COMPETING FOR THE FUTURE

BREAKTHROUGH STRATEGIES FOR SEIZING CONTROL OF YOUR INDUSTRY AND CREATING THE MARKETS OF TOMORROW

GARY HAMEL & C.K. PRAHALAD

HARVARD BUSINESS SCHOOL PRESS                       1994

 

Preface and acknowledgments

The book you are holding is the record of a unique partnership spanning seventeen years. In 1977 one off us (Gary) was a doctoral student in international business at the University of Michigan and the other (C.K.) a newly hired associate professor of strategy. We first met when the professor crossed departmental lines to give a seminar to the international business Ph.D. students. What we both remember is that the afternoon quickly turned into an extraordinarily pointed, take-no-prisoners debate between the two of us. Each of us was determined to deliver an unequivocal intellectual coup de grace. Others present thought we might never speak to each other again, let alone work together. But the seeds of mutual respect, and, ultimately, friendship, were sown that afternoon. Other, equally contentious debates followed, but we quickly discovered that we had more in common than a passion for academic sparring. We both believed that the ultimate test of business school research is its managerial significance. We were both deeply concerned with the ability of large enterprises to maintain their competitive vitality. And we both felt there was a great deal of managerial and competitive reality that lay beyond the boundaries of existing theory. These shared interests laid the foundation for the ensuing years of joint research, shared consulting assignments, and co-authorship.

The collaboration started in earnest when a consulting relationship C.K. had with a large and respected American firm became the grounds for our first joint research.

• The ideas generated became the basis for our first Harvard Business Review article, “Do You Really Have a Global Strategy?”
• We were intrigued by how smaller rivals, many from Japan, could apparently prevail against much larger, richer companies.
• No static comparison of cost structures could account for the seeming ability of some companies to constantly invent new ways of accomplishing more with less.
• We observed a consistency to their actions that presupposed a point of view about the future. How could such seemingly incredible goals be made tangible and real to employees at all levels?
• Many times the challengers had succeeded in creating entirely new forms of competitive advantage and in dramatically rewriting the rules of engagement.
• Flexibility advantages were built atop speed advantages, which were built atop supplier-management advantages, which were built atop quality advantages.
• We were intrigued by the process of advantage creation.
• We saw companies making commitments to particular skill areas far in advance of the emergence of specific end-product markets.
• How could one write a business case for a market that might not emerge for a decade or more?
• We had to conclude that some management teams were simply more “foresightful” than others. Some were capable of imagining products, services, and entire industries that did not yet exist and then giving them birth.
• Other companies, the laggards, were more interested in protecting the past than in creating the future.
• The gap between theory and observation provoked this book.
• Strategy has been in crisis. Our goal in this book is to enlarge the concept of strategy so that it more fully encompasses the emerging competitive reality – a reality in which the goal is to transform industries, not just organizations.
• While this book is about strategy, about “how to think,” it draws heavily on the experience of companies around the world that have managed to overcome resource disadvantages and build positions of global leadership.
• So Competing for the Future is not for dilettantes; it is not for the merely intellectually curious. It is a handbook for those who are not content to follow, for those who believe that the best way to win is to rewrite the rules, for those who are unafraid to challenge orthodoxy, for those who are more inclined to build than cut, for those more concerned with making a difference than making a career, and for those who are absolutely committed to staking out the future first.

 

Chapter 1: Getting Off the Treadmill

Look around your company. Look at the high-profile initiatives that have been launched recently. Look at the issues that are preoccupying senior management. Look at the criteria and benchmarks by which progress is being measured. Look at the track record of new business creation. Look into the faces of your colleagues and consider their dreams and fears. Look toward the future and ponder your company’s ability to shape that future and regenerate success again and again in the years and decades to come.

• Does senior management have a clear and broadly shared understanding of how the industry may be different ten years in the future?
• Is its point of view about the future clearly reflected in the company’s short-term priorities?
• How influential is my company in setting the new rules of competition within its industry?
• Is it more a rule-maker than a rule-taker within its industry?
• Is senior management fully alert to the dangers posed by new, unconventional rivals?
• Do senior executives possess a keen sense of urgency about the need to reinvent the current business model?
• Are competitors as eager to benchmark us as we are to benchmark them?
• Is our transformation agenda mostly offensive or defensive?
• Do I devote more energy to prolonging the past than I do to creating the future?
• What is the balance between hope and anxiety in my company?
• Get a pencil and rate your company (8 questions)
• We often ask senior management three related questions: First, what percentage of your time is spent on external issues?
• Second, of this time spent looking outward, how much is spent considering how the world could be different in five or ten years time?
• Third, of the time devoted to looking outward and forward, how much of it is spent in consultation with colleagues, where the objective is to build a deeply shared, well-tested view of the future, as opposed to a personal and idiosyncratic view?

