Late last month the business world suffered a tremendous loss with the passing of C.K. Prahalad. Harvard Business Review is not exaggerating when it calls Prahalad, one of the world’s “wisest and most influential management thinkers.” I “discovered” Prahalad during my time at Sony, when my primary responsibilities transitioned from working on discrete projects and deliverables to transforming the organization, its culture, and its operations.
Two papers written by Prahalad and the equally prescient Gary Hamel were particularly impactful on my thinking and practice of business: The Core Competence of the Corporation challenged the conventional SBU-driven (Strategic Business Unit) corporation; Corporate Imagination and Expeditionary Marketing laid out the keys to unlocking entirely new markets. As I reflect on the key points of these pieces, I realize how relevant they remain today.
In The Core Competence of the Corporation, Prahalad and Hamel urged leaders to rethink the concept of the corporation itself – from a portfolio of businesses managed and optimized independently, to a portfolio of competencies spanning across individual businesses and delivering real and sustaining competitive advantage.
Nurturing core competencies requires thinking and operating differently. The authors explained that, “When the organization is conceived of as a multiplicity of SBUs, no single business may feel responsible for maintaining a viable position in core products nor be able to justify the investment required to build world leadership in some core competence. In the absence of a more comprehensive view imposed by corporate management, SBU managers will tend to underinvest. “
Viewing the corporation through the lens of competence facilitates greater insight into creating competitive advantage – taking the focus off of your own and your competitors’ price/performance of end products and putting it on your and your competitors’ ability to fully exploit capabilities and assets to enable any given individual business to adapt more quickly to challenges and new opportunities.
The rapid pace of change in today’s business world makes the core competence approach even more relevant than it was when it was introduced by Prahalad and Hamel in 1990. The paper also provides a word of caution to those who are looking at the current economic environment as an ideal one in which to go acquisition shopping: leaders should evaluate and execute an acquisition for the purpose of building a core competence.
Finally, it challenges the current push toward more decentralized businesses. “The fragmentation of core competencies becomes inevitable when a diversified company’s information systems, patterns of communication, career paths, managerial rewards, and processes of strategy development do not transcend SBU lines,” the paper explained. Although there might be efficiency to be gleaned from decentralization, perhaps more credence should be given to their prediction that companies will be judged by their ability to “identify, cultivate, and exploit the core competencies that make growth possible.”
The authors’ second paper, Corporate Imagination and Expeditionary Marketing, built upon the first by explaining that “to realize the potential that core competencies create, a company must also have the imagination to envision markets that do not yet exist and the ability to stake them out ahead of the competition.”
The piece argued against a “skunk works” approach to innovation. Instead of fruitlessly trying to leverage core competencies into new businesses while protecting new ventures from corporate orthodoxies, Prahalad and Hamel exhorted, “Individual imagination must become corporate imagination.”
They outlined four elements which enable the corporate imagination:
- 1. Escaping the tyrrany of the served market. Instead of viewing every new opportunity through the lens of existing businesses, managers must think outside of current boundaries and explore the white spaces which lie between existing businesses. This is where the core competency mindset helps.
- 2. Searching for innovative product concepts. Standard approaches to market analysis are not likely to yield ground breaking innovations. An understanding of needs and functionalities must replace the more conventional view of customers and products. “Asking ‘innocent’ questions (why does the product have to be this way?), understanding what the current product concept doesn’t do for customers, and imagining how functionalities could be unbundled and rebundled are just some of the means through which managers can escape the orthodoxy of conventional product concepts,” the paper advises.
- 3. Overturning traditional price/performance assumptions. Thinking about price and performance in linear terms limits the potential for radical innovation. Instead of using existing product concepts as the starting point for new product development, managers might do well to challenge existing assumptions in the category about price/product trade-offs.
- 4. Getting out in front of customers. “Simply being customer-led is not enough.” Particularly in technology categories, customers often can’t even imagine what is possible. Companies must lead customers where they want to go – before they even know it themselves.
The expeditionary marketing part of the paper was about minimizing the risks of creating new markets and entering into new territory. Most companies approach their development efforts with a “home-run” mentality – that is, trying to improve the odds of each hit, making big bets with big investments, and expecting huge success.
Prahalad and Hamel offered a different approach: rapid experimentation. They advise companies to place many small bets in quick succession in order to increase the likelihood that one will hit the jackpot. Such an “expeditionary” approach involves minimizing the cost and time of new iterations, pursuing simultaneous development wherein technologists, manufacturing engineers, and marketers work together instead of as a relay team, and accumulating market knowledge through successive failures.
This advice, given back in 1991, resonates today with the pursuit of Apple-like innovation and the current trend toward fast prototyping. Unlocking new markets has gotten more difficult in the two decades that have passed – and yet, the paper outlines principles to serve corporations well even now.
I find the authors’ closing remark as provocative today as it was when I first read it: “Creating new competitive space is too important to be relegated to those who happen to have time and superfluous resources on their hands. It is top management’s responsibility to inspire the organization with a view of distant shores and then help the intrepid explorers set sail.”
1 Prahalad, C.K., and Hamel, Gary. 1990. “The Core Competence of the Corporation,” Harvard Business Review.
2 Hamel, Gary and Prahalad, C.K.,. 1991. “Corporate Imagination and Expeditionary Marketing,” Harvard Business Review.
Image source: World Economic Forum