Nontrivial Exercises

The Great Process Innovators of the 21st Century

photo from rahimadatia on flickr

The January 23rd issue of BusinessWeek has a great article about C.J. Prahalad, a business strategist / consultant / professor who has very innovating and challenging views about how global business will change over the next several decades. He points to his native India – specifically to Bombay for this article – and shows that while some people see abject poverty, filth and apparent hopelessness, he sees a hotbed of capitalism and innovation without equal anywhere in “first world” countries.

He goes so far as to argue that the third world economies are producing some of the the best innovations in cost reduction, process efficiency and quality in the world. He looks at the streets of Bombay and sees money-making enterprises – from sugar-cane stands to faxing services to hot dog stands, people are making money – however little it may be – in just about every place you look.

The capitalism is driven out of obvious necessity, an extremely low cost of infrastructure (driven by the necessity and shortage of resources) and a large market. For example, with $20 you can buy a phone card and start some sort of business. Even on a larger industrial scale, the wireless operators in India charge just pennies per minute for wireless service, and are preparing to offer broadband video, data and voice for about $30 a month.

Prahalad argues that the low wage structure is not the only reason for seemingly more productive companies in India. Rather, it is the extreme and “ingenious cost-cutting practices”. Many Indian companies make better use of their capital – for example, hospitals use their big imaging systems like X-Ray and MRI machines 14 hours a day, 7 days a week, while most hospitals in the U.S. make use of these machines only 5 days a week. Indian companies also heavily outsource everything possible, and keep only the very core, essential parts of their businesses. This allows for each company to develop economies of scale and proficiency in their own areas, which has the effect of making the entire economy more efficient as each company relies on the specialists to manage parts of their business.

The really surprising part of the article to me is the assertion that the most innovative thinking for business efficiency, productivity and cost containment will come from the developing third world economies, and not from the behemoth leading economies of the west. It makes sense after considering his arguments and the fact that innovation in third world countries is driven by two extremes: lack of traditional resources (technology infrastructure) and incredible demand (poverty and the desire to escape it).

Those of us in the behemoth western first world companies would do well to listen to what Mr. Prahalad is saying, and perhaps learn from some examples that the third world offers us.

(Thanks to my friend Steve for forwarding me this article)