S+B: What do you see as the contribution that you and Gary made in that book?
PRAHALAD: We were able to change the strategy paradigm. At the time, there were three fundamental assumptions underlying the strategy literature. The first was fitness: You have to fit your means with your goals. Instead, we argued for strategy as a stretch: by definition, creating a misfit between your resources and your aspirations.
S+B: This was your point about entrepreneurs before.
PRAHALAD: Yes. No entrepreneur starts with adequate resources for his or her aspirations. If you want to create entrepreneurial drive in a large company, you have to create aspirations that lie outside your resource base.
The second assumption had to do with resources; everybody assumed this meant financial resources. We argued that accumulated intellectual knowledge — the intellectual capacities in organizations called core competencies — represented a new form of currency. This idea had some antecedents in terms of capabilities, but calling it a new currency had important implications. Like any currency, core competencies could be used to create new businesses, and to reduce risk.
S+B: You’re saying that core competencies have intrinsic value as mediums of exchange?
PRAHALAD: That’s right. Look at the components that companies sell each other, like optical drives. These are nothing but the embodiment of intellectual capabilities that are exchanged for cash.
Interestingly, the idea of core competencies has been appropriated over the years by two different functional groups. To R&D teams, it’s about technology and the organization of work. To HR, it’s about people and teams. It was supposed to be a unifying concept, but as these two different groups appropriated the idea, they separated it. Underneath it all is the same theme I was looking for when I was 19 years old: how to integrate the patterns of work with human motivation and excellence.
S+B: What was the third assumption you challenged?
PRAHALAD: It had to do with the idea of strategy as positioning a company in a given industry space. Instead, Gary and I said strategy is about creating new competitive space. This foreshadowed ideas like strategic architecture, shaping your future, expeditionary marketing, and so on.
The Individual and the Organization
S+B: What happened in your life after Competing for the Future came out?
PRAHALAD: It was a tremendous success, and it created a new level of visibility for the work that Gary and I did. Over the next year, I came to the conclusion that it would be very easy to stay on course and keep mining these ideas and writing more about them — but then I was likely to write a mediocre next book. I think many writers fall into that trap.
So in the late 1990s I started looking for the next big idea. I knew it would have something to do with the opening up of markets, such as China and India, that had been dominated before by the Soviet Union. From there, it was very simple to get to The Bottom of the Pyramid. Here are companies desperately trying to grow in new markets, and here are people desperately trying to participate in the benefits of the global economy. So, if you put them together, there must be something good that can happen. I also began researching The Future of Competition: Co-creating Unique Value with Customers [with Venkat Ramaswamy; Harvard Business School Publishing, 2004] at that time, about the rebalancing of power between consumers and the company.
S+B: These seem like very different ideas.
PRAHALAD: Yes, but both are about the movement of ordinary people into new relationships with power. I started as an industrial engineer, but all along I’ve been struggling with the same question: What makes societies work?