Fast Company

Can C.K. Prahalad Pass the Test?

One of the business world's most influential professors and consultants has invested millions of dollars of his own money to put himself to the test. Can he build a company around the principles that he has been teaching other high-powered leaders? And can he possibly change the world in the process?

It's all the potato's fault. C.K. Prahalad might still be ensconced in his old life as revered management guru. He might still be teaching strategy to rapt MBAs and senior executives at the University of Michigan, still driving home each night to his lush 60-acre spread in suburban Ann Arbor. He might still be charging top dollar to advise companies -- paid richly to scare the bejesus out of powerful CEOs and, in the process, to help save them from ruin.

Instead, about five years ago, Prahalad read a book about the history of the potato and how its eventual spread transformed the world. Somehow, it made him think differently about the Internet. Just as international trade had fostered the potato's growth, the Internet would foster the global diffusion of individual power -- and that would transform the world.

The connection is perhaps obvious only to Prahalad. But that's his way. "If you want new ideas, you have to push yourself into the periphery," he says.

Prahalad's periphery is a nondescript office in San Diego overlooking a parking lot and a dusty dry canyon. Since April 2000, the 60-year-old has been chairman of a small, profitless high-technology company called Praja Inc. And he is doing what many executives of small, profitless high-technology companies do these days: He's working the phones, offering to fly up to the home of a GM executive (a potential customer) for a quick meeting. He's crisscrossing the globe in search of funding. He's agonizing over layoffs. And, oh yeah, one other thing: With this modest, 30-plus-person company, he is also trying to change the world.

This is the story of a man who had it all and decided that it wasn't enough. Instead of slowly lowering the flame on a white-hot career, Prahalad has lit an entirely new flame. He has taken a leave from Michigan, dramatically scaled back his consulting work, put up several million dollars to get Praja going, and moved his family to San Diego. "He's taking financial risk, professional risk, reputational risk, and personal risk," says B. Joseph White, dean of the University of Michigan Business School. And yet, adds White, "it's totally in character."

What Prahalad wanted was a new, huge challenge. Not incidentally, he also wanted to create a laboratory for the application of the ideas that he had been preaching to others.

This is a personal test, the latest step in a search for self-knowledge that has defined Prahalad's life. "I was in a very good zone of comfort," he says. "And I felt that this opportunity was so large that I needed to experiment with it myself. What we're selling is a new way to run a business. Our ultimate motivation is to make a difference."

The collapsing economy has made that job tougher than Prahalad had ever imagined when he abandoned his life in Ann Arbor. Yet now he appears more committed than ever to Praja's ideals and technology. "You have to have faith," he says. "You cannot lead if you don't believe."

"Consumers do not have much share of a voice. Now they do."

What's in a name? In Sanskrit, praja means "common people." Prahalad and cofounder Ramesh Jain, the company's 52-year-old CEO, say that it is the inverse of the word raja, which means "nobility." It is not, they insist, a play on Prahalad and Jain, despite employee jokes to the contrary. At its most basic, Praja is a high-technology company that allows people to personalize their own experiences on the Internet -- whether as a sports fan, a student, a data analyst, or a farmer. Its platform, ExperienceWare, organizes data by context, rather than by time or written words, sorting such information as text, video, audio, and sensory data. Prahalad and Jain think the implications of the process are cosmic.

"The problem so far has been data as information," says Prahalad. "We are still operating as if we never left Gutenberg. If you look at keyword searches, the document is still going to be the organizing idea. But now the metaphor is not going to be the document -- it's going to be the experience."

Prahalad, a mustachioed, bespectacled, slightly round man, fills the room when he speaks. He is a contagiously high-energy guy. His language, while complex and academic, is sprinkled with expressions meant to draw in the listener. "Is it not?" he asks often. "Okay?"

Prahalad says that Praja will facilitate the most profound impact of the Internet: the empowerment of the individual. The Internet is rapidly democratizing information, and the effects are mind-boggling -- from the rise of global antibusiness activism to the organized cells of consumers everywhere. "Consumers did not have much share of voice," he says. "Now they do. There is a fundamental transition that is taking place -- from a firm-centric society to a consumer-centric society."

