Business economics and strategy

1. Business economics and strategy Petros Kavassalis petros@rpcp.mit.edu Unit 4: Resources, Competences and Firm’s Strategic Capabilities

2. Why talking “competencies”? • Ten years, what a difference make! • 80s: restructure, declutter, delayer the corporation • 90s: identify, cultivate and exploit the core competencies that make growth possible • Rethinking the Corporation • Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary • Need: Invent new markets, enter emerging markets, shift customer choice in established markets • All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business) Univ. of Crete/Dpt of Econ./2001-2002

3. Beyond price/performance • Japanese firms provided a good example • they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products • The return of “long run” • In the short run, a company’s competitiveness derives from the price/performance attributes of current projects • In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products Univ. of Crete/Dpt of Econ./2001-2002

4. How competencies support products? End products 1 2 3 4 5 6 7 8 9 10 Business 1 Business 2 Business 3 Business 4 Core product 1 Core product 2 Core Competence 1 Core Competence 2 Core Competence 3 Univ. of Crete/Dpt of Econ./2001-2002

5. --- is a cross-organizational boundaries culture • Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies • Sony capacity to… • Philips expertise in… • Competence is about • Harmonizing streams of technology • Organization of work • Delivery of value Univ. of Crete/Dpt of Econ./2001-2002

6. How to think of competence • Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy… • … because they are able to integrate skills • In that context, core competencies provide strategic flexibility (possibility to enter more markets) • … and of course, is difficult to be imitated • How many: not more than five, six… Univ. of Crete/Dpt of Econ./2001-2002

7. From core competences to core products • The tangible link between core competencies and end products is what we call the core products • The physical embodiments of one or more core competencies • Core products are the components or subassemblies that actually contribute that contribute to the value of the end products • Attention to the difference between core competence – core product – end product Univ. of Crete/Dpt of Econ./2001-2002

8. Layers of competition • At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality • To sustain leadership in their core competence areas, companies seek to maximize their share in core products • They also need to define a strategic architecture • A tree of the corporation organized around core products and core competencies Univ. of Crete/Dpt of Econ./2001-2002

9. Competition for competence • Competition to develop and acquire constituent skills and technologies • Competition to synthesize core competencies • Competition to maximize core product share • Competition to maximize end product share Univ. of Crete/Dpt of Econ./2001-2002

10. Processes, positions and paths • Processes • Integration • Learning • Reconfiguration and transformation • Positions • Technological assets • Complementary assets • Financial assets • Paths • Path-dependencies • Technological opportunities Univ. of Crete/Dpt of Econ./2001-2002

11. Establishing the core competence agenda Market New Core competence Existing Existing New Univ. of Crete/Dpt of Econ./2001-2002