Dorothy Leonard-Barton SMJ (1992) BADM 546, Group #1

1. Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development Dorothy Leonard-Barton SMJ (1992) BADM 546, Group #1 (Meredith Blumthal, Wooje Cho, Barclay James, and Kumar Sarangee)

2. Focus of the article • Discuss the project/capabilities interaction as a paradox faced by project managers, the observed management tactics and the potential of product/process development projects to stimulate change. • Institutionalized capabilities may lead to “incumbent inertia” in the face of environmental changes. • Technological discontinuities can enhance or destroy existing competencies within an industry. • New product and process development projects are obvious, visible arenas for the conflict between the need for innovation and retention of important capabilities. • Paradox: core capabilities simultaneously enhance and inhibit development.

3. What is a core capability ? • Capabilities are considered core if they differentiate a company strategically. • Synonyms used in the extant literature – distinctive competencies, core or organizational competencies, firm-specific competencies, resource deployments and invisible assets. • Teece, Pisano and Sheun –“a set of differentiated skills, competencies and routines that provide the basis for a firm’s competitive capacities and sustainable advantage in a particular business.” • Oft used descriptors – unique, distinctive, difficult to imitate, superior to competition. • Author’s description – A core capability is a knowledge set that distinguishes and provides a competitive advantage. It is an interrelated, independent knowledge system. • Core capabilities are institutionalized i.e., they are part of an organization’s taken for granted reality, which is an accretion of decisions made over time and events in corporate history

4. Dimensions of a Core Capability

5. Dimensions of a Core Capability • Employee Knowledge and Skills – Encompasses both firm-specific techniques and scientific understanding. • Technical Systems – This knowledge results from years of accumulating, codifying and structuring the tacit knowledge in people’s heads. • Managerial Systems – Formal and informal ways of creating knowledge (i.e., through sabbaticals, apprenticeship programs or networks with partners) and of controlling knowledge (e.g., incentive systems and reporting structures). • Values and Norms – the value assigned within the company to the content and structure of knowledge (e.g., engineering versus marketing), means of collecting knowledge (e.g., formal degrees versus. experience) and controlling knowledge (e.g., individual empowerment versus. management hierarchies.)

6. Interaction of projects and capabilities – The paradox

7. Sample Companies and Projects

8. The Up side: Capabilities Enhance Development In all the sample projects studied: • Deep stores of knowledge embodied in people and embedded in technical systems were accessed. • All projects were aided by managerial systems that created and controlled knowledge flows. • All projects were influenced by prevalent values and norms. • Whether the projects were aligned or not with the prominent core capability identified by the company, some dimensions of that capability favored the project. • Thus the closer the alignment of project and core knowledge set, the stronger the enabling influence. • Additionally the interaction between development projects and capabilities lasts over a period of months or years and differs according to how completely aligned are the values, skills, managerial and technical systems required by the project with those currently prevalent in the firm.

9. The Up side: Capabilities Enhance Development • Skills/knowledge Dimension: - Excellence in the dominant discipline. - Pervasive technical literacy. • Technical Systems Dimension: - Systems, procedures and tools left behind by talented individuals embodying many of their skills in a readily accessible form. - Can be leveraged by project managers to create competitive advantage. • Managerial Systems Dimension: - Unusual blends of skills and beneficial behaviors not observed in competitive firms. - Incentive systems encouraging innovative activities and unusual educational systems. • Values Dimension: - Empowerment of project members. - High status for the dominant discipline.

10. The Down side: Core Rigidities Inhibit Development • Project failures caused due to gap between current environmental requirements and core capabilities of corporation. • Values, skills, managerial and technical systems that were useful in the past may be inappropriate sets of knowledge now or core rigidities. • Core rigidities are the flip side of core capabilities. • They are not neutral – these deeply embedded knowledge sets actively create problems. • More problematic for projects that are deliberately designed to create new, non traditional capabilities. • Can also affect all projects – even those that are reasonably congruent with current core capabilities.

11. The Down side: Core Rigidities Inhibit Development • Skills and Knowledge Dimension: - Less strength in non-dominant disciplines. - Less attractive for top people here. • Technical Systems Dimension: - Skills and processes captured in software & hardware can be outdated. - New product designers do not always know how many such systems they are affecting. • Management Systems Dimension: - Intractability in career path. - Reluctance of skilled people to take undervalued project tasks. • Values Dimension: - Empowerment as entitlement. - Lower status for non-dominant disciplines.

12. The Interaction of Projects with Rigidities • Severity of Paradox depends on: - Number of dimensions comprising core rigidity. - Type of dimensions comprising core rigidity. • The four dimensions vary in ease of change. From technical to managerial systems, skills and then values, the dimensions are increasingly less tangible, less visible and less explicitly codified. • Technical systems – Relatively easy to alter. • Managerial Systems – Usually have greater organizational scope, reach more subunits and hence require acceptance from more people. • Skills and Knowledge content – Even less amenable to change as skills are built over time and many remain tacit. • Value – least susceptible to change. Values are most closely bound to culture and culture is very difficult to alter in the short term, if at all.

13. Effect of paradox on projects Managers handled the paradox in one of the following four ways. • Abandonment of the project. • Recidivism – Return to core capabilities. • Reorientation. • Isolation from the typical projects.

14. Effect of paradox on core capabilities • Capabilities are not usually dramatically altered by a single project. • But projects can pave the way for organizational change by highlighting core rigidities and introducing new capabilities. • Can break the lower status of a discipline and benefit the project and corporation. • Projects which are small departures from tradition in organizations provide a foundation in experience to inspire eventual large changes. • These changes can be precipitated by the introduction of new capabilities along any of the four dimensions. • However for a capability to become core, all four dimensions must be addressed. • The multidimensional nature of core capabilities must be fully appreciated to fully implement a change.

15. Conclusions • Core capabilities can enable as well as hinder innovation. • Technology based organizations have no choice but to challenge their current paradigms. • Due to the swift moving environment, the old fit must be continuously disturbed. • The time to search out and develop a new core resource is when the current core is doing well.

16. Conclusions • Development projects provide opportunities for creating the requisite variety for innovation. • Having multiple frameworks available is probably the single most powerful attribute of self renewing organizations. • Project managers who constructively discredit the systems, skills or values traditionally revered by companies may cause a complete redefinition of core capabilities or initiate new ones. They can consciously manage projects for continuous organizational renewal.