Competitiveness for a business may mean being the lowest cost producer; but a business may also be competitive at a premium price where it offers quality, brand, a well differentiated product or service, or intellectual property, that are valued by the market.

In this article I will first talk of the three pillars of competitiveness, as defined in Hamel and Prahalad’s seminal book, Competing for the Future (the remaining part of my article draws extensively from this book), as a framework for analysing where corporate competitiveness stands in Central Europe.

Hamel and Prahalad talk of three pillars in the quest for competitiveness:

First, restructuring and reducing headcount is the most common remedy that company managers resort to when they feel the need to be more competitive. The theory is that by reducing fat, companies will be leaner and fitter in the race to market leadership and profitability. One problem is that companies are often poor at distinguishing fat from muscle, and by cutting, weaken themselves. According to Hamel and Prahalad, restructuring seldom results in a fundamental improvement of the business; it usually only buys time. It has more to do with shoring up today’s industries rather than creating the industries of the future. Downsizing belatedly attempts to correct the mistakes of the past; it is not about creating the markets of the future. The simple point is that getting smaller is not enough.

Second, re-engineering process/continuous processes improvement is something that fewer companies undertake, let alone successfully. Are you documenting best practice and continuously building best practice into your documented procedures? Are you consistently ironing out inefficiencies from your processes, and finding new ways to please your clients? Some companies use various processes like ISO or Six Sigma to provide them with a methodology for capturing best practice and ensuring continuous improvement. There is usually a measurement of service or quality parameters, once again with the goal of continuous improvement.

Third, reinventing industries and regenerating strategies is something that only a select minority of companies succeed in accomplishing. Very few industry leaders are able to envisage the future and position their companies at the forefront of trends. What are the types of products/services that customers will be requesting five or ten years down the road? What types of competencies does a company require in order to provide those products or services? How will it need to reconfigure the customer interface?

How do companies in Central Europe perform in these three facets of competitiveness? This would be an interesting subject for an empirical study. I can only offer, based on my impressions of being exposed to a few thousand companies throughout Central Europe over the last twenty years, some anecdotal evidence. My analysis pertains solely to locally owned companies; local branches of multinationals usually have their processes handed down from head office, and any attempts to invent the future are usually made at head office, or at least in the home country, and hence analysing these parameters in Central Europe might be irrelevant and misleading.

So based on my anecdotal evidence of visiting locally owned companies, the third category – namely reinventing industries – is rarer than hens’ teeth in Central Europe, and yet, according to Hamel and Prahalad, this is the area of most importance for true competitiveness. While there are some locally owned companies that are attempting to progress on the second facet of competitiveness, namely process re-engineering, there are very few that do it well. Even with respect to the first category, of restructuring and cost cutting, many Central European companies were in denial during the recent recession, and postponed or neglected efforts to bring their cost structures into alignment. So the report card is not particularly good. Please do not misunderstand: there are exceptions. I have seen a select few Central European companies which have their costs in order, have real mastery of processes, and others that even invent the future.

So where to from here? Throwing government assistance at companies that do not have an understanding of what is required is a recipe for waste, possibly for disaster. The solution needs to come from within the corporate sector itself, a paradigm shift in thinking. One might start by reading Hamel and Prahalad.