- What went wrong?
- Strategic approaches to allocating resources with risk and
The premise of this paper is that the root-cause of success of
companies associated with Strategic Intent is in reality due to other
factors. Strategic Intent is at best a proximate cause of
Strategic Intent is a term that Hamel and Prahalad associate with an
obsession with winning within certain companies that rose to global
during the 20 years from 1970. These companies initially had
ambitions that were out of all proporation to their resources and
capabilities and created an obsession with winning at all levels of
their organizations and then sustained that obsession over the 10-
20 year quest for global leadership.
In the paper a number of scenarios are explored to identify the various
root causes of success and failure of companies using Strategic
Intent. Without other factors being present Strategic Intent will
be shown to commit resources when the pre-conditions for success are
not guaranteed resulting in some costly failures. The root causes
include: disruptive eco-system merger, bose condensation of market
proven solutions through
modular design rules or end-to-end business process refactoring, and
The investment and subsequent loss of billions of dollars in the second
half of 1990s technology bubble provides market feedback regarding the
built up in the 1980s. This paper looks critically at those
strategies and the creative activities they focused. Applying
theoretical models to the developments, this paper highlights the
causes of success and failure. In conclusion it clarifies when to
apply strategic intent.
the 1970s - Strategic Intent.
With the oil induced inflationary shocks to the economic systems of the
Unites States and Western Europe the populations of these economies
shifted their buying patterns. Among the major beneficiaries of
these purchasing shifts were Japanese companies whose products had been
largely ignored until this point in these markets.
Companies like Toyota joined consumer technology producers like Canon,
who were successfully gaining share in Cameras and other high tech
Studies by western academics and businesses that were being driven from
leadership positions indicated that Japanese producers were using
different design and manufacturing processes to build their products
which were of significantly higher quality.
Business strategists were also analyzing the Japanese management
strategies. It was shown that the Japanese were able to match
highly responsive manufacturing processes with resources mobilized from
within the companies to achieve big goals. In comparison western
companies were managing by portfolio analysis and were exiting cash cow
businesses over time. Gary Hamel & C.K. Prahalad's "Strategic
Intent" described the Japanese strategic process and western companies
began to utilize the system.
GSM in the
1980s - proof positive from Nokia - or is it?
During the 1980s western political strategies globalizing
infrastructure markets and the financial system were paralleled by
standardization of some key technologies. The European
Community agreed to standardize its mobile phone infrastructure.
Key executives at Nokia realizing that this market opportunity was
large used Strategic Intent to transform its resources to match its
goal of becoming a focused, market oriented global GSM network
The success was astonishing. Incumbent network equipment leaders,
Motorola, Ericsson, Seimens lost market share to Nokia, as its new GSM
operator partners offered businesses and then consumers attractive
It appeared that Finnish companies could use Strategic Intent and
become global competitors with attractive high quality goods just like
the Japanese had done.
Sun & the
Internet Mainframe - How to compete for the
Sun Microsystems pioneered the development of high performance
workstations based on an enterprise setup by Vinod Koshla, Scott
McNeally, Andy Bechtelsheim's hardware design and Bill Joy's UNIX
knowledge. With the network effect of growing UNIX use in
academic and then enterprise environments there was a natural
integration and co evolution with the steady build out of IETF based
infrastructure within corporations during the 1980s.
Sun's interest in video servers and infrastructure during this period
initially stumbled along with the rest of the computing industry as the
challenge of providing on demand video content systems proved very
Sun had developed a long term vision of the networked computing world,
which led them to continue funding the Oak video server platform which
re-born as Java leveraged the limited programming capabilities of the
emerging world wide web to created a possible mechanism to build a
non-Microsoft computing eco-system.
Sun gathered the key partners it would need to be credible: IBM,
Oracle, Netscape, and Cisco and ensured market opportunity for all
based on grabbing market share from Sun competitor's Microsoft,
Hewlett-Packard and SGI.
With a Sun controlled standards process & partner programs
amplifying the development activities around Java it became a credible
development and run time platform for new applications.