In a consumer-centric society, says Prahalad, everyone -- even the poorest of the poor -- can gain more control over their own life. "Why don't people have economic opportunities? Because there's no information. You don't know what the price of fish is in the next village. The large-company Internet business models, the Internet poor, the new business models -- they're one big circle. They all interact with one another. But we have to make this a business issue."

And that is exactly what Prahalad has signed on to do.

"What is the next challenge in life?"

One of the few decorations in Prahalad's sparse office is a beautifully illustrated old map -- a gift from friend and collaborator Gary Hamel. "Can you tell me what country that is, Jennifer?" booms Prahalad, always the professor. I'm stumped, as I tend to be continuously with this man. He smiles broadly and turns the map around. Then I see that it is a map of India, tilted at a 90-degree angle. This, I realize, is Prahalad in a nutshell. Turn an idea sideways. It's the theme of his life. It's how you get from potato to Praja.

One of nine children of a well-known Madras judge and Sanskrit scholar who wrote and edited 40 books, Prahalad (that's his first name, actually; C.K. stands for Coimbatore Krishnarao, the names of his town and of his father, respectively) was born to study. But early in his career, he managed people. A brilliant student of physics, he was recruited by the manager of the local Union Carbide battery plant. He promised his father he'd try it for a year, then return to school to get his PhD.

Only 19 at the time, Prahalad turned the factory sideways. One day, after noticing that many temporary workers were using old or torn gloves (managers doled out new gloves according to seniority), Prahalad had a thought: Why not distribute new gloves to the workers who handled the most dangerous stuff instead? Impressed, Prahalad's boss decided to mentor the young upstart, often bringing him management books to read and quizzing him about them later. Prahalad calls his Union Carbide experience a major inflection point in his life, and he still cherishes the gold chain that his workers bought for him when he left -- four years later. "I learned about the extraordinary wisdom of ordinary people," he says.

Prahalad then went to the Indian Institute of Management (IIM), where he fell in love with Gayatri, a young psychology student at a nearby university. After five years spent trying to win their families' approval (the union went against tradition), the couple married and left for Harvard, where Prahalad wrote a PhD thesis on multinational management in just two and a half years. They then returned to India, where he taught at the IIM. But this was the 1970s, and the fervently nationalistic India had little use for a globally oriented thinker. With his ideas under constant political attack, Prahalad decided he had no choice but to return to the United States. The Prahalads arrived in Ann Arbor with $18.

Maybe because he had nothing to lose, Prahalad didn't play it safe. He became known on the Michigan campus as a maverick who avoided publishing in the traditional journals in favor of venues that he thought would have more of an impact. He ruffled feathers. As an assistant professor, he was approached by a major company with an invitation to consult -- an opportunity that every young business academic yearns for, especially if he has two young kids. He agreed, but he demanded $1,000 a day. Shocked, the client withdrew the offer. Gayatri was horrified. "We need the money," she gasped. But for Prahalad, it was a matter of getting the respect that he felt he deserved. A month and a half later, another company sought his services. This time, he asked for $3,000 a day. And he got it.

In 1981, Prahalad met Gary Hamel, then a young student in international business. Their relationship, which would become a remarkable, decade-long collaboration, was much like Felix and Oscar on intellectual crack. Prahalad preferred a full-bodied cabernet and a good book in his study to working a crowd. Hamel was the voluble one, and the two became known around the university for knockdown, drag-out intellectual-sparring sessions that lasted long into dinner.

Much of their most influential work appeared in the Harvard Business Review. Their May 1990 article, "The Core Competence of the Corporation," became one of HBR's most widely reprinted pieces ever. A subsequent book, Competing for the Future (Harvard Business School Press, 1994), was heralded as one of the great business books of the 1990s. The work lifted both men into the top ranks of business thinkers, earning them millions in royalties and speaking fees.

