The End of Corporate Imperialism, by C.K. Prahalad and Kenneth Lieberthal, encapsulates the obvious elegantly and factually, and its thesis is far more true today than in 1998, when it was written: “Too often, companies try to impose Western models of commerce on developing countries. They’d do better—and learn more—if they tailored their operations to the unique conditions of emerging markets.” Western MNCs (multinational corporations) perceive the primitive state of consumption in emerging markets, and they too often develop a strategy in which they: 1) focus on the extreme minority of wealthy consumers and/or 2) address the order of magnitude larger middle tier of the market by offering their past-mature products with minor cosmetic changes.
This is another symptom of MNCs’ being stuck between industrial and knowledge economies. As I stated in my Transourcing Point of View, “Enterprises are ambivalent about innovation and product creation because they represent an inherent conflict: the drive to amortize past investments (including process-oriented constraints of marketing, distribution, service, etc.) conflicts with companies’ need to satisfy customers’ wishes for novelty. In practice, this too often leads to vapid product extensions.” The industrial-era enterprise derived its competitiveness largely through production and distribution efficiency, and it marketed […]
In the entry on innovation, I mentioned that an excessive focus on the numbers produced irrational behavior, and I found a perfect example of it this morning. Coca-Cola spends millions of dollars on developing new flavors of Coke, most of which have proven to be well publicized, expensive flops, at least compared to projected goals. According to The Wall Street Journal (“U.S. Thirst for Mexican Cola Poses Sticky Problem for Coke“), the growing Hispanic community in the U.S., a large portion of which is from Mexico, thirsts for its home-grown version of Coke, which Coca-Cola refuses to import due to its agreements with U.S. bottlers. Some enterprising distributors manage to quasi-circumvent the system to import just under $120 million of soda into the U.S. each year. Coke threatens retailers and distributors with legal niceties when bottlers cry foul but otherwise looks the other way.
Let me get this right. Coke spends millions on developing product extensions that flop, yet it has a $120 million nascent market for a product that already exists, which it is resisting.. all because of its relationship with its distribution channel. This is a perfect example of industrial economy thinking: restrict and control while putting customers […]
Innovation
I had the privilege of hearing Larry Keeley, Co-founder of Doblin, the innovation strategy firm, at the GCB Innovation Round Table last night. He painted a vivid picture of the white water global economy in which we find ourselves as a context for his talk on innovation. In brief, the degree of uncertainty and change has created a “nervous time” for corporate executives. The pace of change is probably unprecedented in the experience of the human race (my take on this below). He implied that the anxiety around terrorism is amplifying this underlying general nervousness:
We face a high degree of ambiguity on political, economic and societal levels. People hate ambiguity. Complexity has two meanings: things are difficult to understand and we cannot know the outcome of our actions (because there are too many inter-related concepts, dependencies and data for us to comprehend). People find this overwhelming. Volatility of markets; Wall Street (fill in the blank for other markets) punishes executives for vagaries in the numbers, which has led to a legendary “make the numbers at any cost” attitude. People find this mystifying and unsettling because it constantly produces nonsensical behavior.
If we define innovation as measured risk-taking and […]
Much of what I write in this space will revolve around the new knowledge economy in which we increasingly find ourselves (no, I’m not talking about the “New Economy” of the 90s ;-). Therefore, I offer these thoughts on the 3.x economies in which we have lived.
The Knowledge Economy
A knowledge economy is fundamentally a new animal because its outputs are increasingly information-intensive services and “products.” Many of these products are infinitely scalable, like CDs, software or Webcasts. Selling additional “copies” of digital (music) is accomplished at virtually zero marginal cost for production and distribution. Of course, a knowledge economy also produces numerous industrial and agrarian goods, but the value of these goods is shifting toward information-intensive services that are related to the goods—away from the underlying goods themselves. Some examples are:
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