technological core competencies: reality or...
TRANSCRIPT
Fai DIMETIC March 2007 2
Background
What are core competencies?
Why should we be interested in them?
Core competence idea, hot managerial
topic in 1990‟s (Prahalad & Hamel, 1990)
1980‟s period of corporate de-layering,
flattening. Trying to establish more
coherent, efficient corporations.
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Get rid of slack/ „stick to the knitting‟: get out of those operations not within the corporations key business areas.
However, product lifecycles are short. Firms focusing efforts on key businesses threatened.
Focussing on core competences better. Use of competence in 1 area, does not reduce that available to other areas. Sustainable resource.
It enables a firm to be inventive, flexible, responsive to changing environmental conditions.
Shift in emphasis from products to competences.
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Prahalad & Hamel define them as:
“…the collective learning in the
organization, especially how to coordinate
diverse production skills and integrate
multiple streams of technologies...it is also
about the organization of work and the
delivery of value” p.82
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Competencies: the roots of competitiveness(Prahalad & Hamel, 1990)
Competence
1
Competence
2
Competence
3
Competence
4
Core Product 1 Core Product 2
Business
1
Business
2
Business
3
Business
4
1 2 10 11 1273 4 5 6 8 9
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Characteristics of core competencies
Provides potential access to wide variety of
markets (i.e. end products)
Makes a significant contribution to the perceived
customer benefits of the end product
Is difficult for others to imitate
World-leading companies will generally possess
no more than 5-6 core competences.
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Examples: 3M
Core competences: substrates, coatings,
adhesives
Markets: post-it notes, magnetic tape,
photographic film, pressure sensitive
tapes, coated abrasives
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Example: Chrysler vs Honda
Honda invests in engine-related technologies. Developed in motorcycle engines first, diversified into automotives. Has ability to develop more fuel efficient, cleaner engines.
Chrysler outsources engines and power trains to other firms (Mitsubishi, Hyundai). Limited ability to diversify products, constrained in ability to pursue „greener‟ car designs of current market trend.
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Technological competence
Prahalad & Hamel‟s discussion of core competence, wider than technology alone but its characteristics apply to technology well:Enables firms to enter wide variety of markets
Has significant contribution to perceived customer benefits (better functionality/ features/design, price)
Is difficult to imitate – incremental, path-dependent, cumulative firm specificity.
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Definition of technological competence
Technological competence: ability to
create and use a particular field of
technology effectively, which is gained
through extensive experimentation and
learning in its research, development and
employment in production (Fai & von
Tunzelmann, 2001).
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Tushman & Anderson (1986)
Technological changes can alter industrial
composition & intra-industry structure.
How, depends on nature of technological
change.
Technology: “tools, devices and
knowledge that mediate between inputs
and outputs (process technology) and/or
create new products or services (product
technology). (Rosenberg, 1972)” p. 440
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Technological progress generallyevolutionary & incremental. Enhance and extend existing technology. Reinforces status quo.
However, it is occasionally punctuated by more radical breakthroughs period of discontinuous change, establish new product class or substitutes for a pre-existing one.
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US firms
Identify 3 product classes cement, minicomputers and domestic passenger airline transport.
Despite differences in product classes (low/hi tech, manufacturing services, relative age etc.) strong consistency in findings (although small numbers of cases in sample precludes conclusiveness of results).
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Competence destroying discontinuities
Mastery of new technology fundamentally alters
set of relevant competences in a product class.
Product discontinuity – new product class or
substitute for existing one: steam engines to
diesel
Process discontinuity – entirely new way of
making established product: float glass
Requires different skills & knowledge.
Changes distribution of power and control
among firms and industries.
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Competence destroying discontinuities
Undermine existing industrial structures
Establish new industry, with new firms
Industrial „ferment‟
Shake-out
Remaining firms centre around established dominant design
Begin more incremental innovation and technological progress
Are rare – 8 instances in 190 years (total of years observed in all 3 industries)
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Competence enhancing discontinuities
Order of magnitude improvement in
price/performance built on existing
knowledge in a product class.
Substitute for older technologies but not
the associated underlying skills.
Products e.g. jets fan jets
Process e.g. Computer-assisted design for
architecture
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Competence enhancing discontinuities
New possibilities opened to established
firms
Extends their realm of possibilities
Re-enforces the position of incumbents
Difficult for new firms to enter market
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Problem:
Some literature tells us that it is in firm‟s interests to focus on core technological competences (P&H)
Yet, the environment is changeable and ex-ante a firm never knows if a technological breakthrough is incremental/ radical. (T&A)
Firm doesn‟t know ex-ante whether it will benefit (competence-enhancing discontinuity) or suffer (competence-destroying discontinuity). (T&A)
=>To focus on a small number of core technological competences (P&H) can be high-risk.
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What does empirical evidence tell us?
A number of firms date back to 19th
century.
Witnesses to several “discontinuities”,
some of which are more „radical‟/
disruptive yet they survive. Why?
What‟s going on in these firms?
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Cantwell & Fai, 1999
Using patent stocks for 1930-1990 find evidence that among 30+ firms with longevity, there is persistence in their corporate technological profiles across 56 technological fields.
Same portfolio of competences held for at least 60 years in many cases
True across firms in 4 different, broadly defined industrial groups: Chemicals, Electrical/Electronics, Mechanical, Transport.