Applications that would be deployed at solution companies developing
products and services that would be accessed across the Internet.
Sun purchased super computer maker Cray to leverage their high end
computing technology into a new class of UNIX servers to execute the
vision of computing power "on tap".
It was supposed to be a bold use of strategic intent but it resulted in
the boom and bust of
the .com revolution in the late 90s.
What had been so different from Nokia's success?
Nokia and the third-way
Nokia was building on its GSM success, and responding to the lack of
switched services in the mobile networks it supplied to public network
The oligopoly that Nokia was now a part of had a long term plan for its
mobile networks based on Universal Mobile Telephone service (UMTS)
which aimed to allow one handset to operate world-wide and in any
situation. Its ability to provide third party services to operate
over the network was very limited. With the obvious success of
the world-wide-web Nokia was able to take a much more attractive vision
to market: the Mobile Information Society.
Nokia and the other mobile network equipment providers were not able to
resource the vision alone, since the goal required the collaboration of
service developers from the Internet service world to add mobile
terminal support, while the network equipment providers and IP
community agreed on the changes to the core network.
While the vision of reaching web pages from anywhere at any time was
attractive and early solutions based on Wireless Application Protocol
sold well the interest quickly waned. Tough issues were
- Small screens with poor resolution could not provide the same
experience as a web browser on the PC.
- Packet switching technology could not be made to overlay on the
GSM mobile network at the bandwidth and latency required.
- The Internet was free but the business model for mobile use was
to pay. People were not willing to access some of their web pages
while mobile for a high cost.
- Network subscribers were not interested in paying for a phone
just because it supported new communications networking. They did
not see any value until there were communities of users sharing new
- Network operators had to invest large sums to create the Nokia
vision but in doing so were threatened by Microsoft, or Nokia, turning
them into bit pipes.
So the use of strategic intent does not, of itself, provide the success
the Japanese obtained when they were identified as benefiting from
What went wrong?
Root causes of
Hamel & Prahalad explained that Japanese companies were able to
benefit from layered strategies:
- Building layers of advantage: Initially Japanese manufacturers
had the advantage of low wages, selling to private labels. They then
invested in world scale manufacturing plant. They deployed
innovative approaches to quality, reliability, and process
They extended product line scope to leverage global scale. They
built regional manufacturing & design capability.
- Searching for loose bricks.
- Changing the terms of engagement.
- Competing through collaboration.
However, while these are good strategies they were proximate to the
presence in Japan of a competitive eco-system that did not overlap with
the western system. As the two systems merged the products of the
Japanese system turned out to be disruptive to the western company's
Segmentation mechanisms that had enabled GM to extract profits from
Cadillac while limiting profitable access to the entry level car market
were thrown into reverse, by products mixing quality from the mid-high
end western segments in low end products.
Within Japan the product development and markets were highly
competitive and arm's races had extended the strategies that Japanese
companies had initially adopted.
phenotypes - disruption across whole eco-nets.
The integration of two eco-nets is likely to be disruptive. Like
biological systems benefits from cooperation between eco-system
participants creates reinforcing feedback loops that typically lock the
whole eco-net together in success or failure.
When separate eco-nets are able to combine the financial, contractual
and architectural interfaces limit the recombination's, and one system
will become disrupted.
Nokia's original mobile business success was based on the success of
GSM. However, Nokia also had to out-compete Ericsson, Siemens
& Philips from Europe & Motorola.
Ollila defined the corporate strategy. It was based on a
realization of the effects of the G5 politicians building of a global
trading system. Ollila leveraged Hamel & Prahalad's concept
of strategic intent to create the tension within Nokia to drive the
process forward. Alahuhta, while on a research sabbatical,
provided the strategic model - based on how small, medium competitors
were succeeding and failing. It had Nokia developing mobile networks in
small markets and then pushing them into a global system. The
standardization created by GSM amplified the potential of any value in
the Nokia products.
