The Core Competence of the Corporation...

1. The Core Competence
of the Corporation
Afzaal Ali

2. C.K. Prahalad
Coimbatore Krishnarao Prahalad
◦ Doctorate from Harvard Business School
◦ Professorships in University of Michigan, INSEAD,
and IIM
◦ Co-founder of Praja Inc., where he tried his wings
as an entrepreneur
◦ Corporate strategy, the role of management in
diversified multinational corporations

3. Gary Hamel
Gary Hamel
◦ Doctorate from the University of Michigan
◦ Professorship in London School of Economics
◦ Founder and president of Strategos, an
international management consultancy
◦ Core competence, strategic intent, industry
revolution

4. Basic Theme
A core competency can take various forms, including
technical/subject matter know how, a reliable process,
and/or close relationships with customers and
suppliers. It may also include product development or
culture, such as employee dedication.

5. Core Competence
 Fundamental knowledge ability or expertise in a
specific subject area or skill set
 A bundle of skills integrated to make a company
unique.
 The engine for new business development,
underlying component of a company’s
competitive advantage.
 Created from the coordination, integration and
harmonization of diverse skills and multiple
streams of technologies.

6. Business Portfolios in 1980
NEC
Telephone
Switching &
transmission
systems
Digital PABX
Semi-conductors
Packet
Switching
GTE
Defense
system
Lighting
products
Satellite
Telenet
Sylvania TV
Only comparable in
technological base and
computer business
While NEC had no
experience of
telecommunication

7. Comparison between sales revenues of NEC & GTE
21.89
NEC
3.8
1980 1988
1980 1988
Series 1
9.98
16.46
GTE
1980 1988
NEC
21.89

8. Business Portfolios in 1988
NEC
Telephone
Switching &
trans.
systems
Digital PABX
Semi-conductors
Packet
Switching
GTE
Defense
system
Lighting
products
Satellite
Telenet
Sylvania TV
World Leader (NEC)
Semi-conductors
First Tier Player
1. Telecommunication
Products
2. Computers
New Entries
1. Mobile Telephones
2. Laptop computers
3. Facsimiles machines

9. Why ?
 Strategic intent and Strategic architecture of “C & C”
(computing and communication)
 Constituted a “C & C” committee
 Identify three interrelated streams of technology and
market evolution
 Care about “core product “and built strategic alliances
 Used collaborative arrangements to multiply internal
resources.
Now a world leader in consumer electronics
Image source: NEC

10. GTEWhy not?
No strategic Architecture existed.
 Decentralization made it difficult to focus on core
competence.
 Senior managers worked as if they were managing
independent business unit.
No mutual decision was made.

11. The Roots of Competitive Advantage
NEC GTE
A Portfolio of
competencies
A Portfolio of
Business across
many industries
VS
From 1980 to 1988, the achievements of Japanese companies—
 Low cost and High quality
 Inventing new markets, creating new products and enhancing them in
Vangured markets
 Also in established markets they also made great challenge to Western
Companies. Many examples are given in this articles:
 Canon (personal copiers), Honda (from bikes to four wheelers).
 Sony, Casio, Yamaha, Komatsu invented new devices.

12. WHAT’S THE PROBLEM IN
MANY WESTERN COMPANIES
?

13. The Problem in manyWestern Companies?
Their senior
executives
are less
capable
than those
in Japan
They limit the
ability of
individual
businesses to
fully exploit
the deep
technological
capabilities
Japanese
companies
possess
greater
technical
capabilities
In the long run, competitiveness derives from an ability
to build the core competencies at the lower cost and
faster than competitors

14. Corporation
End Products
Business Units
Core Products
Core
Competencies
Provides nourishment, sustenance, and stability

15. The Characteristics of Core Competencies
Core
competencies
are collective
learning in the
organization,
especially how
to coordinates
diverse
production
skills and
integrate
multiple
streams of
technologies
Core
competencies
are
communication
, involvement,
and deep
commitment to
working across
organizational
boundaries.
Involves many
level of people
and all
functional units
It is also
about the
organization
of the work
and the
diversity of
the value
Does not
diminish with
use. And core
competencies
are also the
engine for
new business
development.

16. Identifying Core Competencies – Three
Tests
Core
Competency Identify
Accessibility: Provide
potential access to a wide
variety of markets
Value-creation: make a
significant contribution to
perceived customer benefits of
the end product
Uniqueness: Be difficult for
competitors to imitate

17. Losing Core Competencies
Core
Competency lose
Outsourcing the core
competencies
Having an Alliance
Forgoing opportunities to
establish core
competencies

18. Losing Core Competencies
Outsourcing the core
competencies
Having an Alliance
Forgoing opportunities to
establish core
competencies

19. Key Lessons
Throw out a baby with bath water in
divestment decision
The costs of loosing core competency can be only
partly calculated in advance.
A company has failed to invest in core competence
building will find it very difficult to enter an emerging
market.
When it comes to core
competencies, it is difficult to get
off the train, walk to the station,
and then reboard e.g. Motorola

20. From Core Competencies to Core Products
Core
Competence
Core Product End Product

21. SBU or Core Competence
Core Competence
 Inter-firm competition to build
competencies.
 Portfolio of competencies, core
products, and businesses.
 SBU is potential reservoir of core
competencies.
 Businesses and competencies are
the unit of analysis: top
management allocates capital and
talent.
 Articulating strategic architecture
and building competencies to
secure the future.
 Competitiveness of today’s
products.
 Portfolio of businesses related in
product market terms.
 Autonomy is valued, the SBU
“owns” all resources other than
cash.
 Discrete businesses are the unit of
analysis, capital is allocated
business by business.
 Optimizing corporate returns
through capital allocation trade-offs
among businesses.

22. Strategic Architecture
A road map of the
future that identifies
which core
competencies to
build and their
constituent
Technologies
What’s is the strategic
architecture
Advantages:
 Motivate organizations to learn from alliances
 Help organizations to ensure internal development efforts
 Reduced the investment needed to secure future market leadership
 Help companies to find a distinct competitive advantage
 A tool for communicating with customers and other external constituents

23. Conclusion
 People critical to core competencies are corporate assets to be deployed
by corporate management.
 Core Competencies are wellspring of new Business Development.
 Only if the company is conceived of as a hierarchy of core competencies,
core product and market-focused business will it be fit to fight.
 Top management must add value by articulating the strategic architecture
that guides the competence acquisition process

24. Core Competencies of
Corporations
Past Present Future

25. Core Competencies of
Corporations