by Competitive Advantage
In throwing out existing data and process led theories of strategy formation, Prahalad and Hamel developed a simple model of how corporations can achieve competitive advantage. This simplification of their ideas is mine and any errors of interpretation I have introduced are mine too.
Step 1: Corporate Imagination
This is where corporate leaders visualise new markets and how to exploit them ahead of their competitors. They argued that to do this effectively, executives have to:
- get away from their natural focus on existing markets
- look for new product concepts
- be prepared to challenge radically their old assumptions about pricing (this idea would recur in Prahalad’s thinking about how to create markets at the Bottom of the Pyramid)
- lead customers by creating expectations, rather than follow them by meeting expectations
Hamel and Prahalad had little time for small scale intrapreneurial innovation. They advocated big, revolutionary changes in markets that would allow a corporation to dominate, such as:
- Adding wholly new functionality to your existing products
- Delivering your proven functionality through new products
- Using existing products to deliver functionality in new ways
To do this, they argue that an organisation must understand its ‘core competencies’ – the abilities it has to create and innovate by bringing together its skills, technologies, assets, and relationships in ways that dominate multiple markets by offering big benefits to customers in a way that competitors find hard to duplicate.
The threat of relying on core competencies, however, is two-fold. Firstly, it may cause market and product diversification into arenas where the corporation has insufficient depth of understanding or presence to be effective. This can lead to large failures. Alternatively, over-focus on core competency leads to a rigidity of thinking that is reinforced by a sense of comfortableness, and leads to a sense of complacency. Such circumstances lead to being replaced in your core markets by insurgent competitors.
Step 2: Implementation
Hamel and Prahalad’s focus on core competencies leads them to focus what they say about implementation on building up core competencies and their supporting infrastructures of assets, resources and technologies.
Step 3: Consolidate your Control of Emerging Markets
You do this through what they call ‘Expeditionary Marketing’ to understand how the parameters of feature-sets, performance, and pricing need to be balanced to penetrate, consolidate and dominate your market.
The Bottom of the Pyramid
How do you build a market among people who are too poor to buy your products? By re-thinking entirely how you deliver your products and the pricing model you use. Prahalad was able to find and research numerous case studies that show how corporations can do this successfully, to create:
- Affordability: creating offerings that dramatically change what people need to pay and how they can pay for it
- Accessibility: thinking carefully about the local context, rather than applying first-world distribution models
- Availability: getting products to where they are needed, when they are needed, in a form that makes it possible for people to buy.
