-
The Core Competence of the CorporationGroup 7Minh NguyenTanin
PinketPannada LertsaengpetchSutta NitikankoolGina Herrera
MKTG 5320February 03, 2009Texas A & M University Corpus
ChristiBy C.K. Prahalad and Garry Hamel Harvard Business Review
May-June 1990
-
GTE and NEC (early 1980s)GTE :Positioned to become a major
player in the IT industrySpecialized in a variety of business
(telephone, semiconductors, defense systems, switching and
transmission systems, etc)
NEC :Had an equivalent technological base and computer
businessesHad no experience in telecom operating field
-
GTE and NEC (1988)GTE :Became a telephone operating
companyPositioned in defense and lighting productsClosed down
semiconductors
NEC :Became the world leader in semiconductorsFirst-tier player
in telecommunications & CPUTop five of the world in revenue in
telecommunications, semiconductors, and mainframes
-
Comparing sales(Source : The Core Competence of the Corporation
by C.K. Prahalad and Gary Hamel Harvard Business Review May-June
1990)
19801988% Sales IncreaseGTE$9.98 Billion$16.46 Billion65%NEC$3.8
Billion$21.89 Billion476%
Chart1
9.983.8
16.4621.89
GTE ($ billion)
NEC ($ billion)
Sheet1
GTE ($ billion)NEC ($ billion)
19809.983.80
198816.4621.89
To resize chart data range, drag lower right corner of
range.
-
GTE and NECLesson from GTE and NEC
GTE : - Had no clear strategic intent - Focused on managing
independent business unitsNEC : - Had an effective strategic
architecture - Focused on developing core competencies
-
In a quickly changing market, companies have changed their focus
from strategic business units (SBUs) at end products to core
competencies => Require a primary change in the management of a
corporation :- Top managements must bear the responsibility in
acquiring core competencies- Core competencies must be developed
throughout the corporationRethinking the Corporation
-
NEC exampleNEC s top managers built an appropriate strategic
architecture to strengthen its core products and develop its core
competenciesNEC targeted 3 markets :Computing marketCommunication
marketComponent marketIdentifying semiconductors as one of the most
important core products, NECs core competencies during 1970s -
1980s was a much quicker and cheaper use of foreign technology
without a necessity to develop new ideaRethinking the
Corporation
-
Roots of Competitive AdvantageA short-term competitiveness of a
corporation can be the price/performance of current productsA
long-term competitiveness of a corporation is an ability : - To
build core competencies creating unanticipated products - To
strengthen core products=> Need a managements ability to
reinforce core skills and integrate them into core competencies
that can empower business units to adapt quickly to the changing
market.
-
Core Competency(Source : The Core Competence of the Corporation
by C.K. Prahalad and Gary Hamel Harvard Business Review May-June
1990)
-
The collective learning maintained within an
organizationIntegration into technology, work organization, value
deliveryCommunication, involvement and an engagement to working at
the entire corporate levelNot decline with use but be enhanced
during the time of applying and sharing within the corporation Need
to be cultivated and preservedCore Competency
-
Not just making productsBut finding core competencies by
overseeing the portfolio of business including customers,
distribution channels, merchandising strategy, etcNEC Digital
Technology especially VLSIHonda Engines and Power TrainsCanon
Optics, Imaging, and Microprocessor ControlsPhilips
Optical-Media(Laser Disc)
How Not to Think of Competence
-
Not just making productsBut finding core competencies by
overseeing the portfolio of business including customers,
distribution channels, merchandising strategy, etcDeveloping Core
Competencies does not mean:Outspending competitors on
R&DSharing manufacturing and operating costsVertical
Integration
How Not to Think of Competence
-
Identifying Core CompetenciesProvide gateway to a wide variety
of markets Casio Hand-Held TV MarketContribute super value to end
products that benefit consumersHonda Esteemed ProductBe complex to
imitate :Complicated harmonization of technologies and production
skillsJVC vs. RCA
-
Losing Core CompetenciesCompetitiveness relying on the
price/performance of end productsOutsourcing and OEM Cost
Centers(Chrysler vs. Honda)Suppliers become competitorsLack of
people-embodied skillsLack of a clear goal in building core
competencies ->Intelligent alliance or sourcing strategy
Forgoing opportunities to develop competencies that are growing
in existing businessesGive up with the existing competencies
-
Costs of Losing Core CompetenciesHardly to predict in
advanceDifficult to enter an emerging market
-
Core ProductsThe brand shareonly in end product markets
The manufacturing sharein any core product
To maintain the market =To maximize the
companysleadershipmanufacturing share in coreproducts
-
Core ProductsJVCs decision in the mid-70s :
The core product of JVC was VCR in the electronics machine which
sustained the market share for JVC in Asia, Europe,and USA.
JVCestablished
VCR supply relationships with the electronics companiesin Europe
and USA
-
The Tyranny of the SBUFocus on rivals in the marketStress on
business units performanceAllocate a lot of money to advertise
brand nameDecentralize commanding by each business
-
Two Concepts of the Corporation:SBU vs. Core Competence(Source :
The Core Competence of the Corporation by C.K. Prahalad and Gary
Hamel Harvard Business Review May-June 1990)
SBUCore CompetenceBasic for competitionFocus on competitiveness
of todays productTry to build competence with the inter-firm
competitionCorporate structurePortfolio of businesses related in
product-market termsPortfolio of competencies, core products, and
businessesStatus of the business unitAutonomy is inviolable and SBU
owns all resources other than cashSBU is only a potential reservoir
of core competenciesResource allocationEach businesses is like the
unit, so capital is allocated business by businessBusinesses and
competencies are the unit of analysis, so allocation is the overall
pictureValue added of top managementOptimizing corporate returns
through capital allocation trade-offs among businessesEnunciating
strategic architecture and building competencies to secure the
future
-
The disadvantages to corporation from the SBUs distortionSBUs
distortionUnderinvestment in DevelopingCore Competencies & Core
Products
Bounded InnovationImprisoned Resources
-
Vickers The Origin of VickersA division of Trinova
Corporation
The Elements of TransformationTechnologiesCustomer Needs
The New Concepts GoalsDevelopment of the Capability of
CompetitionCertainty of the present market in the futureThe new
market preemption
-
Help to identify which core competencies to build.Motivate
companies in learning from alliances and create efforts for
internal developmentProvide a logic for product and market
diversification.Help organizations to identify and engage in the
technical and production linkages across SBUs creating competitive
advantage
Strategic Architecture
-
Strategic ArchitectureDifferent for every company Must be clear
with resource allocation priorities within the
organizationDifficult to be imitated by competitors
-
A tool for communicating with customers and other external
relative units.
Strategic Architecture
-
Deploying Core CompetenciesCore competencies are from companys
resources and reallocated by board of governancePeople carrying
core competencies are corporate assets to be utilized by corporate
management, not by any particular business unitContribution of SBU
managers should be clear in equality across the company
-
Process of building core competencies must be recorded and
appreciated Core competencies should be shared and employed within
the organization Responsibility of top management in establishing
strategic architecture to build core competence
Deploying Core Competencies
-
ConclusionSuggestions from Prahalad and HamelCore competence
should be recognized and concentrated in a corporate
strategyCompanies need to acknowledge the hierarchy of core
competence, core product, and business units with market focus in a
strategy with an aim of strengthening capabilities to compete in a
quickly changing marketIt is the responsibility of top management
to build a strategic architecture for a direction in acquiring core
competencies
-
Question ???
*******