The Core Competence of the Corporation

1. Prahalad, C.K., Gary Hamel (1990). Harvard Business Review, May-June, 79-91. The Core Competence of the Corporation Presented by: James Henshall Jose Zunino Chau Hoang Tuan Phung

2. Introduction: Context • 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)

3. Introduction: A Timely Idea • 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

4. Introduction: Main Idea • 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

5. Rethinking the Corporation • 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”

6. Rethinking the Corporation • 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

7. Roots of Competitive Advantage • 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

8. Roots of Competitive Advantage • 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: • subsidiaries as discrete SBUs

9. Roots of Competitive Advantage Image source: HBR

10. How Not to Think of Competence • 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.

11. How Not to Think of Competence • 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.

12. Identifying Core Competencies – And losing them • 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

13. Identifying Core Competencies – And losing them • 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

14. Identifying Core Competencies – And losing them • 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.

15. From Core Competencies to Core Products

16. The Tyranny of the SBU

17. The Tyranny of the SBU • The ineffectiveness of SBU model: • Underinvestment in Developing Core Competencies and Core Products • Imprisoned Resources • Bounded Innovation  A shift in management is inevitable.

18. Developing Strategic Architecture • 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

19. Developing Strategic Architecture • Benefits of Strategic Architecture • Reduce the investment needed to secure future market leadership • Provide a logic for product and market diversification

20. Developing Strategic Architecture • 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.

21. Vickers Learns the Value of Strategic Architecture

22. Redeploying to Exploit Competencies • 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

23. Conclusion • 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

24. Discussion • 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?