University of Michigan Professor Prahalad, delivering a keynote Tuesday at Interop, said a new business paradigm has emerged in which the centralized firm gives way to loosely federated, global business networks that can pull together resources on the fly to profitably deliver products customized for a market of one.
An example is Google, which consumers around the world use to assemble their own, constantly updated mash-up of news, weather, market quotes, and other information services drawn from thousands of possible sources -- none of which Google owns.
In a sense, Google's users are "co-creating" the product in partnership with the Internet giant, Prahalad said.
The advantages of such arrangements are many, according to Prahalad. But it's mostly about achieving greater flexibility and customization while lowering unit costs. Like any good business prof, Prahalad has turned his concept into an equation: N=1 (market size), R=G (resources are global.
With lower unit costs, N=1, R=G gives businesses the opportunity to profitably serve the 4 billion people in the world "not even on the radar screen" because they are living in poverty or near poverty. "These people will be connected for the first time in history" because computing and bandwidth costs are so low, Prahalad said.
"This is the biggest opportunity for growth, but it requires a lot of innovation," he said.
One company that's putting these principals to work is insurance company ICI Prudential in India. It's spun a digital Web that connects health care workers, hospitals, clinics, lifestyle management experts, and other resources with millions of diabetic patients in the country.
The disease has become more manageable as a result, and ICI Prudential can now profitably offer coverage that's affordable for the patient. "Can any of this be done without IT?" Prahalad asked.
The answer is no. Companies that want to exploit the federated, global business model will need large and fast databases, focused analytics tools, and software that can link business processes across various ecosystems when needed.
"As the competitive landscape is digitized, IT becomes a source of competitive advantage," said Prahalad.
Beyond hardware and software, companies that strive for N=1, R=G will need a large supply of workers with the technical skills to put it altogether -- meaning that "G" must apply to labor as well as physical inputs. "Talent matters more than we thought; IT matters more than we thought," said Prahalad, with implied apologies to Carr.