Strategic Management

(Course Code: SL GM 611)

Unit 6

Competing for Future

• Beyond Restructuring and Re-engineering

• Emerging Strategy Paradigms
▪ Unlearning Curve
▪ Strategy as Stretch and Leverage
▪ Co-Creation

PGDM – IBS Gurgaon - 2018-2020

Strategic Management – Unit 6 – Competing for the Future 1
 Beyond Restructuring and Re-engineering

Source:
Competing for the Future
by Gary Hamel and C.K. Prahalad
HBR – July-August 1994

Strategic Management – Unit 6 – Competing for the Future 2

 The Quest for Competitiveness
Hamel & Prahalad argue that companies may be devoting too much
energy to preserving the past and not enough to creating the future.

The Quest for

Competitiveness

Restructuring the Reengineering Reinventing

Portfolio and Processes and Industries and
Downsizing Continuous Regenerating
Headcount Improvement Strategies

Smaller Better Different

Strategic Management – Unit 6 – Competing for the Future 3
 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.
• Restructuring and reengineering, while both are legitimate and
important tasks, they have more to do with shoring up today’s
businesses than with building tomorrow’s industries.
• A company’s organizational transformation agenda typically
includes downsizing, overhead reduction, employee
empowerment, process redesign, and portfolio rationalization
• Masquerading behind terms like refocusing, delayering,
decluttering, and right-sizing (Why is the “right” size always
smaller?), restructuring always results in fewer employees.

Strategic Management – Unit 6 – Competing for the Future 4

 Numerator and Denominator Management

• ROI (or return on net assets or return on capital employed) has

two components: a numerator—net income—and a
denominator—investment, net assets, or capital employed. (In a
service industry, a more appropriate denominator may be head
count.)
• Managers know that raising net income is likely to be harder than
cutting assets and head count.
• To increase the numerator, top management must have a sense of
where new opportunities lie, must be able to anticipate changing
customer needs, must have invested in building new competencies,
and so on.
• So under intense pressure for a quick ROI improvement,
executives reach for the lever that will bring the fastest, surest
result: the denominator.
Strategic Management – Unit 6 – Competing for the Future 5
 N/D Management

Topline
Growth
ROI Return on
Investment Net Income N
RONA Return on Net
Assets
ROCE Return on Capital Investment D Divest
Employed Net Assets Downsize
Capital Employed Declutter
Delayer
Bottomline

Strategic Management – Unit 6 – Competing for the Future 6

 Restructuring seldom results in fundamental business
improvements.

• At best, it buys time.

• One study of 16 large U.S. companies with at least three years of
restructuring experience found that while restructuring usually did
raise a company’s share price, such improvement was almost
always temporary.
• Three years into restructuring, the share prices of the companies
surveyed were, on average, lagging even further behind index
growth rates than they had been when the restructuring effort
began.

Strategic Management – Unit 6 – Competing for the Future 7

 Beyond Reengineering
• Downsizing attempts to correct the mistakes of the past, not to
create the markets of the future.
• But getting smaller is not enough.
• Recognizing that restructuring is a dead end, smart companies
move on to reengineering.
• The difference between restructuring and reengineering is that
the latter offers at least the hope, if not always the reality, of
getting better as well as getting leaner.
• Yet in many companies, reengineering is more about catching up
than getting out in front.

Strategic Management – Unit 6 – Competing for the Future 8

 Senior managers must develop a distinct view of the
future and must be willing to adjust that perspective as
the future unfolds.

• What new core competencies will we need to build?

• What new product concepts should we pioneer?
• What alliances will we need to form?
• What nascent development programs should we protect?
• What long-term regulatory initiatives should we pursue?

Strategic Management – Unit 6 – Competing for the Future 9

 But market leadership today certainly doesn’t equal
market leadership tomorrow. Think about two sets of
questions:
Today
Which customers do you serve today?
Through what channels do you reach
customers today?
Who are your competitors today?
What is the basis for your competitive
advantage today?
Where do your margins come from
today?
What skills or capabilities make you
unique today?
Strategic Management – Unit 6 – Competing for the Future
In the Future
Which customers will you serve in the
future?
Through what channels will you reach
customers in the future?
Who will your competitors be in the
future?
What will be the basis for your
competitive advantage in the future?
Where do your margins come from in
the future?
What skills or capabilities will make you
unique in the future?
10
 Creating the Future
Organizational transformation must be driven by a point of view
about the future of the industry:
• How do we want this industry to be shaped in five or ten years?
• What must we do to ensure that the industry evolves in a way that
is maximally advantageous for us?
• What skills and capabilities must we begin building now if we are
to occupy the industry high ground in the future?
• How should we organize for opportunities that may not fit neatly
within the boundaries of current business units and divisions?