Soon after, Prahalad had his potato epiphany. The timing coincided, more or less, with an invitation from his friend Jain, an entrepreneur and former Michigan professor who, at the time, was teaching at the University of California at San Diego. Jain, who was experimenting with sports television, asked Prahalad to look at his artificial-intelligence technology. The software allowed viewers to watch the Super Bowl from any perspective, even those not actually filmed by the network's cameras. Prahalad had no interest in sports, but the experience enthralled him. "The technology eliminated the tyranny of the few over the many," he says.

Prahalad had put money into Jain's first two companies, Imageware and Virage Inc. Now he was sinking the first installment of an investment that eventually totaled at least $3 million into the newly formed Praja. Jain became CEO. But, he says now, "it was very clear that there were lots of business issues that I didn't understand as well as I could have." Eventually, he asked Prahalad to help him run Praja. "If you want to build the company the way that we want it," he told Prahalad, "the leadership should come from you and me." To his colleague's surprise, Prahalad said yes. "After he decided," Jain recalls, "I said, 'As a friend, I want to know why you are doing this.' He said, 'Ramesh, neither you nor I need a company to maintain our current lifestyle. But what is the next challenge in life?' "

"What would happen if this power became commonplace?"

For Prahalad, Praja's challenge -- and so, his -- is twofold. One: Make it through the tough times, build a successful business, and use the technology invented by Jain in a transformational way. Two: See what it's like to take your own management medicine.

At its simplest, Praja's technology offers a very quick way to build applications and to organize all kinds of information, from sensory data to video to text to audio information. Praja is focusing on two areas: knowledge sharing and data analysis. Analysts at General Motors, for example, are using the company's technology to compare sales data from different countries and time periods. Need to contrast, say, Saab sales and Ford Explorer sales in Brazil in March? That's just the sort of calculation that GM used to spend weeks on. With ExperienceWare, it's instantaneous.

Meanwhile, Praja is experimenting with knowledge management at Zurich Financial Services, where it has created a virtual, cross-cultural learning community that brings together senior executives from all over the planet. Participants can use video, text, or other information to compare projects or management problems, untethered by place, time, or even language. "It is still a work in progress, but it has been very well received," says Gunnar Stokholm, head of business development at Zurich Financial Services.

It is one thing, of course, to enable an online executive confab -- and quite another to build something that touches the world. But it is the broadest implications of this concept that get Prahalad excited. In a world where information is available to everyone and not segmented by language or even literacy, Praja's technology could be used to help not just executives but also the rural poor. Strategies for containing breakouts of contagious diseases could be shared, globally and in real time, across languages and technologies. Says Jain: "A lot of things that we are going to be developing will be revolutionizing in different ways. We're making language irrelevant."

This is the vision -- one of bringing the power of information to everyone -- that drives both Prahalad and Jain. "This company was started with the basic assumption that we would empower people to be themselves, to experience life on their terms," says Prahalad. "Then you take the next step and ask, 'What would happen if this power became commonplace, rather than only for the wealthy?' The moment you ask that question, staring in your face are 4.5 billion people. How do you help ordinary people understand how to exercise their power? More interestingly, how do you get large companies to understand that if they don't, they'll have no social legitimacy left?"

Just before joining Praja, Prahalad and fellow professor Stuart Hart, from the UNC Kenan-Flagler Business School, circulated a draft of a paper called "Raising the Bottom of the Pyramid: Strategies for Sustainable Growth." They argued that the 4 billion poor people at the bottom of the economic structure represented a valid, vibrant market for goods and services -- and that large multinational companies could make big profits by meeting their needs. "The challenge for managers is to visualize an active market when what exists is abject poverty," they wrote. "With all due respect to the importance of wetlands, it is like visualizing a theme park where you see only swamp."

It's kind of a contrarian idea. Until now, the rural poor have been considered unable to sustain a market, unlikely ever to get enough disposable income to buy anything that a big western company would want to sell. But in India, Prahalad found companies making money hand over fist by selling to the poor. The idea that informed capitalism could help the world's downtrodden got him really, really excited. "It brought a fire and a passion to C.K. that goes beyond what I'd seen before," says Hart.

