CK Prahalad: Can you make profits and will the poor accept new technologies?

Presumably being the most influential management thinker in the world that puts a bit of pressure on you?
Not really. I think of it as a big obligation rather than as a privilege. I think it’s a nice spot to be in, but it’s also a big responsibility because people might take you seriously.

Your book The Fortune at the Bottom of the Pyramid is now out in a new edition. Were you surprised at the impact the book has had?
In an interesting way I was. The thinking around the world before the book came out was that the poor are wards of the state. They need help, subsidies are the way to go. And so there had been a whole range of efforts by developmental economists, multilateral institutions, aid agencies, philanthropists that had gone on for 50 years. To be able to come and say there may be another way of solving this problem was quite radical.

I was never sure whether it was going to be an acceptable thesis, but surprisingly multilaterals, many NGOs, and a lot of companies have come to accept this. Aid agencies now ask are we creating a market-based system? Can we create transparency? Can we build capabilities? So, from that point of view it was a big surprise.

The second surprise for me is while ideas like core competence and co-creation have all become part of the lexicon, it took a fair amount of time. But, Bottom of the Pyramid or BOP has become part of the lexicon in a very short period of time. That is also good news. Five years on, I am surprised how many companies have small initiatives going and are starting to understand how to participate.

It was 2004 when you first published the book and you are now publishing a new edition five years on. What’s changed in those five years?
If you look at what has happened since the book, three questions that everybody had in their mind have been answered conclusively. One is there a real market? Can you make profits and will the poor accept new technologies? The revolution that wireless has brought, four billion people connected in the world, has proven that all this is possible. Certainly the poor are accepting new technologies whether it’s in sub-Saharan Africa, South Africa, Indian villages, Latin American villages, people accept new technology.

They are finding new applications. There is a huge market. Just in India alone they are putting 11 to 12 million new mobile phone subscribers per month, not per year but per month, demonstrating that if you hit the sweet spot suddenly this market is real, and most importantly, companies are making money, whether it’s Cell Tell, Safari.com, Airtell, Reliance, Globe in the Philippines. All of them are making money and more importantly the market capitalisation of these companies is real. There are four companies in India which didn’t exist 15 years ago and which now have a market capitalisation, in a depressed market, of $45 million. So those questions are being answered.

More interestingly for me is suddenly iconic innovations like the Tata Nano which is creating a inflection point in the global auto industry. Now, a $2,000 car does not mean that all poor people can afford it. But, maybe in India not a billion people but 300 million people can aspire to this. Tata Nano actually received $600 million in advances so people can take delivery of the car in 2011. Now, that is an interesting perspective on the global auto industry. Everybody is shutting down plants, giving concessions to people to buy cars, but in India people are giving Tata money so they can get delivery in 2011. There is something that is happening in this market that we ought to be sensitive to as managers, as practitioners, and also as academics.

In the new introduction you explicitly talk about the democratisation of commerce. Can you tell us exactly what that means?
I start with a broad philosophical perspective. The 20th Century was about political freedom. I recognise it is still a work in process. We are not there, but people recognise political freedom as a birthright. So now I ask myself, what is the big challenge for all of us in the 21st Century? It’s how to democratise commerce.

Think about core competence as an idea. Core competence is not about top management. It’s about ordinary workers, ordinary people and the worker community working together to create intellectual capital. It is essentially saying don’t underestimate the critical value added by ordinary people. It’s not all about the top guys. Now, the idea is widely accepted.

Then you move to the second idea of co-creation. Co-creation is about saying how do we empower consumers? How do you empower both suppliers and consumers so collectively we can create more value? Connecting with suppliers is now called connect and develop, or open innovation, but this idea has not suddenly happened. It is an old idea. Co-creation with consumers is happening all over the place and the new age of innovation is all about how to make it happen.

I want you to think -- that's the core competence idea. I want suppliers and consumers to think with me -- that is the co-creation idea. Then if you put the two together and go to the bottom of the pyramid, you are essentially saying how do I get all people in the world to have the benefits of globalisation, as consumers, producers, innovators and investors?

Think of the world as a combination of micro consumers. That means you have to make things affordable, accessible and available. As micro consumers we also want to exercise choice, that’s co-creation, and that applies across the board. Even if you can afford only what rich people can afford, you still want to co-create. Personal choice and affordability are two sides of being the consumer. The idea of democratisation is building systems where micro consumers, you as a person can be a micro consumer, micro producer, micro innovator and micro investor.

Connectivity allows ordinary people to connect, disintermediating the tyranny of large institutions, and that is an important innovation taking place right in front of our eyes. Look at what happened in the 2008 presidential campaign. It was all small contributions, not just the big blockbuster dinners, and that made Obama successful.

