The Core Competence of the Corporation

1. The Core Competence of the Corporation

2. NEC versus GTE • In 1980, NEC is about 1/3 of GTE • In 1988, NEC became 1.3 times of GTE • World leader in semiconductors • First-tier player in telecommunications • Core competence!

3. Core Competence Logic of NEC • Build C & C (computing and communications) Committee • The way to develop core competence • Acquisition (Strategic alliances) • Accumulation • Sharing

4. NEC’s Myriad Strategic Alliances • Core product : semiconductor • NEC entered over 100 alliances to aim at building competencies rapidly and at low cost • NEC : a portfolio of competencies • GTE : a portfolio of businesses

5. 1 2 3 4 5 6 10 11 12 End Product 1 End product 2 End Product 3 End Product 4 Core Product 2 7 8 9 Core Product 1 Core Competence 1 Core Competence 2 Core Competence 3 Core Competence 4 The Roots of Competitive Advantage

6. The Roots of Competitive Advantage • Definition • Core competence • Core product • End product • Example: 3M, Honda

7. What is Core Competence? Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. • Companies could not have imagined all the end products out of its core competence in the early stages! • Does not mean outspending rivals on research and development? • Does not mean shared costs! • Differ from SBU!

8. What is Core Competence ? • Three tests to identify core competence • Provide potential access to a wide variety of markets • Make a significant contribution to the perceived customer benefits of the end product • Be difficult for competitors to imitate • The ways to build core competence • Internal investment • Strategic alliances • Distinguish between divesting the business and destroying competencies

9. From Core Competencies to Core Products • Core products • Link between identified core competencies and end products • The components and subassemblies that actually contribute to the value of the end products • Example : Honda’s engines, Canon’s laser printer engines, Matsushita’s VCR key components

10. From Core Competencies to Core Products • Importance of core product • Dominant position in core products allows • a company to shape the evolution of applications and end markets • consistently reduce the cost, time, and risk in new product development • economies of scale and scope • BRAND leadership vs. PRICE leadership

11. From Core Competencies to Core Products • Different goal at each level • at the level of core competence • The GOAL is to build world leadership in the design and development. • at the level of core products • The GOAL is to maximize the world manufacturing share in core products .

12. The Tyranny of the SBU • Compare two concepts of the corporation SBU or Core Competence

13. The Tyranny of the SBU • Some troubles with SBU • Underinvestment in developing core competencies and core products • Imprisoned resources • Bounded innovation

14. Developing Strategic Architecture • What is strategic architecture？ • A road map of the future that identifies which core competencies to build and their constituent technologies • Make resource allocation priorities transparent to the organization • Establish objectives for competence building • Example : NEC’s C&C, Vickers, Canon, Honda

15. Developing Strategic Architecture • Different companies, different strategic architectures • Three points • Tree • The corporation organized around core products • Core competencies

16. Redeploying to Exploit Competencies • Core competencies are corporate resources and may be reallocated by corporate management • Top managers ask businesses to identify the projects and people closely connected with them • A reward system must be settled to benefit SBU manager when he made some positive contribution • The positive contribution of the SBU manager should be made visible across company • Example : Canon and NEC • People within corporation • Early in their careers ─ a rotation program • In midcareer ─ cross-divisional project teams • Finally ─ competencies carriers should be regularly brought together

17. Conclusion • Core competencies are the wellspring of new business development. • Win manufacturing leadership in core products and capture global share through brand-building programs.