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‘Anyone who reads Corporate-Level Strategy will subsequently think and talk about corporate strategy in a different way,’ noted Bain & Company’s Robin Buchanan, adding, ‘It is to be hoped that they will act on it, too.1
GARY HAMEL & C. K. PRAHALAD
Competing for the Future 1994
Hamel on Hamel & C. K. Prahalad
“BY the 1990s strategy had become discredited.
All too often ‘vision’ was ego masquerading as foresight; planning was formulaic, incrementalist and largely a waste of time in a world of discontinuous change; ‘strategic’ investments were those that lost millions, if not billions of dollars. In practice, strategy development too often started with the past, rather than with the future. As strategy professors, CK and I had a simple choice: change jobs or try to reinvent strategy for a new age. We chose the latter course. We’ll let you judge whether we succeeded.”
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Gary Hamel & CA. Prahalad
C. K. Prahalad is Harvey C. Fruehauf Professor of Business Administration at the University of Michigan’s Graduate School of Business Administration. He is co-author, with INSEAD’s Yves Doz, of The Multinational Mission: Balancing Local Responsiveness and Global Vision and is a consultant to many leading firms including AT&T, Motorola and Philips.
Gary Hamel is Visiting Professor of Strategic and International Management at London Business School. Based in Woodside, California, he is a consultant to major companies including EDS, Nokia and Dow, and Chairman of Strategos, a worldwide strategic consulting company.
Hamel and Prahalad’s articles ‘Strategic intent’ and
‘Competing with core competencies’ won McKinsey awards in the Harvard Business Review. Their article Their core competence of the corporation’ is one of the most reprinted articles in the Review’s history.
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he debate on the meaning and application of strategy is long running. Each decade produces its own interpretation and its own voice. The 1960s gave us the resolutely analytical Igor Ansoff; the 1970s Henry Mintzberg and his cerebral and creative ‘crafting strategy’; the 1980s, Michael Porter’s rational route to competitiveness, and nominations for the leading strategic thinkers of the 1990s would certainly short-list Gary Hamel and C. K. Prahalad.
Gary Hamel and C.K. Prahalad’s Competing for the Future has been seized on as the blueprint for a new generation of strategic thinking. Business Week named it as the best management book of 1994 and it has sold over 250,000 copies in hardcover. ‘At a time when many companies continue to lay off thousands in massive reengineering exercises, this is a book that deserves widespread attention,’ observed Business Week’s John Byrne (1994). ‘It’s a valuable and worthwhile tonic for devotees of today’s slash-and-burn school of management.’
Hamel and Prahalad believe strategy has tied itself into a straitjacket of narrow, and narrowing, perspectives: ‘Among the people who work on strategy in organizations and the theorists, a huge proportion, perhaps 95 percent, are economists and engineers who share a mechanistic view of strategy. Where are the theologists, the anthropologists to give broader and fresher insights?’
They argue that strategy is multi-faceted, emotional as well as analytical, concerned with meaning, purpose and passion.
While strategy is a process of learning and discovery, it is not looked on as a learning process and this represents a huge blind spot.
Broader perspectives are necessitated by the ‘emerging competitive reality’ in which the onus is on transforming not just individual organizations but entire industries. The boldness of such objectives is put in perspective when Hamel and Prahalad observe that, for all the research and books on
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the subject, there remains no theory of strategy creation.
Strategy emerges and the real problem, executives perceive, is not creating strategy but in implementing it.
‘We have an enormous appetite for simplicity. We like to believe we can break strategy down to Five Forces or Seven Ss. But you can’t. Strategy is extraordinarily emotional and demanding. It is not a ritual or a once-a-year exercise, though that is what it has become. We have set the bar too low,’ say Hamel and Prahalad. As a result, managers are bogged down in the nitty-gritty of the present – spending less than three percent of their time looking to the future.
Instead of talking about strategy or planning, they advocate that companies should talk of strategizing and ask ‘What are the fundamental preconditions for developing complex, variegated, robust strategies?’ Strategizing is part of the new managerial argot of ‘strategic intent’, ‘strategic architecture’,
‘foresight’ (rather than vision) and, crucially, the idea of ‘core competencies’.
Hamel and Prahalad define core competencies as ‘the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies’ and call on organizations to see themselves as a portfolio of core competencies as opposed to business units. The former are geared to growing ‘opportunity share’ wherever that may be; the latter narrowly focused on market share and more of the same.
The surge of interest in core competencies has tended to enthusiastic over simplification. ‘You need to be cautious about where core competencies will lead you,’ warns Marcus Alexander of the Ashridge Strategic Management Centre during an interview in 1996. ‘They are a very powerful weapon in some cases but are not the sole basis for a sound corporate strategy. They can encourage companies to get into businesses simply because they see a link between core competencies rather than ones where they have an in-depth knowledge.
Similarly, there is a temptation for mature companies
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to be persuaded to go into growth businesses when that is not necessarily the best option for them.’
In some ways, Hamel and Prahalad’s strategic prognosis falls between two extremes. At one extreme are the archrationalists, insisting on a constant stream of data to support any strategy; at the other are the ‘thriving on chaos’
school with their belief in free-wheeling organizations where strategy is a moveable feast.
There is a thin dividing line between order and chaos.
‘Neither Stalinist bureaucracy nor Silicon Valley provide an optimal economic system,’ they caution. ‘Silicon Valley is extraordinarily good at creating new ideas but in other ways is extraordinarily inefficient. There are 100 failures for every success and, in fact, you find that smaller companies usually succeed in partnership with large organizations.’
They conclude that small entrepreneurial off-shoots are not the route to organizational regeneration. They are too random, inefficient and prone to becoming becalmed by corporate indifference. This does not mean that interlopers cannot change the shape of entire industries.
In Europe, they acknowledge the revolutionary impact of entrepreneurial newcomers such as IKEA, Body Shop, Swatch and Virgin. But, the true challenge is to create revolutions when you are large and dominant. This is something which American companies – such as Motorola and Hewlett Packard – are more successful at than their European counterparts.
This is partly attributable to traditional cultures. ‘We are moving to more democratic models of organization to which US corporations appear more attuned. In Europe and Japan there is a much more elitist sense that all knowledge resides at the top. There is a hierarchy of experience, not a hierarchy of imagination. And the half life of experience is very short.’
‘The two are also long-standing critics of the corporate obsession with downsizing, labeling it ‘corporate anorexia’.
The golden rules are summed up by Hamel and Prahalad: ‘A
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company surrenders today’s businesses when it gets smaller faster than it gets better. A company surrenders tomorrow’s businesses when it gets better without getting different.’
Downsizing is an easy option – ‘There is nothing more short- term than a sixty-year-old CEO holding a fist full of share options’.
Growth (they prefer to talk of vitality) comes from difference; though they add the caveat that ‘there are as many stupid ways to grow as there are to downsize. You might merge with another organization but two drunks don’t make a sensible person’. The catch-22 for organizations is that vitality is usually ignited by a crisis – something borne out by the burgeoning literature on spectacular turnarounds.
Perhaps reassuringly, Hamel and Prahalad believe vitality comes from within. If only executives would listen –’Go to any company and ask when was the last time someone in their twenties spent time with the board teaching them something they didn’t know. For many it is inconceivable, yet companies will pay millions of dollars for the opinions of McKinsey’s bright 29-year-old. What about their own 29-year-olds?’
While such questions remain largely unanswered, Hamel and Prahalad are moving on to pose yet more: ‘Something new needed to be said about the content of strategy. Now we need to rethink the process of strategy.’