1. 1. By : Kritika Handoo
2. 2. a bundle of skills integrated to make a company unique. the engine for new business development, underlying component of a companys competitive advantage. created from the coordination, integration and harmonization of diverse skills and multiple streams of technologies.
3. 3. The critical task for management is to build product that customers need but have not yet even imagined. Requires radical change in the management of major companies. It is the principles of management that are in need of reform . Understand the changing basis for global leadership.
4. 4. Management adopted an appropriate strategic architecture, C&C, and then communicated its intent to the whole organization and the outside world. Shift in thinking and resources to focus on competencies Top management determined core product. Entered into strategic alliances--- aimed at building competencies rapidly and at low cost. R&D Director : From an investment standpoint, it was much quicker and cheaper to use foreign technology. There wasnt a need for us to develop new ideas. Now a world leader in consumer electronics Image source: NEC
5. 5. No 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 - as to which competencies would be required to compete.
6. 6. Portfolio of competencies versus portfolio of Business: Canon(personal copiers), Honda(from bikes to four wheelers). Sony, Casio, Yamaha,Komatsu invented new devices. Japanese co. are generating a blizzard of features and functional enhancements that bring technological sophistication to everyday products. Real sources of advantage --- Consolidating corporate-wide technologies, resources and production skills into competencies.
7. 7. In Short Run, company's competitiveness derives from price/performance attributes of current products. In Long Run company's competitiveness derives from an ability to build at lower cost and more speedily than competitors. Diversified corporation is a large tree.
8. 8. If core competence is about harmonizing streams of technology, it is also about the organisation of the work and the delivery of value. Example : among Sonys competencies is miniaturization. To bring this to its products, Sony must ensure that technologists, engineers and marketers have a shared understanding of customer needs and of technological possibilities.
9. 9. Cultivating core competence does not mean outspending rivals on R&D. Example: Canon surpassed Xerox in worldwide unit market share in the copier business, its R&D budget in reprographics was but a small fraction of Xeroxs. Nor does it mean shared costs, as when two or more SBUs use a common facility. Building core competencies is more ambitious and different than integrating vertically.
10. 10. Companies judge competencies in terms of price/ performance of end products--- making erosion of core competence or making too little effort to enhance them
11. 11. How to identify: Accessibility: provide potential access to a variety of markets Value-creation: make a significant contribution to perceived customer benefits of the end product Uniqueness: Be difficult for competitors to imitate
12. 12. How to lose: A Core Competency is lost: Through outsourcing/OEM-supply relationships => Example: Chrysler vs Honda Forgoing opportunities to establish competencies that are evolving in existing businesses => Example: television business
13. 13. 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.
14. 14. Essential to make distinction because global competition is played out by different rules and for different stakes at each level. At the level of core competence the goal is to build world leadership in the design and development of a particular class of product functionality. Core products are the components that actually contribute to the value of the end products. Example : Hondas engines are core products that ultimately lead to proliferation of end products.
15. 15. TwoConceptsoftheCorporation: SBUorCoreCompetence SBU CoreCompetence Basicforcompetition Competitivenessoftodaysproducts Interfirmcompetitiontobuildcompetencies Corporatestructure Portfolioofbusinessesrelatedinproduct- marketterms Portfolioofcompetencies,coreproducts, andbusinesses Statusofthebusinessunit Autonomyissacrosanct,theSBUownsall resourcesotherthancash SBUispotentialreservoirofcore competencies Resourceallocation Discretebusinessesaretheunitofanalysis, capitalisallocatedbusinessbybusiness Businessesandcompetenciesaretheunitof analysis:topmanagementallocatescapital andtalent Valueaddedoftopmanagement Optimizingcorporatereturnsthroughcapital allocationtrade-offsamongbusinesses Enunciatingstrategicarchitectureand buildingcompetenciestosecurethefuture Figuresource:Prahalad,C.K.,Hamel,G.(1990).TheCoreCompetenceoftheCorporation.HarvardBusinessReview,86.
16. 16. The ineffectiveness of SBU model: Underinvestment in Developing Core Competencies and Core Products :No single business unit may feel responsible for maintaining a viable position in core product nor be able to justify the investment required to develop world leadership in some core competence. Imprisoned Resources : The people who carry competencies do not get assigned to the most exciting opportunities &their skills begin to get wasted away. Bounded Innovation : if core competencies are not recognized, SBUs will pursue only those innovations opportunities that are close at hand.
17. 17. A strategic architecture: Yields a definition of the company & the market it serves. 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
18. 18. WHAT A STRATEGIC ARCHITECURE SHOULD LOOK LIKE : The architecture should provide a logic for the product & market diversification. It should make a resource allocation priorities transparent to the entire organisation. Help the lower level managers understand the logic of allocation priorities
19. 19. Reduce the investment needed to secure future market leadership Provide a logic for product and market diversification Reduce R&D costs. The task of creating a strategic architecture forces the organization to identify & commit to the technical & production linkages across SBUs that will provide a distinct competitive advantage. It is tool for communicating with the customers & other external constituents.
20. 20. SBUs should bid for core competencies in the same way they did for capital. Core competencies are corporate resources & may be reallocated by corporate management. SBUs are entitled to the services of individual employees as long they can defend why they need certain talents. Example : When Canon identified an opportunity in digital laser printers, it gave SBU managers the right to raid other SBU to pull together the required pool of talent.
21. 21. Core competence are the wellspring of new business development. If the company is conceived of as hierarchy of core competencies, core product & market focused business units will it be fit to fight. Top management must add value by enunciating the strategic architecture that guides the competence acquisition process. Managers have to win manufacturing leadership in core products. Competence carriers should be regularly brought together from across the corporation to trade notes and ideas.
22. 22. Thank you