The Core Competence of the Corporation - PowerPoint PPT Presentation

1 / 27
About This Presentation

The Core Competence of the Corporation


... thought have created a drag on our forward motion ... This destroyed their video based competencies. 18. Identifying Core Competencies- And Losing Them ... – PowerPoint PPT presentation

Number of Views:3579
Avg rating:5.0/5.0
Slides: 28
Provided by: ven141


Transcript and Presenter's Notes

Title: The Core Competence of the Corporation

The Core Competence of the Corporation
C.K.Prahalad and Gary Hamel The leading
strategists of the 1990s
  • Intro technology Competence is important
  • Rethink
  • The Roots
  • A model
  • Identifying and losing Core Competence
  • Core competence to Core Products
  • Tyranny of SBUs
  • Develop a plan

  • Rethink of the concept of corporation is required
    to prevail in global competition
  • In 1980s, top management were judged by their
    ability to restructure, their corporations
  • In 1990s they should have been judged by the
    ability to identify, cultivate exploit core
  • Consider the case of GTE NEC,
  • GTE folds after maintaining leadership in
    Information technology telecommunications.

  • NEC expanded into a telecommunication company and
    in a decade emerged as a leader in semiconductor,
  • Only company to be in the top five revenue in
    telecommunications, semiconductor mainframes
  • How did NEC achieve this?,
  • By conceiving of itself in terms of core
    competencies instead of products

Rethinking the Corporation
  • Corporations think of themselves in terms of
    markets and products
  • Think of themselves in terms of finance, size and
    may other issues
  • This view of the firms looks at the technologies,
    innovation pathways of a firm, management
    practice centered around cultivated and
    exploiting technology as the basis of sustainable
    firm competitive advantage

Rethinking the Corporation
  • Radical change in the thinking of the top
  • Theory practice of Western management thought
    have created a drag on our forward motion
  • Principles of management are in need of reform
  • GTE vs NEC is one of the many comparative cases
    to understand the changing basis for global

Rethinking the Corporation
  • In early 1970s, NEC articulated a strategic
    intent to exploit the convergence of computing
    communications (C C)
  • A Strategic Architecture was devised to develop
    core competencies
  • C C Committee oversaw the development of core
    products and competencies
  • By collaborative arrangements,coordination, NEC
    was able to assemble a broad array of core
  • Competencies are technological in Nature
  • Capabilities are the management practices around

Rethinking the Corporation
  • NEC clearly identified three streams of market
    technological evolution
  • NEC developed competencies so that they could
    serve all these markets with enormous
  • NEC was successful in developing and successfully
    implementing the core competency strategy
  • GTE on the other hand had no common view of
    competencies, totally market and financially

The Roots of Competitive Advantage
  • NEC thought of itself as a portfolio of
    competencies, whereas GTE thought of itself as a
    portfolio of businesses
  • In the short run, a companys competitiveness
    derives from the price/performance attributes of
    current products
  • In the long run, competitiveness derives from the
    ability to build core (unique) competencies that
    spawn unanticipated products, at lower cost, more
    faster than the competitors

The Roots of Competitive Advantage
  • Competence strategies try to exploit the deep
    reservoir of technological capability of their
  • Competencies are the Firms collective learning
    for coordinate integrate diverse technology
  • Competence strategies require commitment to
    working across organizational boundaries
  • Competencies do not diminish over time

The Roots of Competitive Advantage
  • Competencies should be the glue that bind
    existing businesses in a diversified firm
  • They guide patterns of diversification and market
  • Core products/businesses contribute to a wide
    range of end products, thus it is vital to
    protect them from being acquired by a rival

Think of competence as bundles
Identifying Core Competencies- And Losing Them
  • Three tests can be applied to identify core
    competencies in a company
  • Core Competence provides potential access to a
    wide variety of markets ( Cross Industry Lines)
  • Core Competence should make a significant
    contribution to the perceived customer benefits
    of the end product
  • Core Competence should be difficult for a
    competitor to imitate

Identifying Core Competencies- And Losing Them
  • Cultivating Core competence does not mean
    outspending rivals on R D
  • It is always difficult for a rival to duplicate
    the more or less comprehensive pattern of
    internal coordination and learning
  • Building core competencies is more ambitious and
    different than integrating vertically
  • Companies should probably generate a list of
    capabilities and view them as building blocks,
    this would enable them to push for acquiring new
    missing capabilities

Identifying Core Competencies- And Losing Them
  • Most companies judge competitiveness in terms of
    price/performance of end products
  • Cost centers
  • This measure leads to the erosion of core
    competencies or does not enhance them
  • Embedded skills within the company that can give
    rise to core competitiveness in the market should
    not be viewed as cost centers and be culled

Identifying Core Competencies- And Losing Them
  • Chrysler depends on many firms for engines and
    power trains
  • Honda on the other hand views its capabilities in
    engines and power trains as a core competency
  • Outsourcing contributes little in terms of
    developing a core competency

Identifying Core Competencies- And Losing Them
  • Another way of losing
  • Forgoing opportunities to establish competencies
    that are evolving in existing businesses
  • US Manufacturers exited the TV Business in the
    1970s,which they regarded as mature!
  • This destroyed their video based competencies

Identifying Core Competencies- And Losing Them
  • Costs of losing a core competence can only be
    partly calculated in advance
  • Given the long time it takes to develop a core
    competency, a company that has failed in doing so
    will find it difficult to enter an emerging market

From Core Competencies to Core Products
  • Core products are directly linked top the core
    competence of the firm.
  • Thinking in terms of core products forces a
    company to distinguish between
  • the brand share it achieves in a end product
    market and
  • the manufacturing share it achieves in any core
  • Global competition does not require your brand

Winning at Three levels
  • The Core competence level,
  • the goal is to build a world leadership in the
    design and development of a particular class of
    product functionality
  • To sustain leadership in core competence areas,
    companies should maximize their world
    manufacturing share in core products

From Core Competencies to Core Products
  • Control over core products is critical for other
  • Honda engines their for products go into a
    variety of end products
  • A dominant position in core products allows a
    company to shape the evolution of applications
    and end markets

The Tyranny of the SBU
  • Most firms govern by practices that date to the
  • The need for new principles is most obvious in
    companies organized exclusively according to the
    logic of the SBUs
  • US companies do not lack the technical resources
    to build core competencies, but lack the vision
    and the will to do so

The Tyranny of the SBU
  • If a company is winning the race to build core
    competencies, it will almost certainly outpace
    rivals in new business development
  • Proliferation of products out of core competence
    may result in building a strong brand, image and
    customer loyalty
  • Kind of the difference between
  • Doing things Right and
  • Doing the Right Thing

Developing Strategic Architecture
  • A strategic architecture is a roadmap of the
    future that identifies which core competencies to
    build and their constituent technologies
  • A strategic architecture can dramatically reduce
    the investment need to secure future market
  • Strategic architecture will be different for
    different companies

Developing Strategic Architecture
  • The task of creating a strategic architecture
    forces the organization to identify and commit to
    the technical and product linkages across SBUs
  • Strategic architecture is a tool for
    communicating with customers and other external
  • Its reveals the broad direction without revealing
    every step

Redeploying to Exploit Competencies
  • SBUs should be made to bid for core competencies,
    just like capital
  • This would ensure that the competencies are not
    held hostage by one business
  • Core competencies are resources that may be
    reallocated by the corporate management

  • Core competencies are the wellspring of new
    business development
  • Rethink of the concept of corporation is overdue
Write a Comment
User Comments (0)