Strategic Management – Unit 6 – Competing for the Future 11

 Why do we talk of foresight rather than vision?
• Vision connotes a dream or an apparition, and there is more to
industry foresight than a blinding flash of insight.
• Industry foresight is based on deep insights into trends in
technology, demographics, regulations, and lifestyles, which can
be harnessed to rewrite industry rules and create new competitive
space.
• While understanding the potential implications of such trends
requires creativity and imagination, any “vision” that is not based
on a solid foundation is likely to be fantastical
• For this reason, industry foresight is a synthesis of many people’s
visions.

Strategic Management – Unit 6 – Competing for the Future 12

 To get ahead of the industry change curve, to have the
chance of conducting a bloodless revolution, top
managers must recognize that the real focus for their
companies is the opportunity to compete for the future.

Given that change is inevitable, the real issue for managers is

whether that change will happen belatedly, in a crisis atmosphere, or
with foresight, in a calm and considered manner; whether the
transformation agenda will be set by a company’s more prescient
competitors or by its own point of view; whether transformation will
be spasmodic and brutal or continuous and peaceful.

Developing a point of view about the future should be an ongoing

project sustained by continuous debate within a company, not a
massive one-time effort
Strategic Management – Unit 6 – Competing for the Future 13
 Unlearning Curve
Source:
Competing for the Future
by Gary Hamel and C.K. Prahalad
1994 - Book

Strategic Management – Unit 6 – Competing for the Future 14

 A company must work hard as hard to forget as it does
to learn

• If a company is already full of out-of-date “clones?” – there is a

need for “gene replacement therapy.”

• Genes that are defective, in the new industry context, must be

supplanted by healthy ones.

• In business terms, removing defective genes is best described as

“unlearning.”

• Creating a “learning organisation” is only half the solution – just

as important is creating an “unlearning” organisation

Strategic Management – Unit 6 – Competing for the Future 15

 To create the future, a company must unlearn atleast
some of its past.
• The “unlearning curve”, or the “forgetting curve” is the rate at which
a company can unlearn those habits that hinder future success.
• The more successful a company has been, the flatter its forgetting
curve – a company must work as hard to forget as it does to learn.
• With surprising speed, yesterday’s heresies become today’s dogmas.
• Flush with success, challengers often forget the most basic rules of
corporate vitality:
– To be a challenger once, it is enough to challenge the
orthodoxies of the incumbents; to be a challenger twice, a firm
must be capable of challenging its own orthodoxies

Strategic Management – Unit 6 – Competing for the Future 16

 To reinvent its industry a second time, a challenger must
regenerate its core strategies.
It must
• Reconceive its definition of the marketplace
• Redraw the boundaries of the firm
• Redefine its value propositions
• Rethink its most fundamental assumptions about how to compete

▪ To get to the future, a company must be willing to jettison, atleast in

part, its past.
▪ Creating the future doesn't require a company to abandon all of its
past.
• What part of our past can use as a “pivot” to get to the future,
and what part of our past represents excess baggage?

Strategic Management – Unit 6 – Competing for the Future 17

 Selectively forgetting the past is difficult to do for two
reasons – one emotional, one economic
• Senior managers typically have a lot of emotional equity invested in
the past.
• Managers are understandably discomforted when faced with the
fact that the intellectual capital accumulated over a professional
lifetime may be of little value in a radically changing industry
environment.
• For those who built the past, the temptation to preserve it can be
overwhelming.

Strategic Management – Unit 6 – Competing for the Future 18

 To escape the gravitational pull of the past, managers
must be convinced that future success is less than
inevitable

• No company will walk away from its past unless it feels that
repeating the past won’t guarantee future success.
• To create an incentive to prepare for tomorrow today, senior
managers must first be convinced of the impermanence of present
success.
• The urgency thus engendered is critical to providing an incentive to
enlarge traditional managerial frames and begin the painful work
of genetic reengineering.
• The trick is to create this urgency while a company is still at the peak
of its success.