Democratisation of commerce forces us to think about three issues in a very important way. First, there is the centrality of the individual rather than the institution. Then the interdependence of institutions. Nobody can do this alone any longer. It doesn’t matter how big the company is. That’s why even companies like Procter and Gamble have to think about connect and develop. Everybody now understands that. That means you have to compete as an ecosystem. And the third issue, which is more important, is iterative, interactive innovation which involves a large number of people.

A lot of things in life can be small steps taken very rapidly by a large number of people creating big change. You can see what has happened with Facebook, Twitter and Linkedin. These are fundamental changes taking place rapidly, seamlessly and painlessly. Nobody is forcing you to be part of it, but you see the benefits of being part of it. And so I think we are on the verge of this new intellectual, organisational and social challenge of how do we allow everybody to participate in the benefits? That does not mean everybody gets to be equally successful, but everybody has the right to participate and the opportunities to participate. At least that is my hope of where we are going.

People like Bill Gates are talking about creative capitalism. Is your vision very different from his, or are you converging on the same ideas?
No, actually it is not. I think it’s an important debate. You get creative capitalism, you get capitalism with a conscience, then you get social capitalism or social innovation. You get creating shared value, stakeholder capitalism. I think the new forms of capitalism connect two things. First, it connects fair markets. Transparency is still important. Fair evaluation of value is still important. Second is co-creation. We collectively have to understand what value is. So if you connect markets, which is economic understanding, transparency, access to information, elimination of asymmetry of information and then you get the idea of co-creation, you get democratisation.

Through all this noise, the underlying signal is very clear: We are becoming more interdependent, we recognise it and the markets are becoming more important as a way to solve complex problems. So I think democratisation to me is bringing the two together.

Does that need a new type of leader? What are the characteristics of leaders who are going to lead in this new era?
I think humility is a good start. I think we got to a point where if you wanted to be a leader you had to be arrogant. No. I think leadership is about hope, leadership is about change, and leadership is about the future. And if you start with those three premises, I want leaders who are willing to listen and bring in multiple perspectives, because the future is not clear.

Let me use a metaphor. I look at good leaders as sheepdogs. Good sheepdogs have to follow three rules -- you can bark a lot, but don’t bite; you have to be behind, you cannot be ahead of the sheep; and you must know where to go and can’t lose the sheep. If you think about leadership, it’s about consensus building. If you have to worry about co-creation you must listen and you must build consensus. You can have multiple conversations and dissent is an integral part of understanding what the new leader will look like.

You must also have a point of view of the future. You cannot lead unless you have a point of view, and most leaders do not have a point of view, and if they have it they don’t express it clearly. Increasing shareholder value cannot be a point of view about the future. It’s incidental to doing the right things.

An articulation of a point of view of not only where your company will be, the underlying structures of society and how your company is going to participate and shape that society, a clear understanding on how to build consensus and willingness to listen to dissent, and leading from behind means a lot of humility.

Finally I would say leaders of the future will have more moral authority. It’s not hierarchical authority. If you think about Gandhi, he did not have big armies. His force was moral force. The virtue in Ghandi was he was never dogmatic. He was tough, he was autocratic many times, but he was willing to change his methods. People listened to him. Now, he was not always the most democratic person, but he listened to a lot of people, and he had clear values.

The last time I saw you, you said what we need to think about is the next agenda for humanity. Would you like to answer your own question?
What are the fundamental drivers of a social order? Globalisation is one of them. The second, which is big for me, is how to create inclusive growth. That’s the bottom of the pyramid, how to get five billion more people as micro consumers, micro producers, micro innovators and so on. The third big piece for me is how to empower people. That is co-creation. The fourth one is suddenly if you have four billion new consumers and producers, the earth will be in a situation that is not sustainable. We all know that. Already it is not very sustainable.

So I look at it and say 1.5 billion people have created this problem, when you have 6 billion people there are only two choices. One is to tell them not to come out of the village, not to enjoy the basic amenities of life. If the additional 4 billion people only represent 10 per cent of energy consumption that you and I have, it’s almost like adding the whole of the United States again, 400 to 500 million new energy equivalents of the United States. It’s not possible. So to me the next big challenge is how to look at sustainability not as compliance and regulation, but as a fundamental requirement for innovation.

If I want to make cataract surgery available at $30 rather than $3,000 I have to innovate. That’s exactly what happened in the bottom of the pyramid. So we have to bring the same energy for breakthrough innovation to sustainability. Think about a model where you have inclusive growth, sustainability, co-creation and globalisation creating interdependencies. Putting all of these things together and thinking systematically about them is the next challenge.

Des Dearlove is a visiting professor at Spain’s IE Business School and co-creator of the Thinkers 50