C.K. Prahalad News & Articles

All articles related to management guru C.K Prahalad.

What’s more important to a company’s future, strategy or execution?

Execution is the obvious answer. But two well-known strategists, Gary Hamel and C.K. Prahalad, plead the contemporary case for strategy in Competing For The Future (Harvard Business School Press, $24.95).

Most companies have operational strategies to help increase profits and market share, and achieve cost reductions. Xerox, according to the authors, learned how to reduce costs, improve quality, and satisfy customers by the early 1990s. But pursuing quality, customer satisfaction and operating efficiencies did not help much against Canon. What’s more, Xerox’s pioneering roles in laser printing,

networking, icon-based computing, and the laptop computer failed to help it create substantial new businesses outside copiers.

Xerox left money on the table, write Hamel and Prahalad, by getting “better without getting different.”

The two authors, both management professors and consultants, are well known for their work in redefining competitiveness and strategic intent. They consult widely and have published articles and videos. Their first book is a thoughtful amalgam of seventeen years collaborating. As such, its ideas are fully developed and represent an evolution of modern strategic thinking for large firms.

Beyond reengineering, the authors write, top managers must know how to reinvent their entire industries, a la CNN, Wal-Mart, Service Corporation International, Motorola. These pathbreaker organizations recognized their core competencies and developed strategies to reshape industry structures around the most competitive of their core competencies.

Here are some ideas from the book managers can use:

Industry foresight. Get your employees to feel a sense of urgency about the future, that they can make a difference. Avoid being hostage to existing markets. And develop foresight to create the future, not just in your company, but in your entire industry.

Core competencies. Identify the most highly-evolved core competencies which can be leveraged for the future. Sony pioneered transistor radios, but isn’t still making them. Its core competency of miniaturization enables it to continually amaze consumers, in pioneering new things to miniaturize.

Look to strategy for a broad agenda. Komatsu’s policy of “encircling” Caterpillar, as the latter entered Komatsu’s home market in the 1960’s, resulted in improving their base business of small bulldozers, intercepting Cat’s technology, and successfully attacking its more vulnerable markets. NEC recognized, in the late 1960s and early 1970s, that communications and computers were converging. As a result, they built up their competencies in systems and digital manufacturing. Recognizing the relationship of telecommunications, computer systems, and components businesses may be old hat today, but in 1977 it represented foresight tied to a broad agenda on NEC’s part.

Rebuild leadership before you need to. In 1992, EDS committed itself to rebuilding industry leadership in the face of new competition ranging from Andersen Consulting to AMR Corporation. The company adopted a top-to-bottom challenge of its existing assumptions, involving less-than-senior managers, to achieve its current strategic architecture, summed up in the words “globalize, informationalize, and individualize.”

With every admonition to re-model strategic thinking, Hamel and Prahalad give necessary caveats about making irreversible decisions under uncertainty. “Getting to the future is a process of successive approximation,” they write. Commitments must be based on knowing the limits of what can be known, to avoid investing badly. Timing of future developments is difficult to assess at best.

The authors’ freshest perspective comes with driving strategy to all levels of employees through a consensus of “strategic intent” about where the company is going. Employees need to see how their jobs link up with attainment of a goal. Like Ford did in the early 1980’s with its quality campaign, managers must make every employee aware that without their help, the company will not regain or increase its competitiveness. Employees should challenge standard operating procedures, workflow design, and the bureaucracy itself, if it serves the company’s strategic intent for the future.

Some of these ideas pertain more to large companies than the nimble ones which act instinctively without deep thought. Large companies may have more resources, but the future will go to whoever leverages resources the best. Sony and Yamaha, for example, leverage resources through their “banner” brands which, omnipresent on all products, present consumers with the least brand confusion. The trendiest way to leverage resources is to look for coalitions with other companies as has been done in the interactive TV and personal communications industries.

Alliances and coalitions can be guided by a firm’s core competencies, which form the roots of its competitiveness. At Federal Express and Wal-Mart, the high-level core competencies are logistics management. At EDS, systems integration is a core competence; at Charles Schwab, marketing and distribution. Core competencies, solid as they sound, can become useless. U.S. military contractors are finding that their ability to deal with the Department of Defense, once a core competency, now has little value in commercial markets.

Core competencies can also be lent to other companies, as Marriott does with catering and facilities management, and AMR does with reservation systems and information technology. IBM has widened its market aperture beyond its own distribution channels to sell components and modules to all comers. Core competencies must be the central subject of corporate strategy, believe Hamel and Prahalad. They must be deployed behind new market opportunities with as much velocity as capital is allocated to new projects.

