Competing for the Future- Gary Hamel and CK Prahalad (1994)

In the strategic management discourse it is always interesting to discern the advices that

are enduring from those which are topical. Owing to the hindsight-bias and selection-bias,

it is rather easy in this field  to arrive at false propositions and recommendations. One of

the marquee books- Competing for the Future, written by Gary Hamel, and late CK

Prahalad, published in 1994, goes through this test. I am keen on identifying the enduring

suggestions that the authors had to offer, and see if some of it can be baked into my advices

today.  Here's first a chapter-wise summary of the work, with salient thoughts and

recommendations, followed by pick on what's still relevant almost two decades after the

work was first published.

Getting off the treadmill

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Authors lament that important organizations fall as they fail to regenerate their core

strategies, while the managers act as maintenance engineers, and not architects. In a hope

of raising the output, managers often engage in processes

like refocusing, delayering, decluttering, and right-sizing, instead of making some

fundamental changes. Such denominator managers look at every possible means of

stripping the firm's assets, without generating any additional revenue or profits, whereby

getting on to a mirage of productivity (case in point is the British industry in 1980s). The

difference between restructuring and reengineering is that - while reengineering can bring

about positive improvements, restructuring is almost never more than a necessary thing.

As a result, many companies have gotten smaller faster than they have become better. The

authors define competing for the future as 'competition to create and dominate emerging

opportunities- to shake out new competitive space' (pp.24). This calls for

developing foresight, setting stretched goals, adopting resource leverage, and competing on

the core competence, instead of on products and services. 

How competition for the future is different

Because future is not an extrapolation of past, competing for the future means competition

for opportunity share, rather than market share. Managers should view their companies as

a 'portfolio of competencies', where the entire organization, and not specific business units,

is responsible for creating and seizing opportunities. Competition would hence be based

on core competencies, competencies that transcend business units, and customer segments;

and the creation of such competencies call for sincere efforts at the organizational level,

instead of skunk-work or personal genius. Innovators must remember that 'commitment to

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be a pioneer precedes an exact calculation of financial gains' (pp.40). Competing for the

future requires a combination of perseverance and speed;  mapping the future, instead of

past; managing complex industry structures sensing the blurring of industry boundaries;

and understanding that strategy is not about positioning in today's market anymore. 

The authors identify the future as competition for: 1) industry foresight and intellectual

leadership; 2) foreshorten migration paths; and 3) market position and market share. Most

managers ignore the first two phases of competition, and hope for the miracle at the third. 

Learning to forget

Every manager carries around a set of biases, pre-suppositions and mental models that

transform into organizational fabric through administrative structures and processes. A

change in organizational genetic-code requires a minimum level of genetic variety, and this

genetic variety has to be introduced deliberately. The managerial frames rust company's

progress by giving it a false sense of progress. A firm's stake in past is both emotional and

economical. Genetic variety can't be influenced by skunk-work, managerial

entrepreneurship, or even by hiring fresh people from outside, but requires a more

concentrated effort. Enlarging managerial frames depend upon curiosity and humility

- curiosity to learn, and humility to forget the past. A challenger has to first challenge the

orthodoxies of the incumbent, and then itself, the second time around. Authors suggest that

only with anticipatory learning can one expect bloodless revolution; and that any company

that want to avoid a genuine profit-crisis, it must introduce a deliberate quasi-crisis early

on.

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Competing for industry foresight

To control the evolution of the industry, the firm must develop intellectual leadership. This

call for anticipating new customer benefits, competencies required to deliver those benefits,

and customer interface. Most companies lack a well articulated vision of the future, beyond

the one satisfying the CEO's ego. Most often the vision doesn't come from an individual, but

is distilled by the managers from across organization's knowledge pool. Corporate

programs like skunk-works, entrepreneurship, and thriving on chaos can't lead to capability

development, as most often the products that come out of such efforts remain contained to

island of excellence, and do not get integrated with the larger organization. The challenge

to compete on industry foresight is to create hindsight in advance. 

