Book Review: The New Age of Innovation (Part 1)

8. May 2008 by Rick Abbott.

I just finished reading the book, and wanted to provide my thoughts in general (in this post) and on the analytics theme that runs throughout the book (in a subsequent posting).  The authors are C.K. Prahalad and M.S. Krishnan, both professors at the Ross School of Business, University of Michigan.

The authors present the “House of Innovation” as the framework to support their views on innovation.  The “house” has the following components:

1. The foundation is the “technical architecture of the firm”
2. The two pillars, “Personalize co-created experiences” (N=1) and “Global access to resouces and talent” (R=G)
   • N=1 states that companies should be co-creating products and services with their customers that reflect the individual tastes of each customer.
   • R=G states that no company has all the in-house resources to provide N=1. Therefore companies need to gain access to a diverse set of resources that can be assembled quickly to meet variable work loads.
3. The roof is the “Social architecture of the firm”
4. The glue that holds everything together, and the real focus of the book, is the “flexible and resillient business processes and focused analytics”

First we’ll discuss the two pillars, then touch on the business processes.  The analytics piece I’ll leave for another post.

The concept of N=1 as presented in this book is not the same as mass customization (e.g., Dell), but refers to true co-creation of a unique product or service in conjunction with each customer.  The authors give several examples in the book, the most compelling (to me anyway) being ICICI Prudential, an Indian insurance company.  ICICI is testing an insurance product where they adjust premiums for diabetic patients on a frequent basis (every 2-4 weeks) based on test results and compliance with doctor recommendations formulated from the test results.  The benefits to the company and patients are obvious: risk is determined at an individual patent level and premiums are set accordingly.  The company gains increased visibility into the risk within their insurance portfolio, and the customers who follow the diet and medication recommendations benefit from not only reduced premiums but from (presumably) better overall health.  The authors also bring up the question “Is this an insurance or health product?”  The answer in my mind is both - moving to N=1 allows the company to leverage existing capabilities to generate new revenue streams.  However, this example highlights the potential roadblock to N=1, namely that it requires significantly more personal information.  Given the current backlash around lost and stolen personal data, this could be as much of a hurdle to N=1 as the organizational, process, and technology challenges, which are significant.

R=G is all about finding the right resources, both internal and external to the company.  The authors make it clear this is not limited to outsourcing, although this should be a piece of the puzzle.  They stress the need to leverage all forms of external resources, including traditional avenues such as outsourcing and partnerships, but also individuals with critical skill sets.  One example is a bank in India organizing groups of village women to manage micro-loans to the local inhabitants.  The key take away here, as stated by the authors, is “the focus is on access to resources, not ownership of resources”.  I think the primary impediment to implementing this model today is getting the corporate management team to come to terms with the associated loss of control.

The concept of N=1 and R=G are not ground breaking in their own right, as there are numerous examples of both in play today.  I think the most novel and potentially benefical ideas in the book are on business processes and analytics.

The most important concept presented in the book is that business processes should be fluid in order to orchestrate adjustments to both N=1 and R=G, with real-time analytics serving as the GPS.  The authors make it clear that this has nothing to do with the ’80s re-engineering that attempted to streamline business processes for efficiency.  They also stress that it’s not enough to determine what your business processes are today.  You need to put in place the capability, via social and technical architectures, to change the business processes on the fly.  Going forward, the adaptable business process (and associated analytics) will be the most important asset for a company.

I’ll leave you with this quote from the book, as a teaser for my next post on analytics:

“CEOs and line managers cannot delegate strategic decisions on the business applications, analytic capabilities, and data warehousing.  It is the business applications and the analytics engine that form the backbone of the business process architecture.” (pg 240)

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