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1989

BEST OF HBR

Sixteen years ago, when Cary Hamel, then a lecturer at London Business

Sehooi, and C.K. Prahalad, a University of Michigan professor, wrote “Stra-

tegic lntent,”the article signaled that a major new force had arrived in

management.

Hamei and Prahalad argue that Western companies focus on trimming

their ambitions to match resources and, as a result, search only for advan-

tages they can sustain. By contrast, Japanese corporations leverage resources

by accelerating the pace of organizational learning and try to attain seem-

ingly impossible goals. These firms foster the desire to succeed among their

employees and maintain it by spreading the vision of global leadership.

This is how Canon sought to “beat Xerox”and Komatsu set out to “encircle

Caterpillar.”

This strategic intent usually incorporates stretch targets, which force com-

panies to compete in innovative ways. In this McKinsey Award-winning arti-

cle, Hamel and Prahalad describe four techniques that Japanese companies

use: building layers ofadvantage, searching for “loose bricks,” changing the

terms of engagement, and competing through collaboration.

Strategic Intent by Gary Hamel and C.K. Prahalad

Most leading global companies started with ambitions that were far bigger than their resources and capabilities. But they created an obsession with winning at ail levels ofthe organization and sustained that obsession for decades.

oday managers in many industries working hard to match the compet- e advantages of their new global ri-

vals. They are moving manufacturing offshore in search of lower labor costs, rationalizing product lines to capture global scale economies, instituting qual- ity circles and just-in-time production, and adopting Japanese human resource practices. When competitiveness still seems out of reach, they form strategic alliances-often with the very compa- nies that upset the competitive balance in the first place.

Important as these initiatives are, few of them go beyond mere imitation. Too many companies are expending enormous energy simply to reproduce the cost and quality advantages their

global competitors already enjoy. Imi- tation may be the sincerest form of flat- tery, but it will not lead to competitive revitalization. Strategies based on imi- tation are transparent to competitors who have already mastered them. More- over, successful competitors rarely stand still. So it is not surprising that many executives feel trapped in a seemingly endless game of catch-up, regularly sur- prised by the new accomplishments of their rivals.

For these executives and their com- panies, regaining competitiveness will mean rethinking many ofthe basic con- cepts of strategy.’ As “strategy” has blos- somed, the competitiveness of West- ern companies has withered. This may be coincidence, but we think not. We

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believe that the application of concepts such as”strategic fit” (between resources and opportunities),”generic strategies” (low cost versus differentiation versus focus), and the “strategy hierarchy” (goals, strategies, and tactics) has often abetted the process of competitive de- cline. The new global competitors ap- proach strategy from a perspective that is fundamentally different from that which underpins Western management thought. Against such competitors, mar- ginal adjustments to current ortho- doxies are no more likely to produce

In this respect, traditional competitor analysis is like a snapshot of a moving car. By itself, the photograph yields little information about the car’s speed or direction-whether the driver is out for a quiet Sunday drive or warming up for the Grand Prix. Yet many managers have leamed through painful experience that a business’s initial resource endow- ment (whether bountiful or meager) is an unreliable predictor of future global success.

Think back: In 1970, few Japanese companies possessed the resource base,

see the tactics whereby I conquer,” he wrote, “but what none can see is the strategy out of which great victory is evolved.”

Companies that have risen to global leadership over the past 20 years in- variably began with ambitions that were out of all proportion to their re- sources and capabilities. But they cre- ated an obsession with winning at all levels ofthe organization and then sus- tained that obsession over the lo- to 20- year quest for global leadership. We term this obsession “strategic intent.”

For smart competitors, the goal is not competitive imitation but competitive innovation, the art of containing competitive

risks within manageable proportions.

competitive revitalization than are mar- ginal improvements in operating effi- ciency. (The sidebar “Remaking Strategy” describes our research and summa- rizes the two contrasting approaches to strategy we see in large multinational companies.)

Few Western companies have an en- viable track record anticipating the moves of new global competitors. Why? The explanation begins with the way most companies have approached com- petitor analysis. Typically, competitor analysis focuses on the existing resources (human, technical, and financial) of pres- ent competitors. The only companies seen as a threat are those with the re- sources to erode margins and market share in the next planning period. Re- sourcefulness, the pace at which new competitive advantages are being built, rarely enters in.

Cary Hamel is a visiting professor at Lon- don Business School and the chairman ofStrategos, an international consulting company based in Chicago. C.K. Prahalad is the Harvey C. Eruehauf Professor of Business Administration and a professor of corporate strategy and international business at the Stephen M. Ross School of Business at the University of Michigan in Ann Arbor.

manufacturing volume, or technical prowess of U.S. and European industry leaders. Komatsu was less than 35% as large as Caterpillar (measured by sales), was scarcely represented outside Japan, and relied on just one product line – small bulldozers-for most of its reve- nue. Honda was smaller than American Motors and had not yet begun to export cars to the United States. Canon’s first halting steps in the reprographics busi- ness looked pitifully small compared with the $4 billion Xerox powerhouse.

