Competing for the future, Gary Hamel & CK Prahalad - Book Summary

Why – Japanese small businesses – have they usurped the American giants? It's because they think differently, they have a deep vision of the future, they know how to build and use their core competencies, they are ambitious and they know how to rewrite the rules of the game.

The book will answer these fascinating questions in detail.

Who should read this book:

  • Anyone who isn't content to follow suit, is unafraid to challenge orthodoxy, is more inclined to build than to cut, more interested in making a difference than in making a career, and anyone fully committed to marking the future territory first
  • Senior managers, strategic management of enterprises
  • Anyone interested in corporate governance and business strategy

About the author

Gary Hamel & CK Prahalad are experts in global market dynamics and the strategy and structure of businesses that thrive in today's changing environment.

Gary Hamel is a professor of international management at the London Business School and a member of the editorial board of the Stategic Management Journal. Worked for many big companies in the world.

CK Prahalad is a professor of business administration at the University of Michigan. Co-authored several books with Yves Doz. He has consulted for many large companies in the world.

Their two articles “Strategic Intent” and “The Core Competence of the Corporation” have won the prestigious McKinsey Award.

Both articles are in HBR's best-selling issues, and "Business Core Competence" is the most reprinted article in the journal's history.

Escape from the windmill of current problems

Will senior managers ever take the time to think about the difference in the next five, ten years? For example, competitive rules, new standards, threats and challenges that competitors will pose? From there, they can build a sense of the need for renewal, build a core strategy, a sense of business weaknesses to find strong solutions, create growth opportunities, maintain competitiveness. future paintings.

The trend of changing technology, demographics, policy regulations, productivity and quality of competitors at a fast pace pushes businesses to struggle in "restructuring" and "reconstruction" solutions. . But neither of those are solutions for the future. And in the end they are just spinning the windmill.

Faced with urgent situations, often companies cope with "organizational restructuring": reducing personnel, cutting operating costs, removing inefficient activities, increasing the efficiency of using resources. However, this measure results in fewer employees, no increase in output, making the business "lean and thrifty", fully exploiting assets, returning the business to basics, resulting destruction of many lives, families and communities. The social costs of restructuring activities are very high, especially in dealing with dismissed workers.

Restructuring rarely produces fundamental improvements in business. Its biggest advantage is saving time and reducing personnel. It's like anorexia of business; it can make a business slimmer, but not necessarily healthier.

Restructuring is ultimately just a dead end. Wise businesses will "re-engineer" operational processes, with the aim of eliminating unnecessary work, bringing all processes and workflows in the direction of customer satisfaction, and overall quality assurance. Reconstruction hopes to bring about more efficient operations.

However, restructuring and reconstruction is simply the penalty a business has to pay for not predicting the future.

The real issue of competition is that of a follower versus a challenger; contemporaries with innovators; imitator versus creator.

Future competition is the competition that creates and dominates new opportunities, much more challenging than the game of chase. It is necessary to break through the fog of uncertainty and develop a broad vision of prime locations in tomorrow's markets.  

Competition for the future

We are facing a revolution that has far-reaching effects: it's the environmental revolution, the genetic revolution, the materials revolution, the digital revolution, the information revolution... Brand new industries, in pregnancy, about to be born.

Existing industries: education, healthcare, transportation, banking, publishing, telecommunications, pharmaceuticals, retail... will undergo profound transformation. The future and the present are contiguous by an unclear boundary, they are closely intertwined.

Drivers of the industry revolution – businesses that have a clear vision of where they want to take their industry and are able to coordinate internal and external resources to get there first – will be handsomely rewarded. .

The future is not an analogy from the past. Competing for the future requires not only a redefining of strategy, but also of the role of top management in formulating strategy.

Senior managers need to see the business as a portfolio of competencies, and ask themselves: “Given the unique portfolio of competencies, what opportunities are we in a unique position to exploit?”

Most of the most exciting new opportunities require the integration of complex systems, rather than innovation around a single product. The difference between competition for the future versus competition for the present is the time frame, speed is the key condition. Product life cycles are shortening, development times are getting shorter, and customers expect near-instant service. However, the battle for the future is fierce: competition often takes place in "disorganized" arenas; where competition rules have yet to be written down. Today, change is volatile and unpredictable.

