M.S. Krishnan is the Mary and Mike Hallman e-Business Fellow, Area Chairman and professor of business information technology at the University of Michigan’s Ross School of Business, and co-author with C.K. Prahalad of the bestselling book, The New Age of Innovation, Driving Cocreated Value Through Global Networks. He is co-director of the Center for Global Resource Leverage: India at the Michigan Business School. His research articles have appeared in several journals, including Management Science, Strategic Management Journal and Harvard Business Review. He recently spoke at this year’s World Innovation Forum held in New York City.
Krishnan tells Arabic Knowledge at Wharton the Arab Spring has demonstrated social media’s ability to bring new freedoms to people, but hasn’t provided a model for good governance. Additionally, the professor says emerging markets will provide future growth, and as a result will elevate Asian products and services to a global level. U.S. companies can compete in the emerging global market, he says, but will have to abandon the legacy mindset to do so.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: You’ve written about innovation models and key drivers of change, connectivity, digitization, convergence of technologies and social networking. These are some of the drivers that played a role in fomenting the Arab Spring.
M.S. Krishnan: What we are experiencing is a new level of tranparency and ability to connect. That actually is going to put pressure on business. It is also going to put pressure on governments, because any number of crises or scandals will come out into the open much faster now. We can see that even in countries such as India.
It’s really difficult for you now to hide. And you will know if you’re on the wrong side of the law. Similarly, there is a collective opinion that everybody has. Now, there is a new power that actually brings them together and kind of amplifies the signal.
Arabic Knowledge at Wharton: What is the business potential for social media and other popular emerging technologies?
Krishnan: Facebook has emerged as a platform. Do we know that they will take their platform and monetize it? I’m not a 100% sure. But that certainly is an opportunity, because you have people on those platforms spending so much time on them. The question is, there are multiple platforms. Some of them may gain millions of dollars, and some of them will fail. The platforms that intelligibly partners with businesses to create an experience, whether it’s through advertising, and can get useful information to individual customers, I think they will succeed. Right now it’s too early to say who will be successful.
The other trend that is happening is cloud-based platforms. Cloud technology is allowing companies to grow and operate without needing to have big capital investments in equipment. In some sense it is democratizing access to capabilities for both large and small companies.
Arabic Knowledge at Wharton: Some corporations are way ahead of governments in embracing these technologies. Can governments even catch up or improve?
Krishnan: We can actually ask that question the other way around. Do governments have a choice? Look at what happened in the Middle East. [The Arab Spring] occurred in spite of the governments there. That’s what is more interesting to me; the consumers and the employees of tomorrow are socializing in these networks right now. So, companies may not have a choice in terms of how they think about these social networks. You certainly have to have a strategy for that. I would say the same thing for governments. No longer can the government try to shut down social media networks. They are providing a new sense of freedom that people are experiencing, and that has enormous implications.
What is interesting is there’s no governance in these platforms. The opinions could be the majority, but then that is not governance, right? People want to have good government, but they will keep changing their opinions. Unless you have a process for putting together a government, as an alternative, that is convincingly better. I don’t think this would have happened so fast without this technology.
Arabic Knowledge at Wharton: We also live in a world now where disruption of any resource can have a wide global impact. For example, the world cocoa bean supply was severely strained because of political violence in the Ivory Coast. How do businesses function in such a system?
Krishnan: Globalization is here to stay. It should have been more interconnected. But that does not mean that there is loss of aid for businesses. Sometimes the options for businesses actually increase because you can have multiple suppliers and multiple geographies. But that also calls for a different way to manage the situation.
How do you create the transparency in relation to the risk that you’re living with today? I think what we will see is companies building scenarios. We will build our capabilities to envision scenarios, to address, ‘What if this happens, what if that happens?’ So that they have things planned out.
Arabic Knowledge at Wharton: But sometimes, when events happen, companies know they must respond and adjust, but they cannot move fast enough. Some build systems and logic to actually treat such events. Wal-Mart is one example.