If Western managers had extended their competitor analysis to include these companies, it would merely have underlined how dramatic the resource discrepancies between them were. Yet by 1985. Komatsu was a $2.8 billion com- pany with a product scope encompass- ing a broad range of earth-moving equipment, industrial robots, and semi- conductors. Honda manufactured al- most as many cars worldwide in 1987 as Chrysler. Canon had matched Xerox’s global unit market share.

The lesson is clear: Assessing the current tactical advantages of known competitors will not help you under- stand the resolution, stamina, or inven- tiveness of potential competitors. Sun- tzu, a Chinese military strategist, made the point 3.000 years ago: “All men can

On the one hand, strategic intent en- visions a desired leadership position and establishes the criterion the organiza- tion will use to chart its progress. Ko- matsu set out to “encircle Caterpillar.” Canon sought to “beat Xerox.” Honda strove to become a second Ford-an au- tomotive pioneer. All are expressions of strategic intent.

At the same time, strategic intent is more than simply unfettered ambition. (Many companies possess an ambitious strategic intent yet fall short of their goals.) The concept also encompasses an active management process that in- cludes focusing the organization’s at- tention on the essence of winning, mo- tivating people by communicating the value of the target, leaving room for individual and team contributions, sus- taining enthusiasm by providing new operational definitions as circumstances change, and using intent consistently to guide resource allocations.

Strategic intent captures the essence ofwinning.The Apollo program-land- ing a man on the moon ahead ofthe So- viets-was as competitively focused as Komatsu’s drive against Caterpillar. The space program became the scorecard for America’s technology race with the USSR. In the turbulent information technology industry, it was hard to pick

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strategic intent • BEST OF HBR

a single competitor as a target, so NEC’s strategic intent, set in the early 1970s, was to acquire the technologies that would put it in the best position to ex- ploit the convergence of computing and telecommunications. Other indus- try observers foresaw this convergence, but oniy NEC made convergence the

guiding theme for subsequent strategic decisions by adopting “computing and communications”as its intent. For Coca- Cola, strategic intent has been to put a Coke vtfithin “arm’s reach” of every con- sumer in the world.

Strategic intent is stable over time. In battles for global leadership, one of

the most critical tasks is to lengthen the organization’s attention span. Strategic intent provides consistency to short-term action, while leaving room for reinter- pretation as new opportunities emerge. At Komatsu, encircling Caterpillar en- compassed a succession of medium-term programs aimed at exploiting specific

L Remaking Strategy

ver the last ten years, our research on global com-

petition, international alliances, and multina-

tional management has brought us into close

contact with senior managers in the United States, Eu-

rope, and Japan. As we tried to unravel the reasons for

success and surrender in global markets, we became

more and more suspicious that executives in Western

and Far Eastern companies often operated witb very dif-

ferent conceptions of competitive strategy. Understand-

ing these differences, we thought, migbt belp explain tbe

conduct and outcome of competitive battles as well as

supplement traditional explanations for Japan’s ascen-

dance and the West’s decline.

We began by mapping the implicit strategy models of

managers who had participated in our research. Then we

built detailed histories of selected competitive battles.

We searched for evidence of divergent views of strategy,

competitive advantage, and the role of top management.

Two contrasting models of strategy emerged. One,

which most Western managers will recognize, centers

on the problem of maintaining strategic fit. The other

centers on the problem of leveraging resources. The two

are not mutually exclusive, but tbey represent a signifi-

cant difference in emphasis-an emphasis tbat deeply

affects how competitive battles get played out over time.

Both models recognize the problem of competing in

a hostile environment with limited resources. But while

the emphasis in the first is on trimming ambitions to

match available resources, the emphasis in the second

is on leveraging resources to reach seemingly unattain-

able goals.

Both models recognize that relative competitive ad-

vantage determines relative profitability. The first em-

phasizes the search for advantages that are inherently

sustainable, the second emphasizes the need to acceler-

ate organizationai [earning to outpace competitors in

building new advantages.

Both models recognize the difficulty of competing

against larger competitors. But while the first leads to a

search for niches (or simply dissuades the company from

challenging an entrenched competitor), tbe second pro-

duces a quest for new rules that can devalue the incum-

bent’s advantages.

Both models recognize that balance in the scope of an

organization’s activities reduces risk. The first seeks to

reduce financial risk by building a balanced portfolio of

cash-generating and cash-consuming businesses. The sec-

ond seeks to reduce competitive risk by ensuring a well-

balanced and sufficiently broad portfolio of advantages.