The race to the future occurs in three distinct stages: (1) Competing for industry foresight and intellectual leadership, for deeper understanding of competitors, for foresight about the size and shape of future opportunities, i.e. envisioning the future. (2) Competition to shorten the migration path: accumulate essential competencies, experiment, attract coalition partners; ie envision the new arena of opportunity. (3) Competition for market position and market share; ie the battle for market share, market position within relatively clear parameters and value, cost and service.

But in order to create the future, businesses must be able to partially forget the past.

Learn to change and facilitate change

Evolution is a slow process, dependent on small and unexpected changes in genes. Dinosaurs became extinct because they couldn't adapt quickly enough to keep up with changing conditions.

Fortunately for corporate dinosaurs, the process of corporate "gene coding" can be transformative in many different ways. There are businesses that lose the ability to periodically rebuild the gene encoding process, will have to leave their survival to environmental changes. Others rely on managers' gene-coding skills to help establish their range and ability to react in specific situations. But to some extent, we are all prisoners of our own experience. Without doing something to significantly increase genetic diversity, businesses will find themselves unable to compete with new non-traditional competitors.

Genetic diversity is often the highest barrier for the most politically influential managers (the bottleneck is often overhead). They cannot quickly eliminate the intellectual capital that is depreciating in value and do not properly invest in the creation of new intellectual capital.

As the competitive environment becomes complex and diverse, there is a need for even greater genetic diversity. Any business that aspires to survive must create within its own organization a reasonable proportion of genetic diversity found throughout the industry. Another way to increase the genetic diversity of the population is to admit new members to hybridize with old members by recruiting outside managers.

To be able to change their gene encoding process, enterprises need to be careful not to over tighten the screws that hold the management framework together, and commit to maximizing the interrelationship of the voices of "other" employees. separate".

Open governance depends on curiosity and humility. It is necessary to build a “get rid of” organization. Children learn new skills faster than adults because they have fewer things to let go of.

The more successful the business, the thinner its forgetting curve.

The future must become something as vivid and real as the present and the past. Senior management must help the organization build an emotionally and intellectually exciting view of the future.

Competition foresight about the industry

The essence of industry foresight competition is to establish the business as a knowledge leader in terms of influencing the direction and form of industry transformation. The trick here is to see the future before it comes. Enterprises must ask themselves: What will we provide, with what capacity? How will the customer interface be configured in the next five, ten, or fifteen years?

Industry foresight is not simply a flash of intelligence, but based on a deep understanding of technology trends, demographics, policy regulations, lifestyles... industry rules and create new competitive spaces. But it is important to match the operating capacity.

Any vision requires creativity, imagination. But if it's just an extension of the CEO's ego, it's very dangerous. If you can't distinguish what is an illusion and what is a vision, it is even more dangerous.

In fact, the role of the senior executive is to capture and unleash the foresight that exists throughout the organization. It's usually done: building a new business project division, task force, incubator project... Senior management is willing to participate in discussions about the future on an equal basis; willing to listen to unusual voices. They can always look at the other side of the problem.

The challenge in competing with industry foresight is to create a foresight, where the future needs to be different, often starting with what is possible, then back to what must happen for that future to become possible. realistic. The business must be able to expand its scope of opportunities, treating the business as a core competency portfolio, rather than a standalone portfolio of business units.

For example, Honda, although started with the motorcycle business, Honda does not only place its future in this industry. Conceiving itself as the world's leading manufacturer of engines and transmissions, Honda has applied this competence to the production of automobiles, washing machines, garden machines, marine engines and generators. .

Every product or service can be broken down into feature elements, and the ultimate way is to create new space by providing completely new functionality, through a completely new product concept. The best foresight comes from a deep understanding of the customer, from which a new design is born. But, creating the future requires businesses to do more than simply delight customers, but to constantly surprise customers. “Our plan was to lead the public with a new product, not ask them what product they wanted,” said Song's Akio Morita. The public doesn't know what's possible, and we do."

The industry's quest for foresight is about visualizing what doesn't exist yet. When envisioning the future, businesses must find a way to go from today to tomorrow.

Building strategic architecture

To build a strategic architecture, top management must have a vision of what new benefits or “features” will be offered to customers over the next decade, about the core competencies that need to develop to create these benefits, and about changing the customer interface to help them make the most of these benefits.

