BusinessWeek.com has an excerpt from a new book from C.K. Prahalad and M.S. Krishnan. They provide an interesting take on a topic we have been studying of late – value.
Salespeople have to know their company’s value proposition in the market. That last part, in the market, is the key. We have seen plenty of companies who have an internal perception of their value, but some times it is not based in reality. Salespeople have to sort this problem out, which is an area in which we assist them.
At any rate, these opening graphs caught my attention as they elucidate a value trend we are seeing in the marketplace today.
There is a fundamental transformation of business underway. Forged by digitization, ubiquitous connectivity, and globalization, this transformation will radically alter the very nature of the firm and how it creates value. No industry is immune to this trend. It will impact traditional industries such as education, insurance, health care, automobiles, and footwear, as well as emerging industries such as video games, search engines, and social networks. Coming to terms with the implications of this change is critical for survival and growth.
This transformation, as we will examine in this book, is built on two basic pillars:
1. Value is based on unique, personalized experiences of consumers. Firms have to learn to focus on one consumer and her experience at a time, even if they serve 100 million consumers. The focus is on the centrality of the individual. We will designate this pillar as N = 1 (one consumer experience at a time).
2. No firm is big enough in scope and size to satisfy the experiences of one consumer at a time. All firms will access resources from a wide variety of other big and small firms—a global ecosystem. The focus is on access to resources, not ownership of resources. We will designate this pillar as R = G (resources from multiple vendors and often from around the globe).
This view of value creation is 180 degrees different from the model that started the industrial revolution. The Model T from Ford, the icon of the industrial revolution, was built on two premises that are the opposites of N = 1 and R = G. Consumers were treated as an undifferentiated group, and hence the famous dictum “Any color is OK as long as it is black.” All resources had to be within the firm to capture value. Ford was one of the most vertically integrated firms, and its River Rouge plant in Dearborn, Michigan, was the model. While no business today operates along the lines of the original Ford model, we must recognize that model as the precursor of modern business models. Most businesses today are variants of that model. That model served us well. It will not as we move forward.