Krishnan: Wal-Mart is a very good example. The key thing here is that they have their business processes, their business model and the technology. There is integration within all three aspects. After Hurricane Katrina, Wal-Mart was able to respond faster than the federal government to the crisis. They could get essentials to the required place, because they had full visibility of where the clean water was and which truck was there for transport, things like that. That actually speaks to the agility and the importance of building technology as an infrastructure, to create this new experience for customers.
Arabic Knowledge at Wharton: So how do Indian, Chinese, and Middle Eastern companies make the transition from being regional companies to international companies, with products that are sold and recognized all over the world, just in the same way many Western companies have succeeded in doing?
Krishnan: The next wave of growth is going to be in emerging economies. The companies in India or China have a distinct advantage in that they understand how their market works. You’re going to see global companies also compete for the same market. I think what’s going to happen then is that it won’t matter whether it’s a global company or an Indian company. Are they able to marry deep knowledge about the market, and the needs of the product development process? That combines local knowledge, and the need to know the price performance ratio. Can they combine knowledge and capabilities to correctly undertake the product development process for those markets?
My colleague, the late C.K. Prahalad, wrote an article called, "Innovation’s Holy Grail." The thesis was, if you crack a market like India — innovating products and services for affordability, innovating experience for affordability and also in a different price performance ratio, and leveraging technology to make it more efficient and cost effective — then suddenly you will see a market for that same product, service or experience in developed markets as well. Once you succeed there, you have a broader market opening up for you, including the developed world.
Arabic Knowledge at Wharton: Are U.S and European companies prepared for that sort of competition? For example, one day there could be Chinese companies producing luxury cars that could compete with BMWs.
Krishnan: Doesn’t a Chinese company own Volvo now? So yes, I think there’s going to be an interesting competition. The challenge is going to be for companies who are based in the U.S., though. They have to come out of the legacy mindset, and reform the product development process, the price performance ratio, so that it works for these developing markets. As long they are able to understand, and freshly think about how do to produce for those markets, there will be healthy competition.
Arabic Knowledge at Wharton: Cola-Cola recently wanted to acquire a Chinese company, but the Chinese government blocked that deal. Do you think we’ll see more instances of Chinese and Indian companies turning down international suitors? Is it a mistake for them to not want to work with a multi-national corporation?
Krishnan: They may work, but in terms of sharing knowledge and patenting ideas. Typically, though, the entry to developing market by multinationals has been through joint ventures, and we are seeing that joint ventures usually don’t work in the long run. ‘What’s in it for me?’ That question remains unanswered a lot of times and that actually leads to breakups. I’m not sure if there is a long-term commitment of acquisition, but I see companies sharing ideas and licensing products.
Arabic Knowledge at Wharton: You’ve written about competitors that were willing to share IT knowledge. What did it take for the leadership within these companies not to see this as a risk, but as an advantage?
Krishnan: The notion that ‘This is my industry, these are competitors. I will not partner with competitors,’ that was valid 10 years ago. Now, you don’t know who’s playing in which market. Today you can take a product and then say what kind of company you are. I partner with my own competitor; as long as there is clarity in terms of what it is that I get out of this relationship, and you build on that, then it’s fine. Things will happen that way.
Arabic Knowledge at Wharton: Two common hurdles that entrepreneurs in the Middle East face are lack of access to capital and the lack of social support for entrepreneurial efforts. What are the some of the things that they can do to overcome some of the challenges?
Krishnan: I’m seeing that more often, access to capital is not a problem. If you have a great idea, capital will come to you. The challenge is for you to share that idea and sell the proposition of the potential of that idea. Once you have articulated that, capital will flow.
Arabic Knowledge at Wharton: There are investments by Arab governments to support entrepreneurs. But is it the government’s role to help entrepreneurs, or should they just support a better venture capital environment?
Krishnan: I think governments should support an ecosystem that actually encourages innovation and entrepreneurship. Also communicating and celebrating new ideas, having forums and things like that, that can certainly help.