The Core Competence of the Corporation

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A Presentation for Harvard Summer School ‘13 By Ritesh Malik Akshara ravilla Sonal Kotecha Eesha Palkar

Perspective of Core Competence

Concept of Core Competence :-

C. K. Prahalad Professor of corporate strategy and

international business at University of Michigan.

Gary Hamel:Lecturer in business and policy management

at London Business School.

Introduction: Main Idea

Idea: The evolution of global management and the emergence/importance of Competency-minded managementRethinking the Corporation The Roots of Competitive Advantage Identifying Core Competencies – And Losing Them The Tyranny of the SBU Developing Strategic Architecture

Core Competence

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.

Video by Prahlad

http://www.youtube.com/watch?v=WfP-VICbLRA

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.

Analyze the Case

Strategic architecture: to exploit the convergence of computing and communicating(“C & C”).

Acquired competencies in semiconductors.

Used collaborative arrangements to multiply internal resources.

Now a world leader in consumer electronics

Image source: NEC

GTENo strategic Architecture existed.

Decentralization made it difficult to focus on core competence.

Senior managers worked as if they were managing independent business unit.

No mutual decision was made.

Roots of Competitive Advantage

Portfolio of companies versus portfolio of Business:Canon(personal copiers), Honda(from bikes to four

wheelers).Sony, Casio, Yamaha,Komatsu invented new devices.

Consolidating corporate-wide technologies and resources into competencies.

Cont..

In Short Run companies, its competitiveness derives from price/performance attributes of current products.

In Long Run companies, its competitiveness derives from an ability to build at lower cost and more speedily than competitors.

Western companies “stuck” in old mentality.

Diversified corporation is a “large tree”.

Identifying Core Competencies – And losing them

How to identify: Accessibility: provide potential access to a variety of

marketsValue-creation: make a significant contribution to

perceived customer benefits of the end product Uniqueness: Be difficult for competitors to imitate

Identifying Core Competencies – And losing them

How to lose:

A Core Competency is lost:Through outsourcing/OEM-supply relationships

=> Example: Chrysler vs HondaThrough giving up opportunities to establish

competencies that are evolving in existing businesses

=> Example: television business

The Tyranny of the SBU

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 Corporate 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 “owns” 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 Optimizing 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 Tyranny of the SBU

The ineffectiveness of SBU model:Underinvestment in Developing Core Competencies

and Core Products Imprisoned ResourcesBounded Innovation

A shift in management is inevitable.

Developing Strategic Architecture

A strategic architecture:Establish objectives for competence buildingA road map of the future that identifies which core

competencies to build and related technologiesCreate 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

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.

Benefits of Strategic Architecture• Reduce the investment needed to secure future

market leadership• Provide a logic for product and market diversification• Reduce R&D costs.

Vickers Learns the Value of Strategic Architecture

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 talentsSBUs must sacrifice short term in return for long

term benefitsRotation

ConclusionThis 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

A presentation for MNGT of Technology &

Innovation by Prof. Thachenkary

Akshara Ravilla

Eesha Palkar

Sonal Kotecha

Ritesh Malik