The book’s discussion of marketing and strategy on a global level is not as strong as the material on core competencies and strategic intent. Plus, this book has some of the faults (as well as the virtues) of the best-selling Reengineering The Corporation: too general and conceptual most of the time.

Its best use is as a primer on strategy for the 1990s. Hamel and Prahalad demonstrate here that discontinuous thinking is not the only creative way to the future. A linear approach can be strong and effective as long as it has direction.

In an era of downsizing, why not get rid of the strategists? Is implementation of process change more important? Or does strategy, like economic forecasting, seem to not matter much to hte bottom line?

Most companies have something they call marketing strategy, sales strategy, and manufacturing strategy, each geared to the needs of the strategic business unit, which has its products and existing markets. Market share, cost reduction, and profit opportunities are generally the goals of these SBU strategists.

While many strategies of a company are hard-wired into existing structures, Gary Hamel and C.K. Prahalad believe that core competencies can be soft-wired into the firm to provide more competitive opportunities and success in its future.

Strategic planning has always seemed a province of senior managers, who project their companies’ destinies with the past- and what has worked for them, firmly in mind. Now comes a pair of strategic consultants who say that companies must be capable of doing more than downsizing and improving quality.

Companies must be capable of “getting different,” according to Gary Hamel and C.K. Prahalad in Competing For The Future (Harvard Business School Press, ). Xerox is a good example of a company, they say, which left money on the table by getting “better without getting different.” They learned how to reduce costs, improve quality, and satisfy customers by the early 1990s. But this did not help recapture much market share from competitors like Canon. And its pioneering roles in laser printing, networking, icon-based computing, and the laptop computer failed to help it create substantial new businesses outside copiers.

Beyond reengineering a firm, top managers must know how to reengineer their entire industries, a la CNN, Wal-Mart, and Service Corporation International. Pathbreakers all, they recognized their core competencies and developed strategies to reshape industry structures around their competitive competencies.

But what does it mean to be “strategic?” Traditional managers leave it to CEOs and planners; Hamel and Prahalad want everyone in a company to stretch themselves in an effort to participate directly in the company’s future, not only planning but also executing strategies.

Pioneering is a dangerously approximate endeavor, as the authors point out. It can’t be done with numbers in mind, but neither can it be done without a profitable anticipated route to the future. The risk of approximating leads companies to play it safe. Hamel and Prahalad suggesting using part of the past as a “pivot” to the future, and shedding the past’s excess baggage. It’s easier said than done because managers value the past they have built and its concomitant achievements. They are tempted to preserve the past, no matter how little value it may have today.

Motorola successfully skirted this temptation in the 1980s and remains a world leader in wireless businesses- pagers, two-way mobile radios, and cellular telephones- in the 1990s. Getting employees to feel a sense of urgency about the future is a start. Developing industry foresight is the next step. But it is one thing to have “skunkworks” produce amazing products such as the IBM PC, and quite another to have the foresight behind such developments survive the headquarters mentality.

At headquarters, managers are focused on the markets already being served, not the potential markets of the future. When this happens, the company is hostage to existing markets, even though it may possess highly-evolved core competencies which can be leveraged for the future. Sony pioneered transistor radios, but it’s not selling radios; it sells the core competency of miniaturization. And right up to the invention of the Walkman, Sony fits into this paradigm of the authors: “Companies that create the future do more than satisfy customers, they constantly amaze them.”

Amazement is sometimes achieved (especially with consumers) through smoke and mirrors. But technology is a potent tool for pushing product boundaries. Hamel and Prahalad say that companies should match the most advanced technology with the “world’s most sophisticated and demanding customers.”

Their discussion of strategic architecture will help managers map their future capabilities. Specifically, information architectures should address who communicates, what they communicate about, how often, and in what ways. Social architectures address values, expected behavior, and types of employees. Financial architectures address the balance of debt and equity, the financing of acquisitions and disposals, the criteria for capital allocations, etc. The result should be a broad agenda, such as Komatsu’s policy of “encircling” Caterpillar as the latter entered Komatsu’s home market in the 1960’s. They improved their base business of small buldozers, they intercepted Cat’s technology, and went after its more vulnerable markets. NEC recognized, in the late 1960s and early 1970s, that communications and computer were converging. As a result, they built up their competencies in systems and digital manufacturing. Recognizing the relationship of telecommunications, computer systems, and components businesses may be old hat today, but in 1977 it represented foresight on NEC’s part.