Strategic Management – Unit 6 – Competing for the Future 19

 Managers and employees have to be brought face to
face with the inevitability of corporate decline; weak
signals that portend coming disaster must be amplified;
everyone must understand at what point, and under
what conditions, the present economic engine runs out
of steam.
• By considering industry trends and potential discontinuities,
whether technological, demographic, regulatory, or social, it is
possible to fast forward corporate history and glean a preview
of what might bring the current profit engine to a grinding halt.
• Top management team should be able to articulate five or six
fundamental industry trends that most threaten its firm’s continued
success – otherwise its not in control of the firm’s destiny.

Strategic Management – Unit 6 – Competing for the Future 20

 In parting ….

• A sense of possibility is just as important as a sense of foreboding

in inducing a company to escape its past.
• However unappealing a company’s present situation, it is unlikely
to abandon the past for the future unless it has created for itself
an alluring vista of future opportunities – an opportunity horizon
– that presents a compelling alternative to simply reliving
yesterday's success.
• To give up the bird in hand, a company must see a dozen birds in
the bush.
• The future must become just as vivid and real as the presnet an
the past.

Strategic Management – Unit 6 – Competing for the Future 21

 The Transformation Underway at Microsoft

Microsoft Stock Price

How Satya Nadella tripled Microsoft’s

stock price in just over four years

https://www.cnbc.com/video/2018/05/07/wat
ch-cnbcs-full-interview-with-microsoft-ceo-
satya-nadella.html

Strategic Management – Unit 6 – Competing for the Future 22

 Strategy as Stretch and Leverage
Source:
Competing for the Future
by Gary Hamel and C.K. Prahalad
HBR – July-August 1994

Strategic Management – Unit 6 – Competing for the Future 23

 We can analyze companies in mind-numbing detail,
perform autopsies, and render verdicts, but we are
still addressing the what of competitiveness, not
the why.

Gary Hamel and C.K. Prahalad

“Strategy as Stretch and Leverage”
HBR 1993

Strategic Management – Unit 6 – Competing for the Future 24

 Abundant resources alone won’t keep an industry giant
on top when its hungrier rival practices the strategic
discipline of stretch.

Canon, a company only 10%the size of Xerox in the mid-

1970s, eventually displaced Xerox as the world’s most
prolific copier manufacturer.

Strategic Management – Unit 6 – Competing for the Future 25

Strategic Management – Unit 6 – Competing for the Future 26
 From Fit to Stretch
• A good place to begin deconstructing our managerial frames is with the
question, “What is strategy?”
• For a great many managers in large Western companies, the answer
centers on three elements:
1. the concept of fit, or the relationship between the company and its
competitive environment;
2. the allocation of resources among competing investment
opportunities; and
3. a long-term perspective in which “patient money” figures
prominently.
• From this perspective, “being strategic” implies a willingness to take
the long view, and “strategic” investments are those that require a
large and preemptive commitment of resources—betting bigger and
betting earlier—as well as a distant return and substantial risk.
Strategic Management – Unit 6 – Competing for the Future 27
 From Fit to Stretch
• A good place to begin deconstructing our managerial frames is with the
question, “What is strategy?”
• For a great many managers in large Western companies, the answer
centers on three elements:
1. the concept of fit, or the relationship between the company and its
competitive environment;
2. the allocation of resources among competing investment
opportunities; and
3. a long-term perspective in which “patient money” figures
prominently.
• From this perspective, “being strategic” implies a willingness to take
the long view, and “strategic” investments are those that require a
large and preemptive commitment of resources—betting bigger and
betting earlier—as well as a distant return and substantial risk.
Strategic Management – Unit 6 – Competing for the Future 28
 This dominant strategy frame is not wrong, only
unbalanced.
• That every company must ultimately effect a fit between its
resources and the opportunities it pursues, that resource allocation is
a strategic task, and that managers must often countenance risk and
uncertainty in the pursuit of strategic objectives all go without saying.
• But the predominance of these planks in corporate strategy
platforms has obscured the merits of an alternative frame in which
– the concept of stretch supplements the idea of fit,
– leveraging resources is as important as allocating them, and
– the long term has as much to do with consistency of effort and
purpose as it does with patient money and an appetite for risk.