A strategic architecture is not a blueprint, it can only create an overarching action plan for feature deployment and capacity building. It defines what we must do now. It is the necessary link between today and tomorrow, between the short term and the long term. Right now the organization must see the capabilities to build, the customer groups, the distribution channels to explore, the priorities to pursue. That is the overview opportunistic method blueprint.

For example, about the strategic architecture from a Japanese electronics company, NEC clearly shows us:  

In the early 1970s, the NEC began to feel that the communications industry and the computer industry were converging in a number of important ways. NEC has built a strategic architecture that defines the capabilities it needs to be able to exploit the opportunity emerging from the junction of these two industries. NEC's ambition is to be a leader in "C&C", computing and communications capabilities.

NEC's strategic architecture is discussed with all employees, not kept secret, but it does not reveal the breadth and depth built around the C&C concept. In 1992, NEC became the world's computing, semiconductor and telecommunications giant.

The purpose of competing for the future is not an attempt to reduce risk to ambition. Testing things out and not committing to anything is a surefire way to miss out on the future. Investing too little too late is as bad as investing too much early.

Getting to the future requires more than a well-conceptualized strategic architecture first, and it is the employee's abilities and intelligence that fuel the trip.

Strategy as tension

A business can have a lot of money and command an army of talented people, but still lose its pioneering position. In contrast, an enterprise that knows how to overcome enormous resource constraints has successfully conquered the leading position.

So, to get to the future, it is first and foremost about the task of the ability to use the resource rather than the resource itself. It comes from a profound sense of purpose, a shared dream, an alluring view of tomorrow's opportunities.

Strategic goals are those dreams. It is full of life, it provides energy, affection and wisdom for the journey. Strategic architecture is the brain, strategic purpose is the heart. Tacit strategic intent refers to the stretch of importance to the organization. It conveys a sense of direction and a sense of discovery.

It is the responsibility of senior management to make instilling a noble purpose, emotional and intellectual appeal based on something beyond personal financial gain. Each person needs to understand the nature of the link between his or her own work and the accomplishment of a shared purpose. That is, strategic intent must be personalized for every employee.

The first task of personalization is to pose business challenges. These challenges will be dictated by the strategic architecture of the business. It's quality, it's the lifecycle, it's the market, it's the technology mastery… and so on, giving employees a clear view of the next challenge.

The strategic architecture and overall strategic purpose of the business must be grounded with a deep understanding of potentials, competitor intentions, and evolving customer needs. Thereby, leverage resources, go as far as possible on the path to the top position with the least fuel consumption possible.

Strategy is leverage

Statistically speaking, it is clear that the amazing labor productivity belongs to Japanese manufacturing companies. Their operating costs are lower, as a percentage of total costs, than is typical in the US and Germany. The effect of the direct correlation between R&D spending and R&D performance. This is not labor productivity but administrative and system productivity.

Japan is proof that more can be done with less. That is the nature of resource leverage. This is not just lean manufacturing, it's all about lean.

A company's resources and aspirations can be described as "slowing" or "stretching" from which to apply different approaches to competitive strategy and varying degrees of creativity in creating leverage. leverage for resources.

Tension and leverage have a close relationship. It is tension—that is, pulling ambition beyond resources—that fuels the engine of advantage. Japanese companies have a strategy of stretching that helps erase the mythical color in the success of the leading companies, despite the initial resource constraints.

To look at ways to leverage resources, let's consider the starting axioms: First, conceptualize a business as a portfolio of resources (technical, financial, human, etc.). Second, resource constraints are not always an obstacle to leadership. Third, there is a huge difference between firms in the market and the competitive impact they can make with a given amount of resources. Fourth, leverage-based efficiency is achieved mainly from increasing the numerator in the productivity ratio (revenue, profit). Fifth, the task of allocating resources by top management receives too much attention compared to the task of resource leverage.

Resource leverage can be achieved in five basic ways: (1) Concentration of resources more effectively: Convergence (building consensus on strategic goals), Centralization (defining precise objectives) improve), Targeting (emphasizing high-value activities). (2) Accumulating resources efficiently: Exploiting (using the brains of all employees), Borrowing (penetrating the resources of partners). (3) Complementary resources: Blending (combining skills in different ways), Balancing (meaningful control over product delivery and development). (4) Conservation of resources: Recycling (reusing resources and skills), Collaboration (finding a common cause with other partners). (5) Restoration of resources: Successful promotion (minimization of payback period).