This is, in ways not yet completely clear to anyone, Praja's future. But it's not the present. These days, Praja is marketing exclusively to big companies. Prahalad and Jain are scrambling for a third round of funding. (Together with board members, the two recently kicked in $3 million to keep the company going until the fall.) But Prahalad's grand vision must wait. "You cannot solve the world's problems in a small company," he says. "The goal is not to say that we are going to do it anyway, with or without money. It's a nice, brave thing to say, but very soon you'll be running out of cash."

"They have to go through the valley of death"

For a taste of what it's like to have C.K. Prahalad running your company, flash back to September 1999, at the University of Michigan's Executive Education Center. Prahalad prowls the rows of nervous managers attending Michigan's renowned four-week leadership program, seemingly feeding off of the anxiety in the room. He is lecturing on the 16th-century standoff between Cortes and Montezuma -- a metaphor for the struggle between startups and established companies. A master teacher, Prahalad lulls his students into thinking that they know the answers to his constant barrage of questions. Then, slowly, he removes the veil, allowing them to see that they are wrong.

In an hour, the students go from confident blusterers to humbled novices. Only at the end does Prahalad guide them from utter confusion to a new level of understanding. "They have to go through the valley of death," he says. It's another of Prahalad's core beliefs: Only when you are challenged, unsafe, out of your zone, can you find self-knowledge.

This is how Prahalad approaches potential Praja clients, often companies he once advised. "It's amazing, the way he can captivate the upper-level executives -- and tell them that they're crap," says Joe Kosco, director of business development at Praja. "He gets their attention, and then he says, 'This is how we're going to fix it.' " He treats his own employees the same way. Dealing with Prahalad, they say, is like playing chess with Bobby Fischer. " C.K. is an academic with stage prowess," says Robert Martindale, a business-development manager at Praja. "I feel like I'm getting a PhD."

Prahalad is Praja's enforcer-cheerleader, roaming the halls and challenging anyone he meets: "Do you believe yet? You don't believe, do you? Do you?" He is focused in a way that most of his employees can't even fathom.

His idea of time off is taking a long walk with Gayatri -- and then working some more. His enormous new home in Rancho Santa Fe boasts a pool, along with access to a golf course and a tennis court -- none of which he uses very often. He and Jain spend nearly every Saturday together working. Prahalad even tried to convince Jain to move into the mansion next door. "He argued that we could save a lot of time if we didn't drive to work separately," laughs Jain.

All of this leads to a strange dynamic within Praja: What do you do when your boss knows more about every aspect of your job than you do? How do you make a sales presentation if everyone in the room is staring at the other guy? Prahalad is acutely aware of this contradiction. To avoid being perceived as the blowhard executive who knows it all, he is always asking for feedback on what he could have done better. He's sincere about this: It is a way for him to learn -- and learning, after all, is something that Prahalad does well. He even asks me several times during my visit, and again after my return, for a report card: "How can I be a better manager?"

The question betrays Prahalad's own zone of discomfort. He is most at ease when teaching, and he views Praja very much as his classroom. But Praja is, of course, also a business, and the professor has had to wrestle with what it means to actually manage a for-profit organization.

Prahalad admits that the desire of his employees to know exactly what their roles are was one of the things that surprised him most about running a company. And for someone who is used to delivering the message only to top executives, the amount of time that he had to spend explaining his vision took him aback. Some employees fret that with Prahalad's insistence on constant learning, Praja may be moving too slowly.

Prahalad has learned by now that some of his big-company prescriptions don't fit here. "The negative side of a small company is that there are no dampers," he says. "Just because you can make a change quickly, the temptation is to act. Speed is nice to have, but going faster to hell is not how I want to run a company. I want somebody to keep pushing the organization. I also want somebody to say, 'Let's be thoughtful about getting this done right.'

"My role," he continues, "is to balance the tension."

"In great growth times, anyone can lead"

It was a foggy, sleepy day in Seattle, though you wouldn't know it from the electricity surging through the conference hall last October. C.K. Prahalad, professor and entrepreneur, had just described his vision of using technology and innovative strategy to market to the world's poor, and the crowd at the Creating Digital Dividends conference was on its feet. "We have company think, not consumer think," he thundered. "What we make is not what they want."

