the core competence of the corporation

1. By : Kritika Handoo

2.  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.

3. The critical task for management is to build
product that customers need but have not yet
even imagined.
Requires radical change in the management of
major companies. It is the principles of
management that are in need of reform .
Understand the changing basis for global
leadership.

4.  Management adopted an appropriate “strategic
architecture”, C&C, and then communicated its intent to
the whole organization and the outside world.
 Shift in thinking and resources to focus on competencies
 Top management determined “core product”.
 Entered into strategic alliances--- aimed at building
competencies rapidly and at low cost.
 R&D Director : “From an investment standpoint, it was
much quicker and cheaper to use foreign technology.
There wasn’t a need for us to develop new ideas.”
 Now a world leader in consumer electronics
Image source: NEC

5. 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 - as to which
competencies would be required to
compete.

6.  Portfolio of competencies versus portfolio of
Business:
• Canon(personal copiers), Honda(from bikes to four
wheelers).
• Sony, Casio, Yamaha,Komatsu invented new devices.
• Japanese co. are generating a blizzard of features and
functional enhancements that bring technological
sophistication to everyday products.
 Real sources of advantage --- Consolidating
corporate-wide technologies, resources and
production skills into competencies.

7.  In Short Run, company's competitiveness derives
from price/performance attributes of current products.
 In Long Run company's competitiveness derives from
an ability to build at lower cost and more speedily
than competitors.
 Diversified corporation is a “large tree”.

9. If core competence is about harmonizing
streams of technology, it is also about the
organisation of the work and the delivery of
value.
Example :
among Sony’s competencies is miniaturization.
To bring this to its products, Sony must ensure
that technologists, engineers and marketers
have a shared understanding of customer needs
and of technological possibilities.

10.  Cultivating core competence does not mean
outspending rivals on R&D.
Example: Canon surpassed Xerox in worldwide
unit market share in the copier business, its R&D
budget in reprographics was but a small fraction
of Xerox’s.
 Nor does it mean shared costs, as when two or
more SBUs use a common facility.
 Building core competencies is more ambitious and
different than integrating vertically.

11. Companies judge competencies in terms of
price/ performance of end products--- making
erosion of core competence or making too little
effort to enhance them

12. How to identify:
• Accessibility: provide potential access to a variety of
markets
• Value-creation: make a significant contribution to
perceived customer benefits of the end product
• Uniqueness: Be difficult for competitors to imitate

13. How to lose:
A Core Competency is lost:
• Through outsourcing/OEM-supply relationships
=> Example: Chrysler vs Honda
• Forgoing opportunities to establish competencies that
are evolving in existing businesses
=> Example: television business

14. Lessons learned:
• The costs of losing a core competence can be only
partly calculated in advance.
• It is very difficult to enter an emerging market if a
company fails to invest in core competence building.

15.  Essential to make distinction because global
competition is played out by different rules and
for different stakes at each level.
 At the level of core competence the goal is to
build world leadership in the design and
development of a particular class of product
functionality.
 Core products are the components that actually
contribute to the value of the end products.
 Example : Honda’s engines are core products that
ultimately lead to proliferation of end products.

16. TwoConceptsoftheCorporation:
SBUorCoreCompetence
SBU CoreCompetence
Basicforcompetition Competitivenessoftoday’sproducts Interfirmcompetitiontobuildcompetencies
Corporatestructure Portfolioofbusinessesrelatedinproduct-
marketterms
Portfolioofcompetencies,coreproducts,
andbusinesses
Statusofthebusinessunit Autonomyissacrosanct,theSBU“owns”all
resourcesotherthancash
SBUispotentialreservoirofcore
competencies
Resourceallocation Discretebusinessesaretheunitofanalysis,
capitalisallocatedbusinessbybusiness
Businessesandcompetenciesaretheunitof
analysis:topmanagementallocatescapital
andtalent
Valueaddedoftopmanagement Optimizingcorporatereturnsthroughcapital
allocationtrade-offsamongbusinesses
Enunciatingstrategicarchitectureand
buildingcompetenciestosecurethefuture
Figuresource:Prahalad,C.K.,Hamel,G.(1990).“TheCoreCompetenceoftheCorporation”.HarvardBusinessReview,86.

17.  The ineffectiveness of SBU model:
• Underinvestment in Developing Core Competencies and
Core Products :No single business unit may feel responsible
for maintaining a viable position in core product nor be able
to justify the investment required to develop world
leadership in some core competence.
• Imprisoned Resources : The people who carry competencies
do not get assigned to the most exciting opportunities &their
skills begin to get wasted away.
• Bounded Innovation : if core competencies are not
recognized, SBUs will pursue only those innovations
opportunities that are close at hand.

18. A strategic architecture:
• Yields a definition of the company & the market it
serves.
• A road map of the future that identifies which core
competencies to build and related technologies
• Create a managerial culture, team work, a capacity to
change, and a willingness to share resources, to protect
proprietary skills, and to think long term
• Consistency of resource allocation, administrative
infrastructure

19. WHAT A STRATEGIC ARCHITECURE
SHOULD LOOK LIKE :
 The architecture should provide a logic for the
product & market diversification.
 It should make a resource allocation priorities
transparent to the entire organisation.
 Help the lower level managers understand the logic of
allocation priorities

20. • Reduce the investment needed to secure
future market leadership
• Provide a logic for product and market diversification
• Reduce R&D costs.
• The task of creating a strategic architecture forces the
organization to identify & commit to the technical &
production linkages across SBUs that will provide a
distinct competitive advantage.
• It is tool for communicating with the customers &
other external constituents.

22.  SBUs should bid for core competencies in the
same way they did for capital.
 Core competencies are corporate resources & may
be reallocated by corporate management.
 SBUs are entitled to the services of individual
employees as long they can defend why they need
certain talents.
 Example : When Canon identified an opportunity
in digital laser printers, it gave SBU managers the
right to raid other SBU to pull together the
required pool of talent.

23.  Core competence are the wellspring of new business
development.
 If the company is conceived of as hierarchy of core
competencies, core product & market focused
business units will it be fit to fight.
 Top management must add value by enunciating the
strategic architecture that guides the competence
acquisition process.
 Managers have to win manufacturing leadership in
core products.
 Competence carriers should be regularly brought
together from across the corporation to trade notes and
ideas.

24. Thank you