The Core Competence of the Corporation

Omkar Jadhav- MMS 18 Rahul Singh- MMS - 54

COMPETITION

DIVERSIFICATION

CORE COMPETANCIES

THE IDEA IN BRIEF

Diversified giant NEC competed in seemingly

disparate businesses It considered itself not a collection of strategic business units, but a portfolio of core competencies Thinking of a diversified company as a tree Core competencies creates unique, integrated systems which is difficult for competitors to imitate

THE IDEA IN PRACTICE

CLARIFY CORE COMPETENCIES

ARTICLUATE A STRATEGIC INTENT IDENTIFY CORE COMPETANCIES

INVEST IN NEEDED TECHNOLOGIES

BUILD CORE COMPETENCIES

FORGE STRATEGIC ALLIANCES

STOP THINKING BUSINESS AS SACROSANCT CULTIVATE MINDSET IDENTIFY PEOPLE AND PROJECTS THAT EMBODY THE CC

Nippon Electric Company

A Japanese multinational IT company, NEC provides IT and network solutions to business enterprises, communications services providers and government.

General Telephone & Electronics Corporation

GTE was the largest of the independent US telephone companies started in 1913 Service: provided local telephone service to a large number of areas of the US In 2000, GTE was bought by Bell Atlantic, renaming itself Verizon Communications.

NEC - Core Competency

Communications Equipment Radio broadcast Microwave communications technology Computers 1950 entered the computer industry 1974 first Japanese microprocessor 1979 developed it first PC

NEC

Semiconductors 1958 Signed a technology licensing agreement with GE 1960 established its Integrated Circuits Division 1967 moved into VLSIs

GTE-Core Business
Sell or transfer underperforming or non-core businesses Sold: Television & radio manufacturing operations Consumer communication products GTE Sprint Worldwide lighting, electronic product, space-based communications, and aircraft cellular phone business 1990s The merger with Contel Corporation Agreements with Lycos, Qwest, and Cisco to enhance its position in Internet-related business Expand to foreign markets Focus on new and enhanced communication businesses

Performance of NEC vs. GTE Sales

Sales in Millions of $'s NEC vs GTE

$50,000 $40,000 $30,000 $20,000 $10,000
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

GTE NEC

$-

RETHINKING THE CORPORATION

1. Diversified corporation - point its business units at particular end product markets Dominate
2. Changing market boundaries 3. A few companies have proven themselves adept at inventing new markets, entering emerging markets etc 4. The critical task for management is to create an organization capable of infusing products with functionality or products that customers need but not yet even imagined. 5. Top managements of Western companies must assume responsibility for competitive decline.

END PRODUCTS

BUSINESS UNITS CORE PRODUCTS

CORE COMPETANCIES

Core Competencies
Core

competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.

1. Core competence is communication, involvement, and a deep commitment to working across organizational boundaries. 2. The skills of individuals together constitute core competence and efforts should not so narrowly focused that they cannot recognize the opportunities for blending their functional expertise with those of others in new and interesting ways.
3. Core competence does not diminish with use. 4. But competencies still need to be nurtured and protected; knowledge fades if it is not used.

THE MISTAKES THAT ARE DONE NOW

Top management often tracks the cost and quality of competitors products
Yet managers fail to untangle the web of alliances their competitors have constructed to acquire competencies Looking at the fruit gives a deceptive image of the strength of the tree

Identifying Core Competencies

1. 2.
potential access to a wide varieties of market make a contribution to the perceived customer benefits of the end product.

3.

difficult for competitors to imitate.

Losing Core Competencies

Outsourcing provides only a short cut to a competitive product.

Forgoing the opportunities to establish competencies that are evolving in the existing business.

Lessons learned

Cost of losing core competence can be partly calculated in advance.

A company that has failed to invest in core competence building will find it very difficult to enter an emerging

market.

Core Competencies

Hondas internal combustion engines

Thinking in terms of core products forces a company to distinguish between the brand share it achieves in end product markets

and the manufacturing share it achieves in

any particular core product.

Product Example

Core Product ( Manufacturing Share)

End Product (Brand Share)

Canon

Desktop Laser Printer-84%

Compressors-40%

Laser printerminimum
Air-conditioning & Refrigeratorminimum

Matsushita

The Tyranny of the SBU

There is a need for new principles in companies organized exclusively according to the SBUs.

Two Concepts of the Corporation:

SBU or Core Competence

Two Concepts of the Corporation: SBU or Core Competence SBU Core Competence Basis for competition Corporate structure Competitiveness of todays products Portfolio of business related in productmarket terms Interfirm competition to build competencies Portfolio of competencies, core products and business

Status of the business unit

Resource allocation

SBU owns all resources other than cash

Discrete businesses are the unit of analysis Optimizing corporate returns through capital allocation, trade offs among business.

SBU is a potential reservoir of core competencies

Businesses and competencies are the unit of analysis Enunciating strategic architecture and building competencies to secure the future.

Capital value added top management

Diversified Corporations

Portfolio

of

products,

Portfolio

of

business, Portfolio of competencies.

Top management should have the

vision to build competencies and the

administrative means for assembling resources spread across businesses.

Battle for Global Leadership

Cannot

beat

rivals

in

core

competence

leadership by mere weight of investment i.e.

building leadership in few technologies.

Can

outpace

the

rivals

in

new

business

development by:
building core competencies, winning the race to capture world manufacturing share in core products.

Difficult to determine if one is winning or

loosing in the end product via market share. Successful companies build global brand

umbrellas by proliferating products out of their

core competencies.

This help businesses to build image, customer loyalty and access to distribution channels.

Developing Strategic Architecture

STRATEGIC ARCHITECTURE

It is a roadmap of the future that identifies which core competencies to build and their consistent technologies.

HOW DOES IT HELP

It provides an impetus for learning from alliances .

A focus for internal development.

Reduce the investment needed to secure future market

HOW SHOULD A S.A LOOK LIKE

It

is different for different organization It can draw idea from the competency tree. It provides a logic for product and market diversification.

 Resource

allocation priorities transparent to the entire organization. Provides understanding to the lower level managers regarding the logic of allocation priorities. Disciplines senior management to maintain consistency

It provides a framework to link

technical and production know-how

across SBUs. It will provide

competitive advantage.

It cannot be copied by competitors.

Real World Example:

Every end product offered by Canon has at least one core product that makes a significant contribution to the perceived customer

Redeploying to Exploit Competencies

Core competencies need to be spread across the company.

SBUs should bid for the core competencies as they bid for capital.

Conclusion

Core competency should be the focus of

strategy at corporate level.

Build organization on the hierarchy of core competency, core product and end products Top management must add value via

strategic architecture.

THANK YOU