How Strategic Intent Can Influence Key Organizational Decisions

The Necessity for Strategic Intent

Hamel and Prahalad (1989) were management consultants and had worked with dozens of large multinational corporations. The authors discovered that Japanese companies and organizations from other Asian countries were able to grow and build reputable brands much faster than American or European organizations. After decades of executive consulting around the globe, Hamel and Prahalad identified a multitude of issues with the management style of Western corporations in comparison to their Eastern counterparts and concluded that a management pattern exists that may provide a remedy for the current situation. Strategic Intent, as Hamel and Prahalad named their concept, described a new management philosophy that questioned quite a few established management theories and practices in the West. But what exactly were the problems with the management practices in American and European organizations?

Criticism on American Management Practices

The first criticism by Hamel and Prahalad (1990) is the lack of originality and the prevalence of imitation strategies in Western organizations. A mere reproduction of a similar product or services is equivalent to playing by another company’s rules. This, in turn, will never create any competitive advantage; rather, it is “competitive suicide” (Hamel & Prahalad, 1989). An organization that merely mimics the market leader fails to create any competence of its own. The follower organization traps itself in a response mode and always remains lagging behind the leader without attracting any customers based on its own unique competence.

Hamel and Prahalad also criticized that typical competitor analyses performed in the 1980s focused exclusively on the presence. While it is true that the future is uncertain, strategies should nevertheless consider the resourcefulness of the organization, i.e. the pace at which new competitive advantages are generated. Moreover, top management should attempt to predict the competitor landscape and the availability resources in the future and speculate on the impact they may have on the organization in the future. This analysis of competition and resources with a perspective point set in the future concentrates management’s attention on the resourcefulness of the organization and expands the managerial horizon decades into the future.

Furthermore, rather than looking into the distant future and aligning the organization to long-term goals, the present-time fixation of management limits managers to drawing a static picture of their environment (Hamel & Prahalad, 1994). This “snapshot thinking” is a very simplistic view of the world and does not include information on direction or speed of the organization’s development. In addition, a static view fails to capture the dynamics of competitor activity and how the organizational environment will evolve.

For top management to be able to create such a rich picture of the organization and its surroundings, however, it needs to have a clear understanding of the organization’s processes and internal affairs; yet, this is rarely the case (Hamel, 1996). The reality in many organizations, even to this day, is that top management is oblivious to the organization’s talents and internal processes. Even though revolutionaries can be found in all companies, they are muted by the organizational barricades, such as tall hierarchies, absent or overly formal communication channels. As a consequence, the functional level feels the executives are out of touch with the organization and that instead of cooperating, executes are dictating to lower-level employees and ignoring their ideas.

The frustration of the lower levels of organizations is also rooted in the perceived discrepancy between executive incomes and lower level worker incomes, especially when pay cuts become necessary. Hamel and Prahalad (1994) note that in Japan it is common that executives suffer a large income reduction first and then cut the pay of workers only to the extent necessary. In the West, however, it is not uncommon to for executives to receive bonuses even when the organization arranged mass layoffs. What most Western managers can learn from their Asian colleagues is that in order to elicit maximum employee initiative, a culture of “shared pain, shared gain” needs to be fostered.

A review of Hamel and Prahalad (1994) also reveals the authors’ criticism of static managerial thinking regarding competitive advantages. Managers tend to forget they live in a dynamic, ever-changing environment where even competitive advantages are transient. A first-mover advantage is, hence, only a timing advantage because it will detract imitators only for a limited time. As competitive forces strengthen, the first-mover advantage may soon diminish unless the company can defend its position with additional customer value in the future.

While top management may have an understanding at least of current market situations and competitive threats, most Western organizations oppose making this knowledge available to lower levels of the company (Hamel & Prahalad, 1989). When employees are not aware of the threats imposed by the competition, how could anyone expect them to change, become more proactive, work differently, or understand the competition’s strength? Employees who do not possess competitive intelligence are unaware of how their own product compares to that of the competition and hence are unable to make suggestions and improvements in the right direction.

Hamel and Prahalad (1989) criticize top management for creating strategies and then dictating them rather than having employees participate and revealing market intelligence to lower levels. Some executives have voiced their concerns that lower employees cannot handle the competitor threat and the enormous pressure from the competition. Instead of communicating the strategy to them, lower levels are left uninformed. Furthermore, the lack of a dialog between all levels of the organizations inhibits the company’s ability to focus on problems because the problems are unknown to the majority.

