CK Prahalad Shares Wisdom

Monday, November 7, 2005

What could draw nearly 300 students out given the dismal, rainy weather on Monday afternoon? It is all in a name: CK Prahalad. A University of Michigan professor, renowned corporate strategist, and internationally best-selling author of The Fortune at the Bottom of the Pyramid, Prahalad spoke at the fourth annual Joel and Lois Coleman Social Impact Lecture, sponsored in conjunction with the Legal Studies department and the Wharton Ethics program. Through the generosity of Mr. Coleman, a Wharton alum, each fall this lecture provides a forum for students and faculty to engage in discussion about the relationship between and responsibilities of private corporations and society.

Prahalad is most famous for his argument that companies should look at the five billion poor people at the bottom of the economic pyramid as an underserved market which companies merely need to design new product delivery and financing mechanisms to enter. However Prahalad, foregoing the easy route of discussing his past research, spoke about his current research, drawing together the theories posited in The Fortune and the Bottom of the Pyramid and The Future of Competition. Shifting the focus to corporations and governance, he challenged the audience to consider the ethical demands facing global companies and how companies move from regulatory compliance to what he defines as co-creation. Prahalad cited numerous examples, from Pfizer and Celebrex, Merck and Vioxx, to McDonald’s and obesity, where corporate behavior has been driven by scandal and the resulting public and regulatory reaction. Compliance with regulation implies the firm is always reactive and driven by negative motives. Prahalad argued that co-creation is a better model for firms to gain a competitive advantage, increase profits, and better serve consumers.

Co-creation is a new model for the implied social compact between large firms and society that is based on trust and social legitimacy. It is a paradigm shift because it moves away from a firm-centric view to emphasize a distributive model of self-governance rather than exogenous regulation. Globalization and the availability of information due to technological advancements call for a new model of competition and firm strategy.

Prahalad cited eBay as co-creation at its best. There is a clear motivation to cheat, yet this self-regulating network now serves more than 175 million people across 20 countries. With transparency of information, buyer and seller ratings, and continuous implementation of improvements based on user input (at least 100 per quarter), the leadership engages the consumer and increases profit. Prahalad argued that eBay is not an isolated example; rather, the underlying principles should be extracted and applied globally. Realigning the asymmetry between the firm and the individual, co-creation recognizes consumer as sources of competence and knowledge who should be engaged in developing products and services.

Prahalad ended by challenging students in the audience, asking what their contribution in this new era of business would be. Do we prefer to sit back and take everything as given or do we want to emerge as leaders?

Source: Wharton Journal (link opens in a new window)