Resources are often reasonably assumed and scarce; Top management must be very careful when dividing them.

Foresight and strategic architecture provide the map, while stretchability and leverage provide fuel. But even when these key components are in place, the journey to the future is still long and arduous.

Compete to shape the future

Knowledge leadership needs to be transformed into market leadership. Getting to the future first allows a business to create a virtual monopoly in a particular new product category. Allows businesses to set standards and collect royalties from holding material intellectual property rights. Help businesses establish rules that other businesses must follow in order to compete.

Getting to the future first offers great rewards, but also entails significant risks. It is an irreversible financial risk, not generating revenue and profit as expected, because the rush has spent more widely than the competition. Also because the timing is not right, the product is not perfect, the customer does not really need or want the new service.

However, the business that bets that the pioneer will fail is taking a big gamble itself.

To do that, it is necessary to identify three stages of competition: (1) Competition for leadership with knowledge (idea formation), (2) Competition to shorten the migration path (actively shape the future industry structure) and (3) Competition for power and market position (early or more market capture).

The necessary measure is: Maximizing influence correlation is determined by four factors: Ability to build and manage alliances; succeed in building core competencies; quickly accumulate lessons from the global “recognition correlation” market and distribution capacity.

Alliances must be formed because practically no one business possesses all the resources that make a product or service bear fruit. However, multilateral cooperation should follow a clear “cumulative logic”. Because firms that are partners in the early stages of market development often become competitors late in the process.

Alliance management requires a careful balance of programs of concurrency and cooperation over time, and a sense of timeliness about the individual agendas of senior executives.

Competition for the future also includes competition that sets new standards from the interplay of products and services offered by many sellers. Because standards are at the heart of the competition, when a technology is adopted as a standard, it allows businesses to quickly recoup their investment in research. Intel has recouped its investment in developing PC-oriented microprocessors much faster than Motorola's because Intel's X86 product has become the de facto standard for personal computers.

Building a gateway to the future

Businesses must take a stance today on the core competencies essential to building the future. Because core competencies are the gateway to future opportunities.

Core competencies are a group of skills and technologies that enable a business to deliver a specific benefit to a customer. It is not product-specific, it goes beyond the product or service, it outlives any single product or service unit.

Competency leadership often precedes product leadership competition. It is not a war between products and products, but a battle between businesses and businesses. Core competencies are the source of future product development. They are the "root" of competitiveness, and individual products and services are the "fruits".

So, what is a core competency?

Competence is a group of skills and technologies, not a single skill or technology. It is the totality of knowledge gained from skill groups and individual units in the organization.

To manage an enterprise's core competencies, senior management must be able to disassemble core competencies into its components down to the level of specific individuals with specific talents.

To be considered as a core competency, a skill must meet three factors: (1) Customer value: The core competency must contribute significantly to the value perceived by the customer. Customers are the ones who judge and evaluate whether a certain capability is a core competence or not. (2) Differentiate from competitors: Competence must be unique in terms of competitiveness. (3) Scalability: A competency is truly core as it forms the basis for new product market entry.

Competence competition takes place at three levels:

(1) Development and accumulation of skills: Resource leverage at this stage is mainly from the ability to access and absorb skills and technology from outside.

(2) Competition for Competency: Integrated innovation and absorption are equally important.

(3) Core Product Correlation Competition: Many businesses seek to sell their core products to others as original equipment manufacturers, as a way to capture “virtual” market share to generate revenue. gain and experience to accelerate its core competence-building efforts. Selling core products to outsiders is an effective metric to gauge whether a company is a leader in competence. Where the core product flows in both directions, every partner understands and works to protect its unique core competence. Care should be taken to consider the long-term competitive effects and the dependent nature that will arise.

Sticking to the concept of core competencies

When enterprises cannot conceptualize themselves and their competitors in terms of their core competencies, businesses may face many dangers such as: growth opportunities will be unjustly cut off; businesses do not have a clear mechanism to ensure that talented people will be placed in the right place. As a result, energy is constrained and wasted.

When core competencies are lacking, businesses will depend on external core product suppliers. If you only focus on end products, without investing in new core competencies, businesses will not have the seeds for tomorrow's crop of products.

Without understanding the core competency base, businesses will be surprised by new entrants. Businesses that aren't sensitive to core competencies can inadvertently give up valuable skills by cutting out underperforming businesses.

