Presentation on theme: "The Core Competence of the Corporation"— Presentation transcript:
1The Core Competence of the Corporation Prahalad, C.K., Gary Hamel (1990), “The Core Competence of the Corporation,” Harvard Business Review, May-June,
2Authors Coimbatore K. Prahalad Gary Hamel Graduate of Harvard School of BusinessProfessor at Univ. of Michigan School of BusinessAdvocate of Core Competency Focus for BusinessesBusiness ConsultantHBR-“He was one of the foremost business thinkers of our time”Coimbatore K. PrahaladGraduate of University of Michigan School of BusinessVisiting Professor of London Business SchoolRanked as the “World’s most influential business thinker” by the Wall Street JournalBusiness Consultant and Media ContributorGary HamelPresent
3Background A turbulent time: 1987 – stock market crash1989 – Berlin Wall fell1990 – dissolution of the Soviet Union1970’s- 1980’s: unchecked growth in corporationsBecoming large, inefficient conglomeratesAcquired what they “needed”: strategic business units (SBUs)US Corporate (philosophical) Growth1980s- SBUs1990s-Core Competence2001-Networking
4Outline of the ArticleThe article emphasizes the importance of core competence of a corporation and asks management to develop their organization based on core competenceRethinking the CorporationThe Roots of Competitive AdvantageHow Not to Think of CompetenceIdentifying Core Competencies – And Losing ThemFrom Core Competencies to Core ProductsThe Tyranny of the SBUDeveloping Strategic ArchitectureRedeploying to Exploit Competencies
5Rethinking the Corporation “The critical task for management is to create an organization capable of infusing products with irresistible functionality or, better yet, creating products that customers but have not yet even imagined.” (P&H-p.80)
6GTE vs. NEC Example GTE NEC Industry Position 1980 Sales $9.98B, Net Cash Flow $1.73BWell positioned to become major player in information technology industryActive in telecommunicationsSales $3.8 BComparable technological base and computer businessNo experience in telecommunicationsManagement ConceptsNo strategic intent or architecture Senior Managers continued to function as individual business unitsStrategic Focus to bridge gap between telecommunications and office automationCore Competency - Semiconductors“C&C” – Computing and Communications CommitteeBusiness MovesDivested Sylvania TV and TelenetJoint Ventures for switching, transmission and digital PABX Closed down semiconductorsConsolidated position in mainframe computersMoved beyond switching and transmission to include mobile phones, fax machinesExecutionIncreasingly dependent on outsiders for critical skillsUsed collaborative arrangements (strategic alliances) to build knowledgeIndustry Position 1988Sales $16.46BTelephone operating company with position in defense and lightingSales $21.89 BWorld leader in semiconductors and first-tier in telecommunicationsResult“Portfolio of Businesses”“Portfolio of Competencies”
7Roots of Competitive Advantage “The diversified corporation is a large tree.... The root system that provides nourishment, sustenance, and stability is the core competence.” (P&H-p. 82)Companies using competencies experience rapid growth:Canon, Honda outpaced rivalsSony, Casio, Yamaha invented new devicesConsolidating corporate-wide technologies and resources into competencies is the key to success
8Diversified corporation as a large tree Leaves, Flowers and Fruit = End ProductsTrunk and Major Limbs = Core ProductsRoot System = Core Competency provides nourishment, sustenance and stability
10Core Competence Core competence is…. the collective learning in the organizationa bundle of skills integrated to make a company uniquethe organizational culture based on people, their skills and knowledge make a company competitivethe engine for new business developmentcreated from the coordination, integration and harmonization of diverse skills and multiple streams of technologiescommunication, involvement, and working across organizational boundariesUnlike physical assets, competencies do not deteriorate as they are applied and shared. They grow.
11How Not to Think of Competence Companies consider themselves as bundles of product making businesses (remember Marketing Myopia!) and is focused on price/performance attributes of current productsBuilding core competencies is different from integrating vertically….have no detailed plan on what, where, how to build an organizationCultivating core competence does not mean outspending rivals on R&D or getting businesses to become more vertically integrated
12Identifying Core Competencies–And Losing Them At least three tests can be applied to identify core competencies in a company. They are:core competencies provide potential access to a variety of marketsmake a significant contribution to perceived customer benefits of the end productshould be difficult for competitors to imitateCore competency can be lost…through outsourcing (Honda vs. Chrysler)by giving up opportunities to establish competencies of existing businesses (color television perceived as a mature product)
15The Tyranny of the SBU What is a Strategic Business Unit (SBU)? US Corporate (philosophical) Growth1980s- SBUs1990s-Core Competence2000s-NetworkingIneffectiveness of SBU modelUnderinvestment in developing core competencies or core productsImprisoned ResourcesBounded Innovation
17Developing Strategic Architecture A strategic architecture is a road map of the future that identifies core competencies to build and their constituent technologies. A strategic architecture should aim at building competencies. Training helps.Creates a managerial culture of team work, capacity to change, and willingness to share resourcesProtects proprietary skills, offers consistency in resource allocation and allows us to think long term around thatReduces the investment needed to secure future market leadershipProvides logic for product and market diversification
18Strategic Architecture The Strategic Architecture should make resource allocation priorities transparent to the whole organization
19Redeploying to Exploit Competencies Identify competencies and the projects and people connected with them.Recognize that core competencies are corporate recourses and may be reallocated as needed.Divisional managers come together and decide the needed investment to build each competency.Cooperative SBU managers must be recognized for their team work.Expose people by using a rotation program.End goal: Strong feeling of community and customer focus.
21ConclusionA very timely article, a radical breakthrough in management thinkingSustaining core competence-what can be doneIndividual vs. national core competence-do we really have any?
22Discussion QuestionsWhat is a “core competence” of a corporation? Why core competencies do not diminish in an organization?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.What would be your (individual) core competence? How would you relate that to your personal development and goals in life?