Prof. C. K. Prahalad might have been instrumental in challenging convention and initiating very relevant debates, but Prahalad’s theories weren’t exactly conclusive in themselves with respect to the logic they purported... B&E presents a review of why and where Prahalad got it wrong by Virat Bahri
B&E’s research team had also analysed m-cap growth for India’s top 15 core and top 15 diversified companies from 2003-2005. Diversified companies registered growth of 183.37% as compared to 143.35% for core companies. Prof. Tarun Khanna and Prof. Krishna Palepu from Harvard Business School also argued in their research paper titled The Right Way to Restructure Conglomerates in Emerging Markets, “Even with the best intentions...Rushing to dismantle business groups that now fill these institutional voids could do more harm than good.”
As far as the ‘Fortune at the Bottom of the Pyramid’ approach by C. K. Prahalad and S. L. Hart goes, the crux was that companies now need to aggressively target customers at the lower echelons of the socio-economic pyramid. The authors argued that companies could actually earn profitably from these blocks by creating new and innovative models; and even help eradicate poverty. He gave instances like the ITC e-Choupal, HUL’s shampoo satchets, Aravind Eye Hospital and Annapurna Salt. Yes, the jargon attained quite an exuberant amount of hype – but not surprisingly, not much else, as it was quite difficult for companies to perceive how destitute masses could garner the so promised purchasing power.
Even Prahalad’s colleague Prof. Aneel Karnani, Associate Professor of Strategy, University of Michigan, believed the concept was too utopian. Karnani attacked the very estimate that the global market of people living on $2 a day at PPP rates is 4 billion strong; stating that World Bank projects it at 2.7 billion. Also, the estimate of the market being worth $13 trillion is way off the mark, since at an average consumption of $1.25 per day, 2.7 billion people would only amount to a market of $1.2 trillion at PPP in 2002. Besides, the profits would be repatriated at exchange rates, which reduces the potential further to $0.3 trillion. He went on to nitpick and destroy even the examples given by Prahalad (see chart above). This is not to say Prahalad is not an iconic celebrity in the field of management. But this is to say that in the future, he might remain just that – an iconic celebrity, and not one with any chances of a Nobel Prize. Well, there’s none for management anyway...
Virat Bahri
B&E’s research team had also analysed m-cap growth for India’s top 15 core and top 15 diversified companies from 2003-2005. Diversified companies registered growth of 183.37% as compared to 143.35% for core companies. Prof. Tarun Khanna and Prof. Krishna Palepu from Harvard Business School also argued in their research paper titled The Right Way to Restructure Conglomerates in Emerging Markets, “Even with the best intentions...Rushing to dismantle business groups that now fill these institutional voids could do more harm than good.”
As far as the ‘Fortune at the Bottom of the Pyramid’ approach by C. K. Prahalad and S. L. Hart goes, the crux was that companies now need to aggressively target customers at the lower echelons of the socio-economic pyramid. The authors argued that companies could actually earn profitably from these blocks by creating new and innovative models; and even help eradicate poverty. He gave instances like the ITC e-Choupal, HUL’s shampoo satchets, Aravind Eye Hospital and Annapurna Salt. Yes, the jargon attained quite an exuberant amount of hype – but not surprisingly, not much else, as it was quite difficult for companies to perceive how destitute masses could garner the so promised purchasing power.
Even Prahalad’s colleague Prof. Aneel Karnani, Associate Professor of Strategy, University of Michigan, believed the concept was too utopian. Karnani attacked the very estimate that the global market of people living on $2 a day at PPP rates is 4 billion strong; stating that World Bank projects it at 2.7 billion. Also, the estimate of the market being worth $13 trillion is way off the mark, since at an average consumption of $1.25 per day, 2.7 billion people would only amount to a market of $1.2 trillion at PPP in 2002. Besides, the profits would be repatriated at exchange rates, which reduces the potential further to $0.3 trillion. He went on to nitpick and destroy even the examples given by Prahalad (see chart above). This is not to say Prahalad is not an iconic celebrity in the field of management. But this is to say that in the future, he might remain just that – an iconic celebrity, and not one with any chances of a Nobel Prize. Well, there’s none for management anyway...
Virat Bahri
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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