How Sophisticated Consumers, Globalization, and the Economy are Changing How Companies Compete

A Discussion with M.S. Krishnan, Professor, Ross School of Business, the University of Michigan

The prolonged economic slump is certainly forcing companies to change the way they sell to consumers. But M.S. Krishnan, a professor at the University of Michigan’s Ross School of Business, believes changes in the global economy and new, sophisticated demands by consumers radically altered the landscape long before the economic decline.

N=1 and R=G are the two mantras of his view of the world. N=1 focuses on the “centrality of the individual.” This means companies have to sell “one consumer experience at a time.” Have you been behind someone at Starbucks who wants a “venti soy latte no whip three sugars with one pump vanilla”? That cup is N=1.

No firm is big enough in scope and size to satisfy the experiences of one customer at a time, according to Krishnan. So they have to “focus on access to resources, not ownership of resources.” R=G means successful companies today must utilize resources from multiple vendors, often from across the globe. “Google doesn’t own any resources,” Krishnan points out. “It partners with people everywhere.”

Four game-changing trends

Krishnan and C.K. Prahalad discuss these trends in their book “The New Age of Innovation.” The professor says the two professors decided to write the book after they noticed four trends that stretched across all businesses worldwide:

1. Ubiquitous connectivity. Today four billion people can access the Internet “from $20 mobile phones to $20,000 laptops.” Krishnan says “this connectivity has empowered consumers.”
2. Pervasive digitization of business. Software applications now run almost all business processes. In addition, embedded intelligence helps sales. One example: embedded intelligence informs car owners they need an oil change.
3. Breaking barriers between industries. Is the iPhone a telephone, camera, watch, iPod, GPS, or gaming device? “We used to look at each of these industries with a separate lens. Six years ago, no one thought Apple would drive Motorola out of the cell phone business. Technology has broken down these barriers,” posits the professor.
4. The emergence of social networks and platforms for collaboration. “This is an enormous game-changer,” says Krishnan.
5. Globalization. “This cuts across the first four trends,” he adds.

Krishnan says “almost every industry” is moving to the N=1 and R=G model. “It’s just how fast,” he notes.

Say sayonara to the Model-T methodology

Soon to be relegated to the Smithsonian is what he calls the “Model-T methodology.” That’s where companies believe they can achieve valuable economies of scale by manufacturing the same item and then selling it to a multitude of consumers. In addition, this methodology required companies to own all the resources necessary to produce their products. Ford, for example, was vertically integrated. “We believe the opposite is the way to innovate today,” he says.

Instead, successful companies in the new paradigm accept a mirror image of the Model-T methodology. “Every product is different. Companies co-create it with the consumer. And companies don’t own their resources. Instead they partner with the best providers wherever they are,” he explains.

Krishnan says companies today “have to create a Velcro organization — the ability to connect and disconnect rapidly.” He says long-term contracts should become a thing of the past. Instead, “they have to be ready to partner with any new idea,” he adds.

Companies need to be able to do micro-billing. They also must have the capacity to handle complexity.

Business processes have to “connect the shop floor to the customer,” says Krishnan. Companies now can’t precode their IT architecture. “That’s like pouring concrete. Companies have to have the capacity to change their IT because it’s the link between technology and flexibility,” he explains.

The Michigan professor says the N=1 philosophy produces reams of data. That means the new paradigm requires analytics to enable companies “to gain insights at a fast face. You can’t study reports quarterly. By that time people have already left,” he notes.

Another aspect of N=1 is employees. Employees have their own passions, experience, and talents; companies need to utilize those unique skills. The professor mentions an insurance company that routes calls based on the questions of the caller; the agent with the most knowledge of that particular issue gets the call. “The company mapped the agents’ capabilities into its platform,” he explains.

Globalization

Krishan says most companies originally think of globalization as cost arbitrage. “But that’s the wrong attitude,” he says. Instead, companies should think of R=G as a resource for innovation. “Companies need to look at the entire globe as their resource base. They need to create a web of partners so they can bring the best of each to their customers,” he says.

For example, he says companies hired Wipro to reduce cost and improve their processes. But now they want a different relationship. “Companies want to tap into their global talent pool,” he explains.

In their book, the authors believe that “traditional sources of competitive advantage, such as access to capital, physical location, raw materials, and technology, will become table stakes. As we move into an N-1 and R=G world of value creation, we believe competitive advantage will depend on a firm’s approach to business processes that can seamlessly connect consumers and resources and manage simultaneously the needs for efficiency and flexibility. It will be a race to provide a unique customer experience at the lowest cost.”

As a consumer, I can’t wait!

Lessons from the Outsourcing Journal:

• N=1 and R=G are the two new mantras companies need to innovate and create value. N=1 focuses on the “centrality of the individual.” This means companies have to sell “one consumer experience at a time.” No firm is big enough in scope and size to satisfy the experiences of one customer at a time. R=G means successful companies today must utilize resources from multiple vendors, often from across the globe.
• Business processes connect the two mantras. These require a flexible IT architecture. They also include real-time analytics so companies can determine the immediate needs of their customers.
• Companies offshored to save money originally. Now they are using offshore suppliers like Wipro to tap into their global talent pools and to use them as a source for innovation.

Wipro set up the Council for Industry Research, comprised of domain and technology experts from the organization, to address the needs of customers. It specifically looks at innovative strategies that will help them gain competitive advantage in the market. The Council in collaboration with leading academic institutions and industry bodies studies market trends to equip organizations with insights that facilitate their IT and business strategies. For more information on the Research Council visit www.wipro.com/industryresearch or email industry.research@wipro.com.

E-mail M.S. Krishnan at mskrish@bus.umich.edu.