In 1992, as EDS recorded its thirtieth consecutive year of record earnings, observers are still in awe. But internally, EDS committed itself to rebuilding industry leadership in the face of new competition ranging from Andersen Consulting to AMR Corporation. EDS adopted a top-to-bottom challenge of the company’s assumptions, involving less-than-senior managers, to achieve its current strategic architecture, summed up in the words “globalize, informationalize, and individualize.”

With every admonition to re-model strategic thinking, Hamel and Prahalad give necessary caveats about making irreversible decisions under uncertainty. “Getting to the future is a process of successive approximation,” they write. Commitments must be based on knowing the limits of what can be known, to avoid taking an expensive wrong turn with investments. Timing of future developments is difficult to assess at best. Wireless personal communications are almost sure to be ubiquitous in our future, but when? The same for electronic banking, gene therapy- sure things at some point in the future by today’s measures of progress- but when?

It’s always a matter of opinion, and that’s where “strategic intent” comes in, write the authors. What unique direction with the company take, and will it have an edge of discovery and destiny? Strategic intent must contain pathos and passion, they write. Employees “don’t get interested in a game if there’s no scoreboard.” Profits and shareholder returns exert little pull on employees several levels below top management. Thus not only do customers have to be amazed to the compete for the future, but employees must be excited.

Excitement is manifested strategically by employees seeing how their jobs link up with attainment of a goal. The new strategic intent presents a challenge, and engages employees’ intellectual energy. Like Ford did in the early 1980’s with its quality campaign, managers must make every employee aware that without their help, the company will not regain or increase its competitiveness. And not only do managers want employees to do what they say, they should also want them to challenge standard operating procedures, workflow design, and the bureaucracy itself, if it means getting to the desired future faster.

With all the talk about strategy, what about resources? Large companies have seemingly unlimited resources, newer companies never have enough. Each company’s strategy will be different, but the authors argue that the winner will be the one whose resources are best leveraged. The smaller company may be more willing the “reinvent the industry,” or change the rules of the game. It would be readier to do more with less. It might be able to reach a strategic consensus faster.

In perspective, Hamel and Prahalad see that ambition preempts resources. Finding less resource-intensive measures is one way of leveraging expendable resources. Thus, a strategic intent should meet the test of providing the best resource leverage. For example, Sony and Yamaha each focus their advertising resources on a “banner” brand which, omnipresent on its products, present consumers with the least brand confusion.

How to best position oneself against competitors? Have a point of view about the most likely route to the future, the most likely time frame for reaching it, and which complementary capabilities to develop. Look for coalitions with other companies such as those in the interactive TV and personal communications industries.

And finally, identify and build core competencies, the roots of competitiveness. These are gateways to new businesses, which unleash skills and technologies to “amaze” customers and exploit new market opportunities. At Federal Express and Wal-Mart, the high-level core competencies are logistics management. At EDS, systems integration is a core competence; at Charles Schwab, marketing and distribution.

How to distinguish non-core capabilities from core competence? In the broadest terms, a company many have 40 or more primary skills, but only 5-15 core competencies. Senior management has to focus on which competencies are at the center of their business. Or to look at it another way, how each competency contributes to customer vallue, competitor differentiation, and extendability to tomorrow’s markets. In the example of Intel, much of its semiconductor profits arise from intellectual property rights and installed base, neither of which the authors believe are core competencies. Eventually, Intel will need its own design, manufacturing and distribution competencies to compete.

Core competencies, solid as they sound, can migrate. U.S. military contractors are now finding their ability to deal with the Department of Defense, once a core competency, now have little value in commercial markets.

They can also be sold to other companies, as Marriott does with catering and facilities management, and AMR does with reservation systems and information technology. IBM has widened its market aperture beyond its own distribution channels to sell components and modules to all comers. Inside the firm, sales and marketing staff are likely to be disturbed, but Hamel and Prahalad write, “the greater the angst of sales and marketing managers over the decision to sell core products to outsiders, the more likely it is that the firm’s in-house channels are less efficient than alternate distribution channels.” They even go so far as to suggest that if selling to outsiders doesn’t work, maybe the firm’s core competencies are not that competitive. Core competencies must be the central subject of corporate strategy, they believe. They must be deployed behind new market opportunities with as much velocity as capital is allocated to new projects.

Of all the material in this book, chapter 11 on expeditionary marketing and global preemption are the least original and seem to be tacked-on discussions of contemporary branding and marketing issues. New product development should not be discouraged, they write, citing examples such as IBM’s first disastrous foray in home computing with the PCjr., which discouraged the company from trying again for another 7 years. The other main point is that banner brands from global corporations such as Sony have an inherent advantage in their ready acceptance and reduced marketing cost.