Strategic Management – Unit 6 – Competing for the Future 29

 To illustrate the effects of these opposing frames,
imagine two companies competing in the same
industry.
Alpha
• the industry leader
• Accumulated a wealth of resources of every kind—human talent,
technical skills, distribution access, well-known brands, manufacturing
facilities, and cash flow—and it can fund just about any initiative it
considers strategic.
• Its aspirations to remain atop its present perch, to grow as fast as its
industry, and to achieve a 15% return on equity are modest.
• “Where do you go,” Alpha’s managers ask themselves, “when you’re
already number one?”

Strategic Management – Unit 6 – Competing for the Future 30

 To illustrate the effects of these opposing frames,
imagine two companies competing in the same
industry.
Beta
• Its rival, is a relative latecomer to the industry.
• It is much smaller than Alpha and has no choice but to make do with
fewer people, a smaller capital budget, more modest facilities, and a
fraction of Alpha’s R&D budget.
• Nevertheless, its ambitions belie its meager resource base.
• Beta’s managers have every intention of knocking Alpha off its
leadership perch.
• To reach this goal, they know that they must grow faster than Alpha,
develop more and better products than Alpha, and build a worldwide
brand franchise and a presence in every major market, all while
expending fewer resources.

Strategic Management – Unit 6 – Competing for the Future 31

Strategic Management – Unit 6 – Competing for the Future 32
 Allocating resources across businesses and geographies
is an important part of top management’s strategic role.

• Leveraging what a company already has rather than simply

allocating it is a more creative response to scarcity.

• In the continual search for less resource-intensive ways to achieve

ambitious objectives, leveraging resources provides a very
different approach from the downsizing and delayering, the
restructuring and retrenchment that have become common as
managers contend with rivals around the world who have
mastered the art of resource leverage.

Strategic Management – Unit 6 – Competing for the Future 33

 There are two basic approaches to garnering greater
resource productivity, whether those resources be
capital or human.
1. The first is downsizing, cutting investment and head count in hopes
of becoming lean and mean—in essence, reducing the buck paid
for the bang.
2. The second approach, resource leveraging, seeks to get the most
out of the resources one has—to get a much bigger bang for the
buck.
• Resource leverage is essentially energizing, while downsizing is
essentially demoralizing.
• Both approaches will yield gains in productivity, but a company that
continually ratchets down its resource base without improving its
capacity for resource leverage will soon find that downsizing and
restructuring become a way of life—until investors locate a new
owner or demand a management team with a better track record.
Strategic Management – Unit 6 – Competing for the Future 34
 The Arenas of Resource Leverage

Management can leverage its resources, financial and nonfinancial,

in five basic ways:
1. by concentrating them more effectively on key strategic goals;
2. by accumulating them more efficiently;
3. by complementing one kind of resource with another to create
higher order value;
4. by conserving resources wherever possible; and
5. by recovering them from the marketplace in the shortest possible
time.

Strategic Management – Unit 6 – Competing for the Future 35

 Strategic Intent

• Strategic intent is defined as a compelling statement about where

an organization is going that succinctly conveys a sense of what
that organization wants to achieve in the long term.
• Strategic intent answers the question: “What exactly are we
trying to accomplish?”

Strategic Intent
Gary Hamel
C.K. Prahalad
FROM THE JULY–AUGUST 2005 ISSUE

Strategic Management – Unit 6 – Competing for the Future 36

 Co-Creation
Source:
Co-creating Unique Value with Customers
by C. K. Prahalad and Venkat Ramaswamy
HBR – July-August 1994

Strategic Management – Unit 6 – Competing for the Future 37

 • Prahalad and Ramaswamy defined co-creation as “the joint
creation of value by the company and the customer; allowing the
customer to co-construct the service experience to suit their
context.”

Strategic Management – Unit 6 – Competing for the Future 38

 Co-creation

Strategic Management – Unit 6 – Competing for the Future 39

 https://www.youtube.com/watch?v=6V1dWH4X9U0

Innovation Speaker David Robertson: LEGO’s Innovative Path to Success

https://www.youtube.com/watch?v=bDiQBSyPi0c

Strategic Management – Unit 6 – Competing for the Future 40

 Satya Nadella
Evan Davis meets Microsoft CEO Satya Nadella (extended interview) - BBC
Newsnight

https://www.youtube.com/watch?v=r0TvE9PCRFE

Tim Cook
The David Rubenstein Show: Tim Cook

https://www.youtube.com/watch?v=2ZfGBGmEpRQ

Strategic Management – Unit 6 – Competing for the Future 41

 Thank You

Strategic Management – Unit 6 – Competing for the Future 42