The Core Competence of The Corporation

Presented By:Sushmita SinghShweta SinghSouvik DuttaSumanta RoySection B

Perspective of Core Competences

C.K. Prahalad• Coimbatore Krishnarao Prahalad• Doctorate from Harvard Business School• Professorships in University of Michigan and IIM• Co-founder of Praja Inc. Where he tried his wings as an entrepreneur.• At Harvard Business School, Prahalad wrote a doctoral

thesis on multinational management in two and a half years.

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Contd...

Gary Hamel• Doctorate Doctorate from the University of Michigan• Professorship in London School of Economics• Founder and president of Strategos, an international

management consultancy• Core competence, strategic intent, industry revolution

Introduction In their view a core competency is a specific factor that a

business sees as being central to the way the company or its employees to work. It fulfills three key criteria:

• It provides consumer benefits.• It can be reused widely for many products and markets.• It must contribute to the end consumer’s experienced

benefits. The importance of the products/services to its customers.

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Characteristics of Core Competency

• Core competencies are not something isolated ‘somewhere’ in the organization, but something collective, a combination of various types of knowledge and resources.

• Organizations can have core competencies, but also parts of organizations such as individual business units or departments.

• Core competencies reflect what companies can do, not what they have. Core competencies enable companies to perform critical processes that they could otherwise not perform.

• Core competencies enable companies to perform processes better than their competitors. Hence, they enable companies to outperform other companies on one or more critical processes.

Rethinking The Corporation Build product for customers need but have not yet even

imagined. Requires radical change in the management of major

companies. Understand the changing basis for global leadership.

Analysis of the Case

NEC• Strategic architecture to

exploit the convergence computing and communicating (C&C).

• Acquired competencies in semiconductors.

• Used collaborative arrangements to multiply internal resources.

• Now a world leader in consumer electronics.

GTE• 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.

Comparison Between Sales Revenue of NEC & GTE

The Roots of Competitive Advantage

Low cost and high quality. Inventing new markets, creating new products and enhancing

them. Also in established markets they also made great challenge to

Western Companies. Many examples are given in this articles: Canon (personal copiers), Honda (from bikes to four

wheelers). Sony, Casio, Yamaha, Komatsu invented new devices.

The Roots of Competitive Advantage

The Roots of Competitive Advantage

There are major companies that have had the potential to build core competencies but failed because of an inability to conceive of the company as anything other than a collection of discreet business.

Management trapped in the SBU mind-set almost inevitably finds its individual businesses dependent on external sources for critical components.

How Not To Think of Competence

• In the core competencies underlying them, disparate business become coherent.

• Unlike the battle for global brand dominance, which is visible in the worlds broadcast and print media, the battle to build world class competencies is invisible to people who aren't deliberately looking for it.

• Cultivating core competence does not mean outspending rivals on research and development or sharing cost between SBU.

• Building core competence is more ambitious and different than integrating vertically.

Identifying Core Competencies And Losing Them

Three test to identify core competencies of a company:

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.

Contd... How to loose:• Get depends on outsourcing. Outsourcing may a good

shortcut for a competitive product, but may ruin the core competencies to sustain product leadership.

• Forgoing the opportunities to establish competencies that are evolving in existing business.

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Contd... Lessons Learned:• The cost 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.

From Core Competencies to Core Products

Tangible link between identified core competencies and end products is the “core product”.

• The components or subassemblies that actually contribute to the value of the end product.

From Core Competencies to Core Products

Companies Core Competencies

Core Products

End Products

Honda Unique Product Development

Engines Automobiles, Motorcycles

Canon Optics, Imaging and

Microprocessor

Laser Printer Subsystems

Cameras

Sony Ability to miniaturized electronics

Portable Music Player

Sony Walkman

The Tyranny of SBU

Strategic Business Unit & Core Competence

The Tyranny of SBU SBU put today’s competition as main focus, while it has

three damage cost:

• Under-investment in developing core competencies and core products

• Imprisoned resources• Bounded innovation

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Developing Strategic Architecture

Strategic Architecture is “a road map of the future that identifies which core competencies to build and their constituent technologies”.

By providing an impetus for learning from alliances and focus for internal development efforts, a strategic architecture can dramatically reduce the investment needed to secure future market leadership.

Redeploying to Exploit Competencies

Core competencies are corporate resources and may be reallocated by corporate management.

Reward system that focus only on product-line results and career path that seldom cross SBU boundaries engender pattern of behavior among unit managers that are destructively competitive.

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Contd...

Ways to wean key employees off the idea that they belong in perpetuity to any particular business:

• In early careers; they may be exposed to variety of business through carefully plane rotation program.

• In mid career; periodic assignment to cross-divisional projects may necessary.