None of the content is produced by Apple. That is you are getting a multi-institutional collaboration to create the resources that I uniquely can access. Therefore we say resources are becoming multi-institutional and that is R=G.
N=1 is the shorthand for one person creating his own personalized experience. R=G is the shorthand for saying resources to serve that one person uniquely may have to be accessed from multiple institutions. That is the whole theory behind the book. It is quite simple. Sometimes N=1 and R=G appear to be complicated. It is very simple. Think Apple. Think Google. It is very easy.
Int: At the heart of last couple of books, has been the idea of co-creation. Can you explain what co-creation is?
CK: I think co-creation is an important idea. What it say is, we need two joint-problem-solvers and not one. Typically firms perceive a firm-centric world where the firm is the unit of analysis. In innovation, quality, ERP systems firm is the center of the system. What I am arguing is, the firm was the center of the universe in the industrial system, but when you move to a new age the consumers have the opportunity to have dialogue and be active. Therefore they can shape their own personal experiences.
You can create systems where the firms and the individuals work together. It is not consumer-orientation, it is not customer-realtionship management where it is still firm-centric view of the consumer. I am saying, let us establish a dialogue so the consumers can personalize their own experiences and the firm can benefit. This is becoming much more common and possible today. Therefore I think the idea is going to take roots. Activist consumers, firms that understand the needs of consumers have to help consumers to co-create their own personal experiences. This is going to be the common practice.
Int : So what will be an example of that?
CK: Let us take Google. It is also an interesting example as everybody googles now. If I look at Google, they don’t tell me how to use the system. I can personalize my own page. I can create iGoogle. I decide what I want.
On one hand Google provides a platform. Therefore Google understands that it can have hundred million consumers but each one can do what they want with their platform. That is an extreme case of personalized co-created value.
On the other hand Google doesn’t produce the content at all. The content comes from a large number of idividuals and institutions around the world. They aggregate it and make it available to me. This is the spirit of co-creation in the new book which says one consumer co-creates experience at a time, even when you have hundred million consumers. Resources are not contained within the firm and they are accessed from a wide variety of institutions. Therefore resources are global.
Int: Now in the book you talk about traditional industries as well as high-tech companies like Google. You apply it to teaching and various other industries. Can you give us an example of that?
CK: Let us take tyres. The rust-belt industry, which has been around for a hundred years selling tyres especially to fleets, is a very well established industry.The channels are known, the product is very clear. So you could think about a company selling tyres to a fleet owner. It is typically called a B2B. You need to see the term business-to-business. Business is the starting point.
So instead of selling tyres, if you just ask the question,why can't I just sell the usage. I only charge you for kilometers of usage. Because people drive trucks differently. Some are short-haul trucks, some are long-haul trucks there are wide variations. So I say that 'I accept that you have multiple usages and I will charge you only for kilometers of usage'. All that I have to do is measure how many kilometers. But I can go one step further and put some sensors on the tyres so I know the tyre pressure, I know the breaking speeds, the terrain in which you drive and so on. And with the GPS I can also say what routes you take.
So now I have a much better understanding of how you use the tyres. So now I can tell you, please check your tyre pressure, rotate your tyres. Because tyre pressure and rotation can dramatically improve the usage. It reduces the cost for you as the fleet owner. It gives me tremendous amount of knowledge on how people really use the tyres or run their vehicles.
Int : And that is how you co-create value.
CK: We are co-creating value. But I can go one step further and say, fleet owner has five hundred drivers and let me take Joe as a driver and look at his driving habits. I can give him advice on improving safety, usage and make him a better driver. So what used to start with a transaction, arms-length one, mostly based on price, now can be converted into personal relationship with the driver and the company or the fleet owner. You provide extraordinary service and get compensated very well. Because you get compensated for usage and also get tremendous idea for product development. Because now you have real-time data instead of focus groups' coming to you.
Int: What about public sector organizations in health service like the National Health Service in the UK. How the ideas of N=1 and R=G apply to the NHS?
CK: Each one of us is unique. We have our own history of good health, bad health, problems etc. So I have the data with me personally. There is nothing that stops the doctors who treat me to take me aside and start discussing about the risks and benefits of following a certain regimen. For example, if people are a little bit obese, to alert them that they are susceptible to diabetes, cardiovascular complications, blood pressure and other issues they have to worry about. That can be done today. That means you and I use the same information like the medical records, my test reports, my episodes of illness and then say to each other, if you follow this regimen you will keep health. That is a co-created regimen.