The lack of a dialog between managerial layers and the general workforce is probably due to the almost exclusive managerial focus on net present value and portfolio planning (Hamel, 1996). Hamel blames the short-term perspective and lack of strategic outlook of front-line managers who usually do not stay long enough at one position to gain in-depth technological insight. The usual two or three year timeframe to produce results is too short to achieve strategic intent. The aftermath of managerial “job-hopping” and the lack of technical understanding effectively isolate upper management layers from the valuable knowledge of the functional layer. For example, Knoess (2005) noted how colleges could use admission process data to help at-risk student. Even though the data is collected, it is not analyzed and acted upon. Those who understand the data do not receive a chance to communicate it to top management because the communication channel is not provided in the organization.

Managerial lack of knowledge as well as lack of long-term direction is also to blame for the common managerial fixation on short-term profits (Hamel & Prahalad, 1994). Managers optimize numbers and do not realize how the cost optimization may impact the long-term health of the organization. For instance, managers who are pressured into reducing costs may suggest reducing the headcount during a recession, only to find that a year later that the cost of recruiting such talents involves much greater costs.

The lack of a deep and organization-wide understanding of the organizations long-term strategy also results in an underinvestment in developing core competences (Hamel, 1990). Especially larger organizations are often segmented into strategic business units with isolated responsibilities. The specialization of each unit may be advantageous in terms of efficiency; however, there is a great risk of creating antagonism within the organization when strategic business unit managers compete for resources within the company and resources allocated against the long-term strategic goals of the organization. Moreover, the division of organizations into business units results in a fragmentation of resources and inhibits the generation of core competences in the corporation (Hamel, 1990).

The absence of a clear long-term perspective translates to instability within the organization and employees in the organizations are rarely certain about the organization’s capabilities (Sheehan, 1999). As the company’s attention jumps from one thing to another, a “fire-fighter” mentality develops and management’s focus increasingly shrinks to the short-term.

Hamel and Prahalad (1994) also imply that corporate short-term thinking is to blame for the widespread practice of incrementalism, which fails to produce drastic change. In order for strategies to have an impact on the market, they need to be revolutionary and involve considerable risk. From today’s perspective, Hamel and Prahalad’s incrementalism resembles the notion of disruptive innovation applied to organizational strategies. Instead of taking successive small steps or mimicking other organizations, executives need to come up with a disruptive, innovative strategy.

Hamel and Prahalad’s (1989) theme and key theses revolve around two general ideas. First, Western organizations are focusing almost exclusively on short-term, incremental goals and rarely have a long-term perspective to grow beyond their current means. Second, the authors criticize current managerial communication practices for being inflexible and one-sided.

Strategic Intent

Hamel and Prahalad (1989) present strategic intent, an organization-wide philosophy, which not only influences key organizational decisions but also aligns every single resource in the company to the organization’s long-term goals. Rather than mere planning activity, strategic intent is an ideology that is communicated to all members of the organization; thus, strategic intent can also be interpreted as a management style.

The goal of strategic intent is to create an obsession and a long-term outlook for the company that exceeds 10 or 20 years and is out of proportion to the organization’s current competences and resources (Hamel & Prahalad, 1994). Unlike other strategy generation approaches, strategic intent does not require a very specific plan; rather, management needs to imagine one possible future and how it could look like.

Strategic intent, thus, moves beyond a basic SWOT analysis because a SWOT analysis is fixated on the organization and on the present time only (Manikutty, 2010). The dynamic future outlook and the ongoing processes of competitive advantage creation cannot be captured and analyzed using a SWOT analysis.

Strategic intent implies and elicits a desire to win (Hamel & Prahalad, 1989). Strategic intent mobilizes and aligns the entire workforce to the same goal because management gives every employee a worthwhile and clear long-term goal to work towards. The slogan “beat Benz”, for example, creates a focus on winning and is an active management process. It communicates the target, the desired long-term future position of the organization, but it also leaves freedom for teams and individuals to make contributions. Since the long-term goal may be in conflict with short-term milestones, the strategic intent communicated to all members of the company will ensure that resource allocations serve the long-term target of the company, even if they result in a short-term expense.

But what makes strategic intent different from simple goal setting? One main component of the strategic intent concept is that the long-term goal needs to stretch the organization to a point that may appear unrealistic in the present time (Hamel, 1996). A startup company, for example, could set a very ambitious goal of becoming the global market leader in their hypercompetitive industry. The tactic of setting futuristic and megalomanic targets communicates a path to all employees and also elicits inventiveness and creative thinking (Hamel & Prahalad, 1990). Because the problem at hand appears extraordinary, the workforce is encouraged to look for unorthodox, unconventional technologies and solutions. Canon, for example, communicated its strategic intent to its workforce by targeting the production of a home-office copier for under $1,000, at a time when Xerox was the market leader and copiers where priced tenfold.

