Performance of NEC vs.

GTE Sales

The Core Competence of the Corporation

C.K. Prahalad & Gary Hamel
Harvard Business Review, May-June, 1990

By Dileep Bajaj Anshul Jain Kapil Sharma Anoop N Areeb Ahmed

Nippon Electric Company

A Japanese multinational IT company, NEC provides IT and network solutions to business enterprises, communications services providers to 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.
http://www22.verizon.com/

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

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

RETHINKING THE CORPORATION

1.Diversified corporation - point its business units at particular end product markets Dominate 2. 3.Changing market boundaries 4. 5.A few companies have proven themselves adept at inventing new markets, entering emerging markets etc 6. 7.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. 8. 9.Top managements of Western companies must assume responsibility for competitive decline. 10.

The Root Of Competitiveness

A DIVERSIFIED ORGANISATION

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.

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
1.

Core Competencies

Start from the inside, out.

What does our firm do best?

Porters Five Forces

Looks at the environment, and starts from the outside, in.

What is the competition doing?

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. 5.

CORE COMPETENCE : MISCONCEPTIONS

1.C.C DOES NOT COME FROM MASSIVE R&D FUNDS 2. 3.C.C DOES NOT EVEN MEAN SHARED COSTS
4.

Identifying Core Competencies

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.

End Product

Core Competencies

Hondas internal combustion engines

Product Example Canon

Core Product ( Manufacturing Share)

End Product (Brand Share)

Desktop Laser Printer-84%

Laser printer-minimum

Matsushita

Compressors-40%

Air-conditioning & Refrigerator- minimum

Why the need for distinction

To build leadership, a corporation has to be a winner at each level. At the core competency level- build world leadership in design and development of a particular class of product. Sustaining leadership.

 As the company multiplies the number of application arenas for its core product, it can reduce:

Cost Time Risk

Well targeted core products lead to economies of scale and scope.

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.

Cost of distortions

Underinvestment in Developing Core Competencies and Core products. Imprisoned Resources. Bounded Innovation.

Underinvestment in Developing Core Competencies and Core products

With multiplicity of SBUs, no one feels responsible for maintaining a viable position in core products. SBU manager tend to under-invest in the absence of a comprehensive view imposed by top management.

Imprisoned Resources
SBUs develop unique competency. SBU managers consider people who embody these core competency as the sole property of the business. They do not lend them to other SBUs.

 When competencies become imprisoned, the people who carry the competencies do not get assigned to the most exciting opportunities. Only by leveraging core competency, small companies can compete with industry giants.

Bounded Innovation

Core competency need to be recognized to innovate beyond the SBU business.

Conceiving corporation in terms of core competencies widens the domain of innovation.

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 leadership.

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.

WHAT THE S.A DOES

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.

onsistency of resource allocation

Development of Admin. Infrastruc

Strategic architecture

Managerial culture

Teamwork

Capacity to change

Share resources

Think long term

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.

Core Competencies are Corporate Resources

Reward system focusing on product line results and career paths should be eliminated.

Equitable Give

exchange

recognition to SBU managers

 Job rotation in early stage of careers. Periodic assignments and cross divisional projects in mid careers to diffuse competency

Competency Carriers

Career tracking and guidance by corporate HR professionals.

They

should be bought together to exchange

notes and ideas.

A

community feeling

Conclusion

Core competency should be the focus of strategy at corporate level. organization on the hierarchy of

Build

core competency, core product and end products

Top

management must add value via

strategic architecture.

Rethink the concept of the corporation

THANK YOU