You cannot tell me, ‘take a walk everyday for four miles' when I am living in an run-down area. That may not be very wise. On the other hand you can make an arrangement for me to go to a gym where I can go and exercise. So I follow this regimen and you keep track of me.
Let us assume that I go to the next step. Let us assume that I am a heart patient and I a have a pace-maker. They can say, ‘ alright these are the bandwidth in which your system must operate and we will remotely monitor you with your permission'. But when something goes wrong we will send you a message either through your cell-phone or PC or regular phone or even send somebody to you to say, ‘get to the hospital, we need to treat you or just relax and take rest for two days'.
So I can become your personal friend. But in order to do that the first step is co-created experience. You can create the N=1 situation quite easily. Health is so important to all of us that it is critical that we get into N=1. Do not treat patients like in an assembly line.
Int: You mentioned the word ‘uniqueness’, a couple of times. How important is that concept in this notion of individualism, not just in the west but on a global level?
CK: There is not a single person I know who thinks he is not unique. And it is important for us to treat them that way. In other words the old idea was efficiency of manufacturing and managing resources. That is the 'model T' world. You can have any colour as long as it is black, organising the factory to make it cheap and available. It is an efficiency orientation. That was perfectly okay when the industrial revolution started. It was okay with Colt Revolver, Single sewing machine or the Model T.
We still suffer from the legacy of that thinking. Nobody runs a company like the Model T. But the legacy still exists in the form of firm-centric, product-centeric view of the world. But we are moving dramatically to a very different age. I think that there are four key drivers that are doing this. One is connectivity. For the first time in the human history three billion people are connected with wireless or PC or some combination. It will be four billion soon. It has never happened before.
Second the cost of technology is going down dramatically. I can get an eight gigabyte USB drive for $25. This means that technology is not the differentiator between the rich and the poor. Everybody can have one. One can have a $25 cellphone. So technology is not the unique differentiator any longer.
Third it is the convergence of the industry boundaries and limits. I can take my cellphone and ask a simple question. Is it a phone or a computer or a radio or a TV or a camera or an atlas? It is all the above.
Fourth is the social networks. The dramatic increase in social networking. If you put the four together with globalization, it is going to change the fundamental relation between the consumer and the company. That is the spirit. So now today I can have a dialogue with my consumers, my consumers can have an interaction with each other. Therefore the whole dynamic of the relationship between the consumer and the firm has shifted. The consumer is not powerless. The consumer has as much power as the firm. So it is the realignment of the power equation between the consumer and the firm that is going to require serious thinking on the part of the managers.
Int: The new book is called 'The new age of Innovation' and you described a part of that transformation. What is that new age of innovation mean for managers?
CK: I think three very important transitions are taking place in thinking. One, from the firm-centric view to accept the centrality of the individual. That is a very important first transition.
Second is the inter-dependence of the institutions, that you donot try to do everything by yourself. You cannot. Even when you are IBM or GE or P&G or Unilever, you still have to depend on a large number of people. Therefore eco-systems compete, not individual companies. This second principle is R=G.
Third transition, an interesting one, is that value is jointly created and not by the company alone. In fact when you look at people using terms like the value-chain it is actually a sequential cost-built. But we simply call it value chain because we assume we create value in the firm and exchanging it with the consumer. On the other hand when the consumer is involved in co-creating value you separate the cost-bill from the value that is created at the point of interaction. That is the third transition.
These are not difficult transitions. You must have a point of view if you want to transform your company. That doesn’t mean that you have to go from point A to B in fell swoop. You can migrate systematically by initiating small directionally consistent steps. That is what companies need to take.
Int: We talked about management. What about leadership?
CK: There are several very important distinctions. One, leaders must lead. You cannot lead unless you are future oriented. Leadership is about the future. Leadership is about a point-of-view about that future. And leasdership is about hope. I cannot say I am a great leader but no-change folks. That makes no sense.
Leadership is about change and future. The first thing is we must have a distinct point of view not about our current affairs but about how the world can be ten years from now. That is the first principle of a good leader. I am arguing that strategy and leadership are not about extrapolating the current situation into the future but imagining the future and folding the future in. That means leaders must have a point of view about how our system can operate and what the underlying principles ought to be. That is the critical part of the book. N=1 and R=G are the parts of the fundamental view how the future can be. Not necessarily everybody is there but that is how it should be.
I call it democratizing commerce. Lok at what we are doing. Every person has the opportunity to have a share of voice in how they consume, what they consume and how much they will pay for it. That doesn’t mean that the company has to give them what they want at the price they want but they have to accept it. So that is the first principle.