Strategic intent creates a relatively long perspective for employees into the future that is fairly constant and thus the organization is on a stable course (Hamel & Prahalad, 1990). Given that strategic intent is communicated in dialog between all layers of the organization and every employee is to have access to critical information, the strategic intent approach attempts to create an atmosphere in large corporations that is typical for small businesses.

Achieving Strategic Intent

Hamel and Prahalad (1989) draw on several tactics to gradually implement strategic intent in organizations. Because strategic intent also affects the organization’s culture, the workforce must be mobilized and unified; hence, before a strategic intent can be implement, all levels in the organization need to be prepared and additional structures need to be provided to support the long-term vision of the company.

Borrowed from the discipline of crisis management, Hamel (1996) recommends that in order to create a group spirit, a sense of urgency needs to be created. This strategy is based on a careful observation of human nature: whenever a threat appears that affects the group, the group unites its power to fight back. By the presentation of external and possibly internal threats to the workforce, management is able to exploit this group spirit and get the staff’s attention and cooperation.

Hamel and Prahalad (1994) recommend spreading competitive intelligence throughout the organizations at all levels as one important approach to communicating external threats. This strategic achieves that everyone in the organization has a clear picture of what the organization is up against. This approach also exploits collective intelligence and creativity because the more people think about potential solutions the more likely it is to solve the problem quickly and efficiently.

Since strategic intent is an ongoing, long-term process, it may be necessary to train people and provide resources as necessary. As all employees in the organization understand the long-term strategic intent of their employer, they work towards it. Hamel and Prahalad (1989) point out that instead of detailed planning, the employees know their job best and should be empowered to allocate resources as they deem necessary.

To ensure that employees work towards the common goal, Hamel and Prahalad (1994) recommend moving one step and a time and establishing clear milestones and review mechanisms for all employees and to align performance reviews with the strategic intent of the organization. Aligning each employee’s tasks and responsibilities towards the same organizational goal prevents interdepartmental antagonism for resources and provides a direction in cases where resource allocations are in conflict.

Another focal point of the strategic intent approach is that it encourages the workforce to continue seeking and creating new competitive advantages on an ongoing basis. Because competitive advantages have a time constraint and are valuable only for a limited time, the organization needs to establish processes that enable the ongoing creation of competitive advantages (Hamel & Prahalad, 1990). Merging and acquiring other organizations with similar strategic long-term goals may also provide synergistic competitive advantages and resources (Srinivasan & Mishra, 2007).

Strategic Intent and its Influence on Organizational Decisions

Strategic intent motivates managers as well as lower level employees to think and act with the long-term future of the company in mind. Instead of comparing the previous year to the next, Hamel and Prahalad (1994) recommend an inward perspective and evaluation of current processes. The question is not how the next year will differ from the current; rather, the question is how the organization needs to change to get closer to its strategic intent. This type of attitude changes the manager’s locus of control and eliminates feelings of being the victim of the environment. Rather than merely responding to the environment, strategic intent encourages people to take control and change their surroundings. This positive attitude empowers all employees in the organization to gradually reach their desired target.

Martyn (2001) illustrates how strategic intent also creates a responsive environment that incorporates feedback for the future and thereby creates adaptive change. Strategic intent with its positive thinking component results in proactive initiating behavior which creates new processes and thinking patterns throughout the organization. Moreover, Martyn refers to principles borrowed from crisis management theories which state that knowledge and “facts” need to systematically be changed when necessary. In turn, this will facilitate a systematic process of forgetting to drop old beliefs that do not fit with the current times.

Hamel and Prahalad (1989) compared mimicking the market leader to “competitive suicide” as they described the seemingly infinite chase of imitators who end up surprised at every single new innovation the market leader introduces to the market. Unfortunately, incrementalism is a widespread practice and only will strengthen the market leader’s position. An alternative strategy is to fundamentally change the game and create a disadvantage to the market leader. Hamel and Prahalad call this strategy competitive innovation and provide several approaches for building it.