Authors advocate that 'foresight is the product of eclecticism, of a liberal use of analogy and

metaphor, of inherent contrarianism, of being more than customer-led, and of genuine

empathy with human needs' (pp.90). Knowing that the company is a portfolio of core

competencies, and not of products and services, competing for the future means

synthesizing skills residing in seemingly disparate businesses to create new business

opportunities. Operationally it teams challenging the industry's assumptions on price-

performance ratios, and functionality. When it comes to creating the future, one wide-eyed

innocent may be worth ten sophisticated scenario planners. Future is born at the

intersection of changes in technology, lifestyle, regulation, demographics, and geopolitics. 

Crafting strategic architecture

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Strategic architecture is the high-level blue-print of new functionalities,

new competencies and customer interface mechanisms. It's a broad opportunity

approach plan. Author's cite the examples of NECs Computers and Communication strategy,

HP's focus on Measurement, Computation and Communication, and DEC's case of going

after Globalization, Informatization, and Individualization, as instances of well crafted

strategic architecture. Whether a company has a strategic architecture or not can be made

by assessing if it has - foresight, breadth, uniqueness, consensus, and actionability. The trick

is to learn about the future faster while making fewer and smaller irrevocable

commitments. The firm should aim at maximizing the learning to investment ratio. If

exhausted by analytically deciphering the future, the firm must aim at learning by doing, by

co-creating with the customers, or even competitors, and making small bets.  

Stretch as a strategy

Incumbents tend to dismiss competitors with meagre resource endowments, for they often

focus on resources and not resourcefulness. Strategic intent implies the stretch for the

organization where existing resources and capabilities are manifested insufficient for aims.

A stretch indicates a misfit between capabilities and goals, and a good strategic intent must

have a sense of direction, discovery and destiny. Most companies are overmanaged and

underled. The aim of strategic intent is to create a sense of excitement and mission for the

employees. 

The authors opine that pursuit of total quality is the key to management innovation, and

that the role of a manager is to create a chasm between firm's resources and its ambitions.

This gets manifested through corporate challenges, that help align people and build new

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capabilities. Such a challenge must be situated at the intersection of potential

discontinuities, competitor intentions, and emerging customer needs. While politics is the

art of the possible, leadership is the art of making the impossible come true. Once a stretch

created, the managers now leverage resources to meet those ambitions. 

Strategy as leverage

Resource leverage is about strategic moves that pay little cognizance to the current level

of resources available with the firm, much like how Japanese dominated the world in

electronics and automobiles, or the North Vietnamese ravaged US soldiers . Success

belongs to the ambition-rich and resource-poor, and not to the ones which are necessarily

resource-rich. Authors opine that 'tactical creativity is the child of resource scarcity'. 

Before proposing the various resource leverage pathways available to the firm, the authors

make a few premises, which are: 1) firms are a bundle of resources and capabilities; 2)

resource constraints are not impediment to achieving firm's leadership goals; 3) different

exist between resource endowment, and ability to gain market share

through resource leverage; 4) leverage is about raising the numerator in productivity, and

not trimming the denominator; 5) for a leader, resource leverage is as important

as resource allocation; and 6) capacity of resource leverage is the ultimate selection

mechanism. 

The five generic strategies for attaining resource leverage are:

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1. Concentrating resource on key strategic goals,

through converging available resources, focusing on clearly identified objectives (to

build capabilities in sequence); and targeting on delivering specific customer value.

2. Accumulating resources through mining learning from firm's stock of experiences;

and borrowing the resources of other firms (by means of alliances, joint-ventures,

sub-contracting, inward licensing), which calls for building absorptive capacity,

along with inventive capacity. 

3. Complementing resources  by blending different types of resources to create new

value-adds (through technology integration, functional integration, and new

product imagination); and balancing the existing resources and capabilities

(product development, manufacturing, and distribution).

4. Conserving resources by recycling given skills, knowledge and competencies from

across the firm (examples include banner brands, flexible manufacturing);  co-

opting with competitors to establish a new standard or develop a new technology

around a common objective; and protecting the existing resources from competitors.

