The Core Competence of the Corporation

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20 Νοε 2013 (πριν από 3 χρόνια και 11 μήνες)

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Prahalad
, C.K., Gary Hamel (
1990).
Harvard
Business Review,

May
-
June, 79
-
91.


Presented by:

James Henshall

Jose
Zunino

Chau

Hoang

Tuan
Phung


A turbulent time:


1987


stock market crash


1989


Berlin Wall fell


1990


dissolution of the Soviet Union


1970’s
-

1980’s: unchecked
growth in
corporations


Becoming large, inefficient conglomerates


Acquired what they “needed”: strategic business
units (SBUs)


Concept based
on the ineffectiveness of these
SBU


C. K.
Prahalad


“management guru”


engage
the
"
bottom of the pyramid"


from “cutting
-
edge
to cliché in six
years”


Gary Hamel:


continues to
stress
innovation


still writes for HBR


open
innovation
platform:
Management

Innovation Exchange (MIX)

Image source: Wikipedia


Idea: The evolution of global management and
the emergence/importance of Competency
-
minded management


Rethinking the Corporation


The Roots of Competitive Advantage


How
Not to Think of Competence


Identifying
Core Competencies


And Losing Them


From
Core Competencies to Core Products


The Tyranny of the SBU


Developing
Strategic Architecture


Redeploying
to Exploit
Competencies



Create markets, recognize emerging markets,
shift consumers in established markets


Requires major change from management as
usual


Changing basis for global leadership


“Portfolio
of companies” >>> “portfolio of
competencies




Strategic architecture: shift in thinking and
resources to focus on competencies


Focus on C&C as competency


Predicted the blending of related fields


Developed core product to compete in them


Acquired competencies through alliances


Now a world leader in consumer electronics

Image source: NEC


Companies using competencies experience
rapid growth:


Canon, Honda outpaced rivals


Sony, Casio, Yamaha invented new devices


Competiveness result gaining to spawn
unanticipated products


Consolidating corporate
-
wide technologies
and resources into competencies


Western companies “stuck” in old mentality


Diversified corporation is a “large tree”


Core competence is:


a bundle of skills integrated to make a company unique


the engine for new business development, underlying
component of a company’s competitive advantage


created from the coordination, integration and
harmonization of diverse skills and multiple streams of
technologies


communication
,
involvement,
and working across
organizational
boundaries.


grows,
instead
of diminishes, with
use


In contrast:


s
ubsidiaries as discrete SBUs


Image

source: HBR


Companies consider themselves as bundles of
product making businesses.


=> competitive strategy at the level of a business
surpasses that at the level of an entire company.


Companies’ competitiveness is focused on
price/performance attributes of current
products.




Companies’ top management is not fully
committed to building core competencies.


No detailed plan on what/where/how to build up.


Cultivating core competence does not mean
outspending rivals on R&D.


Core competence does not mean shared costs.


Building core competencies is different than
integrating vertically.




How to identify:

A Core Competency should be able to:



Accessibility
: provide potential access to a variety
of markets


Value
-
creation
: make a significant contribution to
perceived customer benefits of the end product

=> high economic value = benefits
-

costs


Uniqueness
: Be difficult for competitors to imitate

=> isolating mechanism




How to lose:

A Core Competency is lost:


Through outsourcing/OEM
-
supply relationships

=> Example: Chrysler
vs

Honda


Through giving up opportunities to establish
competencies that are evolving in existing
businesses

=> Example: television business


Lessons learned:


The costs 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.



Core Competencies

Core Products

End Products

Build world
leadership in the
design and
development

of a
particular class of
product
functionali
ty

Embed
competencies in
core products.
Maximize the
world
manufacturing
share in core
products

-
> shape
the evolutions of
end products

Fir
st, build up
advantages in
component
markets. Then,
leverage off
superior products
to build brand
share

Two Concepts of the Corporation
:

SBU or Core Competence


SBU

Core Competence

Basic for competition

Competitiveness of today

s products

Interfirm competition to build competencies

Corporat
e structure

Portfolio of businesses related in product
-
market terms

Portfolio of competencies, core products,
and businesses

Status of the business unit

Autonomy is sacrosanct, the SBU

own
s


all
resources other than cash

SBU is potential reservoir of core

competencies


Resource allocation

Discrete businesses are the unit of analysis,
capital is allocated business by business

Businesses and competencies are the unit of
analysis: top management allocates capital
and talent


Value added of top management

Optimizin
g corporate returns through capital
allocation trade
-
offs among businesses

Enunciating strategic architecture and
building competencies to secure the future


Figure source:
Prahalad, C.K., Hamel, G.

(1990).


The Core Competence of the Corporation

. Harvard Business Review
,
86
.


The ineffectiveness of SBU model:


Underinvestment in Developing Core
Competencies and Core Products


Imprisoned Resources


Bounded Innovation



A shift in management is inevitable.


A strategic architecture:


Establish objectives for competence building


A road map of the future that identifies which core
competencies to build and related technologies


Create a managerial culture, team work, a capacity to
change, and a willingness to share resources, to
protect proprietary skills, and to think long term


Consistency of resource allocation, administrative
infrastructure


Benefits of Strategic Architecture


Reduce the investment needed to secure future
market leadership


Provide a logic for product and market
diversification




Management duties:


To identify and commit to technical and production
linkages across SBUs that will provide a distinct
competitive advantage.


Top management: make resource allocation
priority decision


Lower level of management: understand and
maintain consistency with top management’s
decision and disciplines.





SBUs should bid for core competencies in the
same way they did for capital.


How to exploit:


SBUs must defend why they need certain talents


SBUs must sacrifice short term in return for long
term benefits


Rotation


The article is a radical breakthrough in
management.


Strengths of the article:


Timely, ground
-
breaking, forward
-
looking


Weakness of the article:


Difficult to read and understand fully



1. What is a “core competence” of a corporation?
Why core competencies do no diminish in an
organization?



2. What do the authors mean by “the tyranny of
the SBU?” In what ways the two concepts of the
corporation, SBU and core competence differ?
Explain.



3. What would be your (individual) core
competence? How would you relate that to your
future development and personal goals in life?