While the incumbent network equipment providers struggled to understand
what was happening and how they could profitably alter their processes
Nokia and its Eco-net disrupted the incumbents.
As Nokia aimed at merging the mobile eco-net with the IP eco-net its
use of Strategic Intent's big goals created huge change in the
industry, but the modularity of the two systems were very different,
both the architected aspects and the undefined aspects that allow for
value creating entrepreneurism with limited constraints. When the
PC won the IP arms race becoming the standard display device its
capabilities became part of the assumptions of many web pages, even
though the web's designers had not architected this constraint.
Whether the merging of the eco-nets would be possible in the current
business cycle was not a
question of effectively applying Strategic Intent but of understanding
the alignment of the design rules: the need for re-factoring of the
possibly the business and economic models as well!
Strategic approaches to allocating resources with risk and
Disruptions create powerful opportunities, but their power comes from
the slow, incremental way that the many constraints to mass deployment
are removed and corresponding limits to available revenues for
The incremental nature is due to the constraints on change caused by
the interdependencies of the product, organizing ideas and business
model of the current eco-net. Re-factoring
requires careful study of the problems created by deployment of the new
system, in a variety of
Public mobile network operators should have responded warily to the
politician's value assessments of 3G networks and should have limited
the comments to such licensing. Political administrators should
not setup conditions that induce fear of lockout from the future and
drive overly aggressive investment strategies by operators. Once
induced such forces have short term positive feedback and long term
It is possible to niche down so that a special purpose solution will
apply, and then wait hoping for network effects to kick in! The
mobile network equipment providers are doing this today with camera
phones pulling networking changes across the infrastructure.
With clear insight of the changes required, developed iteratively, or
due to the tight modularity of the system, or by
extensive analysis, commitments can be matched to pre-conditions
for success identified. Ebay matches the approach of taking a
highly modular system - auction selling and deploying it through the
already operational, and highly modular, world-wide-web.
In the special case of responding to deployed new infrastructure it can
provide a powerful catalyst for the success of
disruptive systems designed to integrate with it. Walmart, and
Nokia, show why
this strategy is worth funding the commitment of resources. New
infrastructure does not have the hidden constraints that are so
difficult to identify and change.
Monopoly control provides an escape from the "Innovator's Dilemma", via
the cash harvested from the monopoly, & reallocated by
strategy. Microsoft also understands the techniques of API
control, and this can be used to limit others "Bose condensing" the
HP was founded on an alternative strategy. It relaxed the
constraint & created autonomously funded products and subsequently
divisions. This model:
- is constrained to finding new profitable niches that grow in
balance with current businesses, and by inefficiencies in the customer
interface. The relaxed financial constraint improves the
competitive advantage relative to businesses committed to aggressive
- shouldn't synergize the channels of the businesses. It is
argued that doing so improves the consistency of the customer
interface, but it significantly constrains the actions available in
designing new businesses.
- seems essentially unstable. Introduction of a business with
a significantly higher growth curve & demand for cash will pull
investment from the other businesses and limit investment in other
Huge investments were funneled through the VC community into
entrepreneurial businesses for committing to rapid growth justified by
limitless upside from positive returns. In all cases these
commitments depended on still to be deployed,
converged computing & communications infrastructure, and so were
unsound. Matching commitment to pre-conditions would balance
investment to limited growth rate immediately sustainable.
Current panacea business strategies, such as solving the enterprise
application integration chaos with "service oriented architectures"
(SOA) should not be resourced heavily. Niches will emerge, and
over time modularity will be constrained for particular paradigms at
which point new eco-networks with costs in line with the incrementally
realized benefits generated may disrupt the current market
participants. Microsoft may have the flexibility to invest in and
harvest the niches as they appear but few others will be able to
Providing "commercial support" to projects which attempt
to use SOA prior to the existance of clear design rules and with a
clear understanding of the modularity
implications seems most likely to capture any value in the short
term. IBM cleverly
combines this strategy with use of OpenSource developments that
minimize IBM's direct cost of the value creating investments and
indirectly constrain competitor's revenue potential.