Both models recognize the need to disaggregate the

organization in a way that allows top management to dif-

ferentiate among the investment needs of various plan-

ning units. In the first model, resources are allocated to

product-market units in which relatedness is defined by

common products, channels, and customers. Each busi-

ness is assumed to own all the critical skills it needs to ex-

ecute its strategy successfully. In the second, investments

are made in core competences (microprocessor controls

or electronic imaging, for example) as well as in product-

market units. By tracking these investments across busi-

nesses, top management works to assure that tbe plans of

individual strategic units don’t undermine future devel-

opments by default.

Both models recognize the need for consistency in ac-

tion across organizational levels. In the first, consistency

between corporate and business levels is largely a matter

of conforming to financial objectives. Consistency be-

tween business and functional levels comes by tightly

restricting the means the business uses to achieve its

strategy-establishing standard operating procedures,

defining tbe served market, adhering to accepted indus-

try practices. In the second model, business<orporate

consistency comes from allegiance to a particular strate-

gic intent. Business-functional consistency comes from

allegiance to intermediate-term goals or challenges with

lower-level employees encouraged to invent how those

goals will be achieved.

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weaknesses in Caterpillar or building par- ticular competitive advantages. When dterpillar threatened Komatsu in Japan, for example, Komatsu responded by first improving quality, then driving down costs, then cultivating export markets, and then underwriting new product development.

Strategic intent sets a target that deserves personal effort and com- mitment Ask the CEOs of many Amer- ican corporations how they measure their contributions to their companies’ success, and you’re likely to get an an- swer expressed in terms of shareholder wealth. In a company that possesses a strategic intent, top management is more likely to talk in terms of global market leadership. Market share leader- ship typically yields shareholder wealth, to be sure. But the two goals do not have the same motivational impact. It is hard to imagine middle managers, let alone blue-collar employees, waking up each day with the sole thought of

But can you plan for global leader- ship? Did Komatsu, Canon, and Honda have detailed, 20-year strategies for at- tacking Western markets? Are Japanese and Korean managers better planners than their Western counterparts? No. As valuable as strategic planning is, global leadership is an objective that lies outside the range of planning. We know of few companies with highly developed planning systems that have managed to set a strategic intent. As tests of strategic fit become more stringent, goals that cannot be planned for fall by the way- side. Yet companies that are afraid to commit to goals that lie outside the range of planning are unlikely to be- come global leaders.

Although strategic planning is billed as a way of becoming more future ori- ented, most managers, when pressed, will admit that their strategic plans re- veal more about today’s problems than tomorrow’s opportunities. With a fresh set of problems confronting managers

from an undirected process of intrapre- neurship. Nor is it the product of a Skunk Works or other technique for in- ternal venturing. Behind such programs lies a nihilistic assumption: that the or- ganization is so hidebound, so orthodox ridden, the only way to innovate is to put a few bright peopie in a dark room, pour in some money, and hope that something wonderful will happen. In this Silicon Valley approach to innova- tion,the only role for top managers is to retrofit their corporate strategy to the entrepreneurial successes that emerge from below. Here the value added of top management is low indeed.

Sadly, this view of innovation may be consistent with reality in many large companies.^ On the one hand, top man- agement lacks any particular point of view about desirable ends beyond satis- fying shareholders and keeping raiders at bay. On the other, the planning for- mat, reward criteria, definition of served market, and belief in accepted industry

The strategist’s goal is not to find a niche within the existing industry space but to create new space that is uniquely suited to the company’s

own strengths – space that is off the map.

creating more shareholder wealth. But mightn’t they feel different given the challenge to “beat Benz”-the rallying cry at one Japanese auto producer? Stra- tegic intent gives employees the only goal that is worthy of commitment: to unseat the best or remain the best, worldwide.

Many companies are more familiar with strategic planning than they are with strategic intent. The planning pro- cess typically acts as a”feasibility sieve.” Strategies are accepted or rejected on the basis of whether managers can be precise about the “how” as well as the “what”oftheirplans.Are the milestones clear? Do we have the necessary skills and resources? How will competitors react? Has the market been thoroughly researched? In one form or another, the admonition “Be realistic!” is given to line managers at almost every turn.

at the beginning of every planning cycle, focus often shifts dramatically from year to year. And with the pace of change accelerating in most indus- tries, the predictive horizon is becoming shorter and shorter. So plans do little more than project the present forward incrementally. The goal of strategic in- tent is to fold the future back into the present. The important question is not “How will next year be different from this year?” but “What must we do dif- ferently next year to get closer to our strategic intent?” Only with a carefully articulated and adhered to strategic in- tent will a succession of year-on-year plans sum up to global leadership.

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