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)

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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

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