As Hamel and Prahalad (1989) investigated successful companies utilizing strategic intent, they discovered they build several consecutive layers of advantages, such as low labor costs, brand awareness, quality, reliability, and distribution channels. Renee (2007) researched Samsung Electronics Company and elaborated on how Samsung won at all levels of its organization and how it sustained the generation of competitive advantages by building one advantage after another in layers. First Samsung began a best pricing strategy, and then it focused on manufacturing efficiency, followed by an extensive horizontal diversification into the computer and electronics industry. This shows how Samsung was able to enter diverse industries by exploiting its layers of advantages it built earlier in related market sectors.

Searching for “loose bricks” is another important strategy to build competitive innovation (Hamel & Prahalad, 1994). By selecting a point in the market that lies just outside the competitor’s geographic location, particular product segment, or piece of the value chain, the organization can slowly build competence and market share without actually competing with the market leader. Honda, for example, appeared to layman be making 50cc motorcycles, when in fact, it was developing its engine competence. When Honda had built enough competence, it expanded horizontally and entered the automotive, electricity generator, and marine engine markets.

When Canon entered the copier market its only chance against the giant Xerox was to change the terms of engagement and refuse to mimic the leader (Hamel & Prahalad, 1989). Canon followed its strategic intent of becoming the leader in the copier business and realized that it was not able to compete against Xerox by trying to replicate Xerox’s approach. Xerox had a strong sales force and worked primarily with service subscriptions to market its wide range of copiers. Canon soon spotted the opportunity of offering a low-priced, narrow line of standardized copiers at low prices that are sold and did not put a long-term financial burden on buyers. Xerox, with its long history and established distribution and sales channels was not able to make a similar offering to its customers and because Xerox had establish rigid and limited internal procedures. Hamel and Prahalad point out that the lack of a history and a clean-sheet start are probably the most effective weapons for newcomers. As the Canon example illustrates, newcomers can use the competitor’s size and inflexibility to their advantage and thereby achieve competitive innovation.

Conclusion

The aimlessness and powerlessness in many Western organizations often originates from a lack of an organization-wide, long-term goal. When employees do not understand or are not aware of the competitive forces that the organization is facing, they are unlikely to make the right decisions. Bilateral communication between the workforce and management is also crucial to exchanging valuable information and creating a vision and target that has been mutually agreed upon.

Strategic intent changes how decisions are made at every level of the organization because its focus on the future and focus on winning promotes a positive attitude that unifies teams and departments and guides employees in their decision making towards achieving the long-term goal. Instead of judging managers on numerical ratios they achieved during a two or three year assignment span, companies that established strategic intent measure success in terms of what was done to bring the organization closer to its long-term target.

The purposefully created, so-called organizational stretch further mobilizes creative resources and encourages everyone in the organization to take risks and solve problems unconventionally. Stretching the imagination of management is also to inspire management to look into developing intricate strategies to build competitive advantages by means of competitive innovation. Instead of attacking market leaders head on, strategic intent motivates executives to explore paths of unconventional coexistence with the market leader initially without competing directly. During that time an organization can build layers of advantages and competences. Later on, the company can expand horizontally into the competitor’s market having exploited and generated several competitive advantages from related industries.

References

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Hamel, G., Prahalad, C. K. (1994). Competing for the Future. Boston, MA: Harvard Business School Press.

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Hamel, G. (1990, May-June). The core competence of the corporation. Harvard Business Review, 68(3), 79-91. Retrieved from http://proquest.umi.com

Hamel, G. (1996, July-August). Strategy as revolution. Harvard Business Review, 74(4), 69-82. Retrieved from http://proquest.umi.com

Knoess, C. (2005). From strategic intent to strategy. Community College Journal, 76(2), 34-37.  Retrieved from http://proquest.umi.com

Manikutty, S. (2010). C K Prahalad and His Work: An Assessment. Vikalpa: The Journal for Decision Makers, 35(2), 1-7. Retrieved from http://proquest.umi.com

Martyn, P. (2001). In pursuit of change: managerial constructions of strategic intent. Strategic Change, 10(1), 5. Retrieved http://proquest.umi.com

Renee, K. (2007). Samsung’s Competitive Innovation and Strategic Intent for Global Expansion. Problems and Perspectives in Management, 5(3), 131-138. Retrieved from http://proquest.umi.com

Sheehan, R. (1999). Achieving Growth and High Quality by Strategic Intent. Nonprofit Management & Leadership, 9(4), 413. Retrieved from http://proquest.umi.com

Srinivasan, R., & Mishra, B. (2007). Why Do Firms Merge/Acquire: An Analysis of Strategic Intent in Recent M&A Activity among Indian firms. IIMB Management Review (Indian Institute of Management Bangalore), 19(4), 388-402. Retrieved from http://proquest.umi.com