5. Recovering resources by expediting success, that is to accelerate the time between

resource investment and value appropriation, hence having a shorter payback

period. 

In summary, resource leverage happens by

sufficiently concentrating, efficiently accumulating, creatively complementing,

carefully conserving, and speedily recovering resources (pp. 192). 

Competing to shape the future

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Getting to the future means setting the standards, and capturing the royalty that accrues

from owning the critical intellectual property assets. Taking a fast-follower strategy rests on

the premise that the leader would make mistakes, and that leading is inherently risky,

owing to the uncertainties associated with the industry. Authors concede that mostly

pioneering-failure stems from inability to create new product-market value propositions,

and to unlock an emerging market opportunity, and seldom from poor-timing. The key to

pioneering is - low-cost, low-risk learning, and not to overcommit financially. Firms often

compete to influence the evolution of industry, and not just their own fortunes; this

happens as they increase their share of influence. Such a share of influence (pre-market

competition) comes through building coalitions, core competencies,

rapid learning mechanisms, and gaining mindshare of the customers. 

Building gateways to the future

A core competence gives firm leadership across a range of products and services, and this

calls for making pre-emptive investments. Core competencies are not product specific; and

they are fought on a corporate to corporate level. Investing in core competencies is like

investing in options. It is a 'bundle of skills and technologies that enables a company to

provide particular benefits to the customers' (pp.219). Competence building represents

cumulative learning rather than great leaps of inventiveness. 

A core competence must meet three tests- 1) must make disproportionate contribution

to customer-perceived value; 2) must be competitively unique; and 3) must be extendable to

future products and services. It is not an asset in the accounting sense of word,

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not amenable for outsourcing, and do not wear out. Broadly speaking, any source of profit

beyond a firm's endowment could qualify to be a core competence. 

What is a core competence in one decade may well become a capability in next, example

being quality for the automobiles industry. Competence based competition happens in four

distinct stages: 1) competition to develop and acquire constituents technologies and skills;

2) competition to synthesize core competencies; 3) competition to maximize core product

(or platform) share; and 4) competition to maximize end product share. 

Embedding the core competence perspective

Most firms have a market-facing, strategic business unit (SBU) focus, instead of core-

competence way of looking at the corporate. By not looking at the firm from a core-

competence perspective, the firm runs into the danger of- foreclosing future expansion

opportunities; inability to re-deploy competencies from across BUs; slow learning owing to

inter-business boundaries; greater dependency on external suppliers; overwhelmed by the

new entrants; and might relinquish valuable skills while divesting a business. To avoid such

traps, management must systematically move from identifying core competencies,

to deploying them, and protecting them from erosion. 

Securing the future

Competing for the future calls for maximizing a firm's learning-to-investment ratio. Since

most of market research is hopeless when studying future products, expeditionary

marketing may fill the gap between a firm's current position and desired prospects. The

trick is to gather as much market information as possible with low-cost, fast-paced market

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incursions. It's about conducting tightly controlled experiments. In certain technological

industries, global preemption is a advisable strategy, and this happens

through proximity, predisposition, and propagation. Proximity happens through moving fast

into multiple markets, predisposition through building banner-brands,

and propagation through communicating the product value to the customers. 

Critique of the book

The book is not doubt replete with jargons, as it was written at the height of Japan-US

commercial battles, and at a time when strategy was in search of a new theory (though the

search continues). Here are some positives and negatives about of the book:

Positives:

The chapter on Strategy as a Stretch and Strategy as a Leverage were very

interesting and insightful, especially as the authors present an inventory of leverage

strategies

The notion of core-competence and what qualifies as a core competence and what

doesn't is again an enduring and largely relevant concept

Negatives:

There are several avoidable jargons, such as Strategic Architecture, Market

Expedition, and Gateways to Future, among others.

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The chapter on Competitive Preemption, where authors talk about virtue of banner-

brands, and global outreach offers no new insights.

The final chapter on Thinking Differently is so rhetoric, it is almost impossible to

read through the entire chapter, hence I decided to give it a miss.

Yet the concept of core-competence, and Leverage, I find very useful. 

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