The Core Competence of the Corporation

1. The Core Competence of the Corporation By C.K. Prahalad and Gary Hamel

2. The Core Competence of the Corporation Group # 7: Yen Fei Lu JulianGelvez Javier Landivar Steven Mills Frank Ochoa Nicole Rodriguez

3. Key points • 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

4. C.K. Prahalad • Entreprenuer, consultant, and management expert • Professor of Corporate Strategy at the Ross School of Business at the University of Michigan • In 2009, he was named the world’s most influential business thinker on the Times “The Thinkers 50” list • Co-founder and CEO of Praja Inc. • Authored a number of works including “Competing for the Future” (1994), “The Future of Competition” (2004), The Fortune at the Bottom of the Pyramid” (2004), and “The New Age of Innovation.”

5. Bottom of the Pyramid

6. Gary Hamel • Consultant, management educator, professor • Ranked most sought after management speaker in Executive Excellence magazine • Has worked with such companies as General Electric, Nokia, Time Warner, Shell, Proctor and Gamble, and Microsoft. • Pioneered such concepts as “core competence,” “industry revolution,” and “management innovation.”

7. Introduction “The most powerful way to prevail in global competition is still invisible to many companies.” * in billions

8. Rethinking the Corporation Critical Task: “Management must create an organization capable of infusing products with irresistible functionality or create products that customers need but have not yet even imagined.”

9. Why did these companies perform so differently? NEC GTE • Created a strategic architecture (groups and committees that cut across the interests of individual businesses • Communicated its intent to the whole organization • Created alliances to build competencies • No overall strategy • Managers acted as though they were running independent business units • Decentralization-difficult to focus on core competencies • Dependent on outsiders for critical thinking

10. The Roots of Competitive Advantage • NEC vs. GTE • Competencies vs. Businesses • American vs. Japanese • Canon grew by 264%: Honda by 200% “The real sources of advantage are to be found in management’s ability to consolidate corporate wide technologies and production skills into competencies that empowers individual businesses to adapt quickly to changing opportunities” (Prahalad and Hamel, 1990: 81).

11. The Roots of Competitive Advantage • Problem: Adherence to concepts that limits the ability of businesses to exploit capabilities (SBU). • Corporation = Large Tree • Value of theoretical knowledge: The know-how.

12. The Roots of Competitive Advantage Core Competence • Collective Learning • Production Skills • Integration of Technology • Organization of Work • Delivery of Value “Core Competence is Communication, involvement, and a deep commitment to working across organizational boundaries” (Prahalad and Hamel, 1990: 82).

13. How Not to Think of Competence • Cultivating Core Competence • Global Brand Dominance • Honda’s engines for cars, motorcycle, and lawn mower. • Canon’s optics, imaging, and microprocessors.

14. Identifying Core Competencies- And Losing Them • Provides possible access to a wide variety of markets • Should achieve an important contribution to the perceived customer benefits of the end product • Hard to imitate

15. Identifying Core Competencies- And Losing Them • Most Western companies judge competitiveness both their own and their competitors mainly by price/performance of end products and erode their core competencies looking at the short run by outsourcing • Cutting internal investment in favor of outside suppliers has damaged the company’s internal infrastructure, including their human resource skills that are needed to gain leadership by providing the future generation of competitive products

16. Identifying Core Competencies- And Losing Them • Japanese corporations looked at long term planning by forming alliances contributing to their goals for competence building • Forgoing opportunities to establish competencies that are evolving in existing business

17. Identifying Core Competencies- And Losing Them • Lessons for corporations who looked at the short run for success • Costs of not building a core competence can be only partly measured in advance • Core competencies are achieved through a process of continuous, strategic company improvement and enhancement in internal infrastructure that may span a decade or longer, so, without this commitment a corporation may find it hard to enter an emerging market

18. From Core Competencies to Core Products • The link between core competencies and end products

19. From Core Competencies to Core Products • The physical embodiments of one of more core competencies. • To offer the products customers desire depends on the ability to transfer the core competences into core products and end products • As the different level market • Provides potential access to a wide variety of markets • The components of subassemblies that actually contribute to the value of the end products.

20. From Core Competencies to Core Products • Well-targeted core products can lead to economies of scale and scope. • Multiplies the number of application areas for the core products

21. The Tyranny of the SBU SBU vs. Core Competence • Basis for competition • Corporate structure • Resource allocation • Value added of top management

22. The Tyranny of the SBU Shifting of Philosophy • Portfolio of products and businesses to a portfolio of competencies • Top managements role

23. The Tyranny of the SBU “Core Competence, Core Products and End Products: Find Your Focus”

24. The Tyranny of the SBU SBU Issues • Underinvestment in core competency • Employees not shared amongst business units • Lack of vision from top management

25. Strategic Architecture • “Reveals the broad corporate direction without giving away every step” (Prahalad and Hamel, 1990: 89). • A “road map” of the future that identifies core competencies and technologies related with them (Prahalad and Hamel, 1990: 89).

26. Developing Strategic Architecture • To develop mechanism for “organizational learning, innovation and experimentation, constructive contention, empowerment, optimized value potential, corporate sustainability, and strategic re-framing” (Kiernan, 1993: 7). • Companies should think in innovative ways to connect effectively with customers and markets in order to survive in the current global economy (O’Shannassy and Hunter, 2009: 33).

27. Strategic Architecture Nowadays • Mission, Vision, and Strategy. • The basis of “The Balanced Scoredcard” (1992) and “Strategy Maps” (2004) of Kaplan and Norton. • A model which integrates strategy formulation and strategy implementation using performance measurement data to improve the quality of the outcomes (O’Shannassy and Hunter, 2009: 34). • Panning, Organizing, Leading and Controlling – The Management Process of Henri Fayol.

28. Exploiting Core Competencies • Auditinglocation, number, and quality of competence carriers. • Pulling together competence carriers for innovation and product development. • Transferring core competences among the organization. • Rewardinginnovation across SBU’s boundaries.

29. The Core Competence of the Corporation Questions?