The Core Competence of the Corporation

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The Core Competence of the Corporation
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NEC versus GTE

• In 1980, NEC is about 1/3 of GTE
• In 1988, NEC became 1.3 times of GTE
• World leader in semiconductors
• First-tier player in telecommunications
• Core competence!

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Core Competence Logic of NEC

• Build C C (computing and communications)
  Committee
• The way to develop core competence
• Acquisition (Strategic alliances)
• Accumulation
• Sharing

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NECs Myriad Strategic Alliances

• Core product semiconductor
• NEC entered over 100 alliances to aim at building
  competencies rapidly and at low cost
• NEC a portfolio of competencies
• GTE a portfolio of businesses

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The Roots of Competitive Advantage
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The Roots of Competitive Advantage

• Definition
• Core competence
• Core product
• End product
• Example 3M, Honda

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What is Core Competence?

• Core competencies are the collective learning in
  the organization, especially how to coordinate
  diverse production skills and integrate multiple
  streams of technologies.
• Companies could not have imagined all the end
  products out of its core competence in the early
  stages!
• Does not mean outspending rivals on research and
  development?
• Does not mean shared costs!
• Differ from SBU!

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What is Core Competence ?

• Three tests to identify core competence
• Provide potential access to a wide variety of
  markets
• Make a significant contribution to the perceived
  customer benefits of the end product
• Be difficult for competitors to imitate
• The ways to build core competence
• Internal investment
• Strategic alliances
• Distinguish between divesting the business and
  destroying competencies

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From Core Competencies to Core Products

• Core products
• Link between identified core competencies and end
  products
• The components and subassemblies that actually
  contribute to the value of the end products
• Example Hondas engines, Canons laser printer
  engines, Matsushitas VCR key components
  

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From Core Competencies to Core Products

• Importance of core product
• Dominant position in core products allows
• a company to shape the evolution of applications
  and end markets
• consistently reduce the cost, time, and risk in
  new product development
• economies of scale and scope
• BRAND leadership vs. PRICE leadership

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From Core Competencies to Core Products

• Different goal at each level
• at the level of core competence
• The GOAL is to build world leadership in the
  design and development.
• at the level of core products
• The GOAL is to maximize the world manufacturing
  share in core products .

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The Tyranny of the SBU

• Compare two concepts of the corporation
• SBU or Core Competence

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The Tyranny of the SBU

• Some troubles with SBU
• Underinvestment in developing core competencies
  and core products
• Imprisoned resources
• Bounded innovation

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Developing Strategic Architecture

• What is strategic architecture?
• A road map of the future that identifies which
  core competencies to build and their constituent
  technologies
• Make resource allocation priorities transparent
  to the organization
• Establish objectives for competence building
• Example NECs CC, Vickers, Canon, Honda

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Developing Strategic Architecture

• Different companies, different strategic
  architectures
• Three points
• Tree
• The corporation organized around core products
• Core competencies

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Redeploying to Exploit Competencies

• Core competencies are corporate resources and may
  be reallocated by corporate management
• Top managers ask businesses to identify the
  projects and people closely connected with them
• A reward system must be settled to benefit SBU
  manager when he made some positive contribution
• The positive contribution of the SBU manager
  should be made visible across company
• Example Canon and NEC
• People within corporation
• Early in their careers - a rotation program
• In midcareer - cross-divisional project teams
• Finally - competencies carriers should be
  regularly brought together

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Conclusion

• Core competencies are the wellspring of new
  business development.
• Win manufacturing leadership in core products and
  capture global share through brand-building
  programs.