NB, ONLY true if there is institutional continuity i.e. mergers, acquisition divestments etc do not act to fundamentally shift the firm across industrial boundaries.
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Also found that whilst persistence in corporate portfolios is strong, evidence that they are evolving.
Evolution is generally in the direction of diversifying their technological interests over time, not concentrating them/ maintaining them.
Moreover, evidence of diversification in 1930-60 is stronger than in 1960-90, not a recent „fashion‟.
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Evidence of technological diversification questions notion of „core‟ technological competence, i.e. does not appear to be in just 5/6 key technologies, but more than this (P&H, 1990)
Evidence of longevity and survival in corporations questions the notion of competence-destroying discontinuities (T&A, 1986)
So…
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Cantwell & Fai, 1999 In Tushman & Anderson, the source of technological
breakthrough is not really considered.
They acknowledge
Chance events driven by technological genius (accidents on inventors or scientists) exogenous shocks
Historical necessity
A result of economic demand (Schmookler‟s demand-pull)
But put technological evolution down to a “response to the interplay of history, individuals and market demand.” p.440. Seems very exogenous/ individualist.
Technological evolution however, surely has more systemic & endogenous features as well?
We believe, THE FIRM is the principle source of innovation and growth. Adopt a competence-based perspective.
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Demand side (market pull):
Classical approach:
new markets firm growth capital
accumulation, which via division of
labour specialisation learning
better skills inventiveness
CAPITAL ACCUMLATIONTECHNOLOGICAL ACCUMULATION
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Supply side (science/technology push)
In 19th century, science mechanisation
innovation improved productivity in
established products
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Put the emphasis on the firm
Increasingly in 19th century, organisational routines & team learning Collective build up of tacit capability better skilled workers new capital revenues, rising wages & incomes
TECHNOLOGICAL ACCUMULATION CAPITAL ACCUMLATION
Scientific advance requires transformation in production systems to have an impact. This requires locally-specific knowledge e.g. as embedded in corporate capabilities of large companies which in turn, are largely nation-specific
Production systems based on national- & firm-specific competences
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Combining perspectives & shifting
emphasis on the sources of innovation
Science
Base
Corporate
R&D
Learning in
production
Complementary
assets/
distribution
networks
Markets
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Firms as the source of innovation &
growth Production is not just technology-dependent, but is also
technology-producing
Need specialised technological competence to produce goods & services, but by learning in production, they generate FIRM-SPECIFIC competences
Firm-specific learning in production via cumulative and incremental problem-solving can Technological innovation
This may be within the firm but also takes place on organisational boundaries i.e. between firms (competition and cooperation), institutions, universities etc. Upstream & Downstream entities.
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distinct corporate technological
specialisation patterns over time.
Leads to increases in productivity, firm &
economic growth.
Competence has the potential to generate
longevity of the firm unlike products/
processes (agree with P&H, 1990).
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Corporate learning is incremental, path dependent; provide basis for institutional stability & continuity in evolution even what markets & products change.
Corporation becomes a repository of competence and a device for learning and accumulating further competences.
They are able to synthesise new emergent fields with their established technologies.
Firms have to consider their current competences, the fields in which they are learning and how this interaction new/ improved competences
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So firms have to organise the learning process
that leads to innovation. They coordinate the
dual stimuli of science-push and demand-pull
factors but do so conscious of what the firm
itself already knows.
Innovative learning, at the firm level, gathers a
cumulative and incremental logic of its own.
Firm interacts with its environment, it is not
driven by it.
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Technological change may disrupt the external
spheres dramatically – new scientific areas,
potential new product classes and markets, but
beneath this, lies the steadier learning process
of firms.
Does not mean competence in firms does not
evolve, it can and does, firms will diversify their
technological activities, generate new
competences but its technological origins will
remain obvious for a long time in subsequent
trajectories (with institutional continuity).
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So firms have a wider set of technological
competences than P&H suggest,
But these competences do enable firms to be
flexible and ride-out the more destructive
changes in products and markets
By managing broad portfolios of technological
competences, they can mitigate the threat of
competence-destroying discontinuities which
would be disastrous if firms only focussed on 5/6
“core” technological competences.
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Corporate technological diversification
and industry level considerations
Firms portfolio of technological
competences persistent, but evolving
towards greater diversity
What are the areas they are diversifying
into?
Are these industrially bound or cross-
industry?
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Fai & von Tunzelmann (2001)
Industries identified by the types of products they make.
Products/ processes tend to be technologically complex ie. draw upon multiple technologies
Some technologies are strongly associated with particular industries e.g. Distillation processes, a technology associated with the Chemical industry (path-dependency view)
But with increasingly complex products and processes, does this imply a blurring of the technological boundaries between industries/convergence? (long-waves view –some technological paradigms pervade across several industries over time)
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Dreggs
Notion of „core‟ technology is not clear.
a) that which one might most closely associate
with a particular industry e.g. distillation
processes may be core to chemical-related
industries.
b)that which is lies at the heart of a firms‟
competitiveness
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Problem
For all firms in a particular industry, we would expect to see the same „core‟ technologies (definition a) present e.g. we‟d expect distillation processes to be present as a technology in all chemical firms.
Does not mean the technology distinguishes one chemical firm from another in a competitive market – it may be a necessary technology to have to operate in a particular industry, but not sufficient to yield firm-specific competitive advantage.