The Core Competence of the Corporation

teddy – benny – diena

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 Content
 Introduction
 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 SBU
 Developing Strategic Architecture
 Redeploying To Exploit Competencies

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 Perspective of core
competences
• Concept of core competences:
• C.K. Prahalad
Professor of corporate strategy
and intenational business at
University of Michigan.
• Gary Hamel
Lecturer in business and policy
management at London
Business School
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 Introduction: Main Idea

• Idea: The evolution of global

management and the
emergence/importance of
competency-minded management.

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 Introduction: Core
Competencies
• What is Core Competence???
• 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

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 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
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 Rethinking The
Corporation
NEC GTE
• Strategic architecture: to • No strategic architecture
exploit the convergence existed
computing and • Decentralization made it
communicating ( C&C ) difficult to focus on core
• Acquired competencies competence
in semiconductors. • Senior managers worked
• Used Collaborative as if they were
arrangements to managing independent
multiply internal business unit.
resources • No Mutual decision was
• Now a world leader in made
consumer electronics

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 The Roots Of
Competitive Advantage
• In the short run, a company’s
competitiveness derives from the price
attributes of current products
• In the long run, competitiveness derives
from the ability to build a lower cost and
more speedily than competitors, the core
competencies that spawn unanticipated
products
• Real resources of advantage are to be
found in management’s ability to
consolidate corporate-wide technologies
and production skills into competencies
that empower individual business to
adapt quickly to changing opportunities
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 The Roots Of
Competitive Advantage
• The diversified corporation is a large
tree.
 The trunk and major limbs are
core products
 The smaller branches are
business units
 The leaves, flowers and fruit
are end product,
 The root system that provides
nourishment, substance and
stability is the core product.
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 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.
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 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 R&D or sharing cost
between SBU.
• Building core competence is more ambitious
and different than integrating vertically

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 Identifying Core Competencies
And Losing Them

Three test to identify core

competencies of a company:
1. It provides potential access to a wide
varieties of markets.
2. It makes a significant contribution to
the perceived customer benefit of the
end products.
3. It should be difficult for competitors
to imitate.

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 Identifying Core Competencies
And Losing Them

Ways to losing the core competencies

of a company:
1. Get depends on outsourcing.
Outsourcing may a good shortcut for a
competitive product, but may ruin the
core competencies to sustain product
leadership.
2. Forgoing the opportunities to establish
competencies that are evolving in
existing business.

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 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.

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 From Core Competencies to Core
Products

Should have distinctions between:

Core competencies Core products End products

Ability to miniaturized
Portable music player Sony Walkman
electronics

Indexing technologies & Internet based Google doc, mail, search

large-scale hardware productivity tools engine, etc

Strong brand & distinct “Secret” Coke

Coca-Cola
taste concentrate

Source:
http://www.ukessays.com/essays/business/analysing-the-core-competencies-of-google-inc-business-essay.php
http://www.ukessays.com/essays/business/coca-cola-a-resource-based-view-business-essay.php

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 The Tyranny of SBU

Strategic Business Unit & Core Competence

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 The Tyranny of SBU

SBU put today’s competition as main focus, while it

has three damage cost:
1. Under-investment in developing
core competencies and core
products

2. Imprisoned resources

3. 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.

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 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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 Redeploying to Exploit
Competencies
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.

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