Competing for the Future: Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow. - book reviews

Business Horizons,  May-June, 1995  by Henry H. Beam

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Reviews of current books discussing subjects on the horizon of business activities, particularly those on controversial issues being encountered by both practitioners and teachers, will be considered for publication. Manuscript guidelines are available upon request. Breakthrough Strategies for Seizing Control of Your Industry and Creating the Markets of Tomorrow

Competing for the Future is a thought-provoking look at how large corporations should go about formulating strategy to achieve industry leadership in the years to come. Written by two business school professors, Gary Hamel of the London Business School and C.K. Prahalad of the University of Michigan, the book is a codification and extension of ideas on strategy they have put forth since 1985 in seven Harvard Business Review articles. From the outset, the authors argue that they are providing a new view of corporate strategy:

Our starting premises are simple: Competition for the future is competition to create and dominate emerging opportunities-to stake out new competitive space. Creating the future is more challenging than playing catch up, in that you have to create your own road map. The goal is not simply to benchmark a competitor's products and processes and imitate its methods, but to develop an independent point of view about tomorrow's opportunities and how to exploit them. (p. 22)

Hamel and Prahalad are much more interested in creating tomorrow's markets than they are in reducing today's costs through currently popular management initiatives, such as reengineering and restructuring. "We want to help [managers] capture the riches that the future holds in store for those who get there first," say the authors (p. 25).

For those unfamiliar with Hamel and Prahalad's earlier works, the key to understanding their thesis lies in understanding exactly what constitutes a core competency. A core competency is a bundle of skills and technologies that enables a corporation to provide a particular benefit to a customer. At Honda, the primary core competency is expertise in engines, which permits the company to provide consumers with a wide variety of products that use engines, from lawn mowers to outboard motors to automobiles. At Wal-Mart, it is logistics, which permits the company to provide customers with the benefits of choice, availability, and low prices. At Apple, it is user-friendly personal computers. Whereas every firm generally has one primary core competency, it will also have between five and 15 supporting competencies.

A core competency should not be confused with a firm's distinctive competence, a descriptive phrase coined several decades ago that specifies what a firm does unusually well. A distinctive competence usually involves only one functional area, such as marketing or R&D. In contrast, a core competency typically includes several different skills often housed in different functional areas. A core competency thus represents learning across skill sets and organizational units. Examples include the ability to respond quickly to customer requirements, proficiency in product development, and superior inventory management skills. Because core competencies are capabilities rather than assets, they do not show up on a firm's balance sheet.

How does a company go about developing core competencies and using them to get to the future? The key is to preemptively identify and build the competencies that provide gateways to future opportunities and to find more applications of existing core competencies. Sony's decision to specialize in the miniaturization of electronic devices is a good example of a firm selecting a core competency for development. This decision was made years before the Walkman, the portable CD player, and portable television sets became popular consumer products. As the Sony example illustrates, selection of a core competency usually precedes competition for product leadership.

Hamel and Prahalad are pointedly critical of the Strategic Business Unit (SBU) approach to formulating strategy pioneered by General Electric and still used by many large firms. "To successfully compete for the future," they maintain, "a company must be capable of enlarging its opportunity horizon. This requires top management to conceive of the company as a portfolio of core competencies rather than a portfolio of individual business units. Business units are typically defined in terms of a specific product-market focus, whereas core competencies connote a broad class of customer benefits" (p. 83).

Consider a firm such as Canon, which has significant camera, copier, and printing businesses that could be considered SBUs. If these businesses are treated strictly as SBUs, then innovation will be limited to making more cameras, copiers, and printers rather than entering new markets. The core competencies that cut across these three businesses could be used to imagine and explore major growth opportunities that require combinations of skills in optics, electronics, and imaging. The authors view corporate strategy as much more than an amalgamation of individual business unit strategies: "Because core competencies are the highest-level, longest-lasting units for strategy making, they must be the central subject of corporate strategy. Top management must have a point of view on which new competencies to build" (p. 220).