The problem juices Prahalad -- and it shows. Even as he focuses on strengthening Praja, he speaks regularly on the digital divide. He helped persuade Carly Fiorina, CEO of Hewlett-Packard, to launch what HP calls its World e-Inclusion initiative. But that's the gauzy future. Right now, Praja faces an environment that's downright poisonous for startups and a capital market that is essentially dead. Many potential customers are slow to commit to buying anything, let alone a new platform that requires a whole new way of thinking.

In late February, Prahalad and Jain refocused the company on marketing its core technology, relying on system integrators to build specific applications. It also laid off more than a third of its staff. "I would be lying if I said that I was emotionally and mentally prepared for this," Prahalad says.

There was a learning experience here too -- but not the kind that Prahalad had hoped to have. "Especially in troubled times, leaders must behave like emotional and intellectual anchors," he says. "You must steady the organization and have a passionate belief that what you are doing is important. I never realized how critical that was in times of turbulence."

What is so fascinating about Prahalad is that amid the gloomy tidings, he seems more energized than ever. Praja may be fighting for survival, but Prahalad has yearned for a test like this: "Leadership is about what you do when the going gets tough.

"It is the bamboo that bends in heavy winds that has another day to live," he continues, reciting an old Indian saying. "The trees that don't bend get uprooted."

Jennifer Reingold (jreingold@fastcompany.com), a Fast Company senior writer, is based in New York. Contact C.K. Prahalad by email (ck@praja.com).

Sidebar: What the Teacher Has Learned

C.K. Prahalad has spent most of his life thinking about how companies run. He has consulted to the likes of AT&T, Philips Electronics, and Sony. Now he's in the hot seat as chairman of Praja Inc. Here's what he has learned so far.

When the going is roughest, leadership matters. In times of trouble, Prahalad says, "leaders must behave like emotional and intellectual anchors. There are no external cues now. The critical issue is about faith, passion, and, most importantly, authenticity -- so that people know you are not pretending. People can see a sham."

Successful managers embrace discomfort. "If you do precisely what you're supposed to do," Prahalad says, "and you're boxed in, then you're going to do that very well." But if pressed to do things that aren't in your normal job description, he says, the challenge can push you to a new level of achievement.

Great leaders stay on message. For Prahalad, nothing is more important than reminding people what the company stands for. "I spend a lot of time talking about what we're doing in terms of strategy," he says. "You have to give the same message over and over again."

It's not one person. It's not the team. It's both. A painting of a pack of wolves in Prahalad's office symbolizes the combination of leadership and teamwork that pervades successful organizations. "With wolves, solidarity is first," says Prahalad. "But when they hunt, they change roles. The implicit hierarchy depends on who does what." In an organization, he adds, "one unique person makes a difference, but you need teamwork to make it happen."

Think? Act? Balance the two. Says Prahalad: "In a company like ours, if we want to do something, we can just call a meeting. But in a small company, you have to exercise caution and build your own personal dampers so that you don't act on everything. Sometimes not acting may be smart. But if I get the feeling that everybody's becoming so thoughtful that nobody's doing anything, I want to go and light some fires somewhere."

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2 Comments

  • Viswanatha Subramaniam

    Nickname: drvsrs
    Review: Bottom of the pyramid is the dead egyptian mummy ! So is the Prahalad's concept. It is an imagination of a closed wall university professor, who is theoritically great, but practically bankrupt. Uni directional profit orientation and expansion of the corporate leadership will lead to a national disaster. CKP cannot pass the test, because he is only a teacher, test giver and watcher of the fun!! He is doing this to learn from the result for self development, at the cost of the students and public loss !! The right path is to orient the corporate strategies for self + Socio-Economic development of the nation. See the Algebraic model at http://www.drvsrs.com/mgmtfull... and the Geometric model at http://www.drvsrs.com/sedfull....

  • Rjmartindale

    Please don't use this article, or CK's name to push your own ideas. It's cheap and self serving.