The second, the metaphor I would like to use is that of a sheep dog. The sheep dog has to follow some rules. One, you are always behind. Two, you can bark a lot but don’t bite and don’t lose any sheep. But you better know where you are going. This seems to be a better metaphor than a shepherd because a shepherd can be anywhere and most of the times ahead of the herd. The reason why I say this is that when talent becomes a critical resource for the company and when the talent is distributed around the world, inter-personnel competence, inter-cultural competence, the capacity to get people from different parts of the world like China, India, Germany, UK, US, Brazil and make all to work together requires the ability of a good sheep dog.
How to talk to people constantly, how to motivate them, how to get them to see the tasks on hand and how to reduce the frictional losses in pulling people together from multiple cultures becomes a dominant theme. So it is not the great man view of leadership. It is somebody who can make you as good as you can be.
Int : Your previous book ‘Fortunes at the Bottom of the Pyramid’ discussed how business including large businesses can work in the emerging markets and in doing so alleviate some poverty. How does that fit with your new ideas of innovation?
CK: If you look at the opportunities for the companies, I make three simple points in all the three books. One, look at six billion people as your market and not one. Look at six billion people as the potential micro-producers and micro-consumers and not just a billion people at the top of the pyramid. Today people are starting to say, including the Unilever of UK, that we want to straddle the pyramid not only being at the top or at the bottom. We can take our products like the Dove or Sunsilk all the way from the top to the bottom. Give it in a sachet for people who can afford only a small piece and more frequent users can have large bottles. So straddling the pyramid is becoming a fairly common idea.
The second thing is if you want to get a very good way of serving the consumer and therefore retain consumers then you have to understand the uniqueness of each one and create a unique personalized experience. Just don’t give them a product and think of it as a transaction. Build a relationship that is more enduring. That is the whole co-creation idea. In the new age of innovation, I take these forward and show how these things can be done operationally.
Thirdly what is the glue? The glue is information architecture or IT architecture, social values or the social architecture in terms of skill, training, approach to talent and so on. Binding them all together as a glue is resilient adaptive business processes and unique analytics. I believe that we are on the verge of a largest growth opportunity that any firm has ever seen.
Int: What is co-creation for CK? How does that work?
CK: I have been personally very lucky to be able to spot very, very bright and talented people like Yves Doz, Gary Hamel, Venkat Ramaswamy, MS Krishnan. If you notice what I do, I work with them, write several articles, write a book which is a statement of a point-of-view. Then I move on. I go on to the next idea. I leave them alone to pursue whatever they want. So my job has been to work with the most talented people, co-create a piece of work that has an enduring quality.
The idea of core competence is still there. Very few people recognize that global integration and local resposiveness are the products of my co-creation with Doz. It has been massaged and managed into ideas like glocal and so on. But fundamentally the tension between global integration and local responsiveness has endured.
So my goal is to get enduring set of ideas, co-create with them and then move on to next. So I have maintained the same pattern. It has been very good because it gives my co-authors the opportunity to express themselves in ways that they want. It allows me to refresh myself by not being tied to the same set of ideas and people.
Int: So what is next for CK?
CK: I think the essence of the next wave of managing or looking at the institution of the firm which has been the most dominant institution in our soceity is to say how do we democratize commerce. What does it mean? I think that is an important question for us to ask.
The last century was about political freedom. This century must be about economic freedom. I recognize that political freedom is just work in process.We haven’t done it. But the core ideas and the aspirations are well set around the world. Even people who are living under dictatorial regimes recognize they need to have political freedom. It is just a matter of time. But we need to ask the next question as to what is the agenda for humanity. It sounds an audacious goal. I don’t see it that way. If you look at co-creation, it is the starting idea of how to democratize commerce, how to get a share of voice for the consumers and the consumer groups not in an adversarial way but in a collaborative way with the firm. If you look at the bottom of the pyramid it is about how to make it inclusive, thoughtful capitalism, profitable for you and profitable for them, improving their quality of life and certainly makes you richer.
So when you look at inclusive capitalism, co-creation, respect for the individual and now the uniqueness of N=1 you can realise them as the building blocks to think about how to democratise commerce. I don’t know when will I be able to put all the pieces together. But that is the hidden journey of all the past three books. Now it is no more hidden as I have told you.
Int: We look forward to continue the journey with you. Thank you CK.
CK : Thank you.
References:
Thinkers 50 - Official site
CK's Interview - Video
Thinkers50.com 2007 Results