The answers we get typically conform to what we call the “40/30/20 rule.” In our experience, about 40% of senior executive time is spent looking outward, and of this time, about 30% is spent peering three, four, five or more years into the future. And of the time spent looking forward, no more than 20% is spent attempting to build a collective view of the future (the other 80% is spent looking at the future of the manager’s particular business). Thus, on average, senior management is devoting less than 3% (40% x 30% x 20% = 2.4%) of its energy to building a corporate perspective on the future. In some companies the figure is less than 1%. As a benchmark, our experience suggests that to develop a prescient point of view about the future, a senior management team must be willing to spend about 20 to 50% of its time, over a period of several months. It must then be willing to continually revisit that point of view, elaborating and adjusting it as the future unfolds.

It takes substantial and sustained intellectual energy to develop high-quality, robust answers to questions such as what new core competencies will we need to build, what new product concepts should we pioneer, what new alliances will we need to form, what nascent development programs should we protect, and what long-term regulatory initiatives should we pursue. We believe such questions have received far too little attention in many companies.

• They have received too little attention because to address them senior managers must first admit, to themselves and to their employees, that they are less than fully in control of their company’s future.
• They must admit that what they know today – the knowledge and experience that justify their position in the corporate pecking order – may be irrelevant or wrong-headed for the future.
• The urgent drives out the important; the future goes largely unexplored; and the capacity to act, rather than the capacity to think and imagine, become the sole measure of leadership.
• Whereas downsizing and core process redesign are legitimate and important tasks, they have more to do with shoring up today’s businesses than creating tomorrow’s industries.
• Any company that succeeds at restructuring and reengineering, but fails to create the markets of the future, will find itself on a treadmill, trying to keep one step ahead of the steadily declining margins and profits of yesterday’s businesses.

 

Beyond restructuring

• The painful upheavals in so many companies in recent years reflect the failure of one-time industry leaders to keep up with the accelerating pace of industry change.
• Companies were run by managers, not leaders; by maintenance engineers, not by architects.
• Few companies that began the 1980s as industry leaders ended the decade with their leadership intact and undiminished.
• Any company that is more of a bystander than a driver on the road to the future will find its structure, values, and skills becoming progressively less attuned to an ever-changing industry reality.
• When a competitive problem (stagnant growth, declining margins, and falling market share) finally become inescapable, most executives pick up the knife and begin the brutal work of restructuring.
• Restructuring always has the same result: fewer employees. The depressing assumption seemed to be that because there was no hope of raising output, the only solution was to share fewer jobs among more people.
• Most of the employment contraction in large U.S. companies was caused not by distant foreign competitors intent on “stealing U.S. jobs,” but by U.S. senior managers who had fallen asleep at the switch.
• The United States and Britain have produced an entire generation of denominator managers. They can downsize, declutter, delayer, and divest better than any managers in the world.
• We believe, and will argue strongly, that a company must not only get to the future first, it must get there for less.
• In a world where competitors are capable of achieving 5, 10, or 15% real growth in revenues, aggressive denominator reduction, under a flat revenue stream, is simply a way to sell market share profitably.
• One of the inevitable results of downsizing is plummeting employee morale.
• Restructuring seldom results in fundamental improvement in the business. At best it buys time.
• Again and again Wall Street has shown itself quite content to watch a firm profitably restructure itself out of business, when top management seems incapable of profitably creating the future.

 

Beyond reengineering

• Recognizing that restructuring is ultimately a dead end, smart companies have moved on to reengineer their processes.
• There is a difference between restructuring and reengineering. Reengineering offers at least the hope, if not always the reality, of getting better as well as getting smaller.
• In many companies, process reengineering and advantage-building efforts are more about catching up than getting out in front.

Regenerating Strategy. From organizational transformation to industry transformation. Toward a new view of strategy.

Chapter 2: How Competition for the Future Is Different

Chapter 3: Learning to Forget

Chapter 4: Competing for Industry Foresight

Chapter 5: Crafting Strategic Architecture

Chapter 6: Strategy as Stretch

Chapter 7: Strategy as Leverage

Chapter 8: Competing to Shape the Future

Chapter 9: Building Gateways to the Future

Chapter 10: Embedding the Core Competence Perspective

Chapter 11: Securing the Future

Chapter 12: Thinking Differently

Notes. Bibliography. Index