For the core competencies concept to take root in an organization, the entire management team must fully understand and participate in the five key competencies management tasks:

  1. Determine current capacity: Core competence is the soul of the enterprise, the management board cannot delegate the determination of core competencies to the technical force. Don't confuse core competencies with other things.
  2. Establish specific capacity accumulation and deployment goals, differentiate existing and new capabilities, and envision opportunities to extend existing core competencies into new product markets.
  3. Management needs to develop a sophisticated and thorough human and capital allocation mechanism to ensure that the best people get to work with the most potential opportunities.
  4. Leadership in core competencies can be lost due to budget shortages, fragmentation during division, or when underperforming businesses are cut off.
  5. Management needs to establish a process of deep participation, involve the participation of units, set priorities, clear management, reasonable resource allocation, benchmarking the capacity building efforts of the stakeholders. competitor. Building a community of individuals in the organization, seeing them as the "carriers" of the core competencies of the business.

Go to the future

The main objective of the competition for the future is to maximize the learning-to-investment ratio. Must learn faster than the competition about the exact aspects of customer needs and required product performance. True learning only begins when an imperfect product or service is brought to market.

Expeditionary marketing is a practical method for scouting future markets. Expeditionary marketing is about reducing the time and cost of product iteration, gaining market insights, re-engineering, and relaunching. Expeditionary marketing involves tightly controlled experiments, not baseless predictions.

Do expedition marketing, the rules are simple: learn faster, cheaper.

Hit the new product or service ball around the world as fast as you can. To achieve maximum return on innovation, a business must have a global pre-emptive strike capability. Pre-emptive attack on competitors or slow their global progress. This not only builds a physical presence in key strategic markets, but equally important the ability to access the most efficient distribution channels in each key national market.

It is better to stay ahead of the competition if the company builds a pre-existing “cognitive correlation” with customers around the world. Any company with an enviable brand position has a head start in the race. Focus on building a “strip brand”, spread across products and businesses, helping customers transform today's product experience into tomorrow's product interest and excitement.

Core competencies are the foundation of the business, the strip brand is the roof of the business, in the middle are various types of businesses.

So, in order to attack competitors first, the company must apply strip branding and build awareness on a global scale.

With the increasingly strong economic integration, the removal of tariff barriers because of non-tariffs, the development of international communication, the international mobile customer group is expanded... the propaganda and quick concept New product and business concepts among national branches became imperative for every multinational.

Different thinking

Think differently about competitiveness.

Competition occurs not only between single products or services; but also between businesses and business alliances: Senior management competes in an effort to accumulate visibility into the new open arena of opportunity such as gene therapy drugs. Companies compete in building core competencies; competitive alliances to create new competitive spaces.

In the context of governance, genes are concerned with how managers feel about the industry, the business, the role, and the way in which these feelings guide them to behave in particular situations. Just like the way managers are genetically engineered to think about the foresight, the tension and leverage that power it, so does proactive advantage-building and industry reinvention.

Strategic thinking

Strategic planning not only maximizes market share and profits today, but also the model the business wants to be ten years from now. New functions, new core competencies. New and disparate resources need to be applied to strategy-making, drawing on the creativity of all managers, not just the wisdom of a few planners.

Strategy needs to be “long-term”, needs to be “ambitious” and needs to arouse a level of “commitment”. Long term does not equate to “patience money”. Every project must have money to invest but on a pay-as-you-go basis.

Ambition doesn't mean taking risks, it means establishing an aspiration to stretch, and then using leveraged tools to "reduce the risk" of that ambition.

Commitment is the mental and emotional bet on a particular view of the future that management needs to ensure consistency and continuity.

It takes organizational thinking differently, which means an effort to encourage individual risk-taking, a focus on individual responsibility, reverse org chart, and put the customer first.

Senior management needs to identify and exploit the hidden value of connections between units to increase the value of collective action, cooperative employees; At the same time, it gives individuals the freedom to design their own work, freely acting as long as it satisfies customers. However, empowerment without a shared sense of direction leads to chaos.

Going beyond technology-oriented versus customer-oriented opposition: Must have a deep understanding of potential customer benefit layers. The goal is to surprise customers by anticipating and fulfilling their unstated needs. Not being narrowly oriented towards technology, the goal is benefit oriented – continuously searching, investing, and mastering technology to bring unexpected benefits to humanity.