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TheCoreCompetenceoftheCorporation byC K PrahaladandGaryHamel Theimportanceandcharactersofcorecompetencies 2 SBUandDevelopingStrategicArchitecture 5 Structureofthisarticle C K Prahalad OneofthegreatestIndianbusinessthinkers ProfessorofcorporatestrategyandinternationalbusinessattheUniversityofMichigan Focusonnextpractices corporatestrategyandtheroleofmanagementindiversifiedmultinationalcorporations AT T Philips Sony TRW Citycorp Unilever Quantum NCR andOracle TheMcKinseyPrize threetimes TheSMR PWCawardTheANBARElectronicCitationofExcellenceThethirdspotonSuntopMedia s2005 Thinkers50 list GaryHamel CEOofStrategos DirectoroftheWoodsideInstitute andvisitingprofessorofstrategicmanagementatLondonBusinessschool Concepts corecompetence strategicintent and industryrevolution Createdrule breakingstrategiesthathavegeneratedbillionsofdollarsinnewwealth GeneralElectric TimeWarner Nokia Nestle Shell P G IBM andMicrosoft Theworld sreigningstrategyguru TheEconomist Theworld sleadingexpertonbusinessstrategy Fortune amanagementinnovatorwithoutpeer Financialtimes oneofthe20thcentury s25mostinfluentialbusinessthinkers JournalofBusinessStrategy Whatiscorecompetence Knowledge Skills Attitudes CoreCompetence Corecompetenciesaretheorganization scollectivelearningandabilitytocoordinateandintegratemultipleproductionskillsandtechnologystreams Theyarealsoabouttheorganizationofworkanddeliveryofvalueinservicesandmanufacturing NECVS GTE 1980 NEC GTE BusinessPortfolios Telephone Switchingandtransmissionsystems Lightingproducts SylvaniaTV Satellites Semi conductors Defensesystems DigitalPABX Packetswitching Telenet Onlycomparableintechnologicalbaseandcomputerbusinesses Noexperienceintelecommunications GTE NEC 21 89 16 46 1980 1988 1980 1988 Acase NECVS GTE 3 8 9 98 billion NECVS GTE 1988 GTE BusinessUnits Telephone Switchingandtransmissionsystems Lightingproducts SylvaniaTV Satellites Semi conductors Defensesystems DigitalPABX Packetswitching Telenet Semiconductors First tierplayer NEC TelecommunicationsproductsComputers MobiletelephonesFacsimilemachinesLaptopcomputers Wordleader Newenter NEC Why Strategicintentandstrategicarchitectureof C C Computer Communication Constituteda C CCommittee IdentifiedthreeinterrelatedstreamsoftechnologyandmarketevolutionCaredabout coreproduct andbuiltstrategicalliances Structure 1 TheRootsofCompetitiveAdvantage NEC GTE VS aportfolioofcompetencies aportfolioofbusiness repeatedacrossmanyindustry From1980to1988 theachievementsofJapanesecompanies Lowcostandhighquality Inventingnewmarkets creatingnewproducts andenhancingtheminvanguard 前卫的 markets Inestablishedmarket theyalsomadegreatchallengetowesterncompanies Manyexamplesaregivenhere What stheprobleminmanywesterncompanies Inthelongrun competitivenessderivesfromanabilitytobuildthecorecompetenciesatlowercostandfasterthancompetitors Theprobleminmanywesterncompanies EndProducts BusinessUnits CoreProducts CoreCompetence Corporation providesnourishment sustenanceandstability Corecompetenciesarethecollectivelearningintheorganization especiallyhowtocoordinatediverseproductionskillsandintegratemultiplestreamsoftechnologies Itisalsoabouttheorganizationofworkandthediversityofvalue Corecompetenciesarecommunication involvementanddeepcommitmenttoworkingacrossorganizationalboundaries Involvesmanylevelsofpeopleandallfunctions Doesnotdiminishwithuse Andcorecompetenciesarealsotheengineforthenewbusinessdevelopment Patternsofdiversificationandmarketentrymybeguidedbythem 2 TheCharactersofCoreCompetences Somecompaniesandcorecompetencies Cultivatingcorecompetencedoesnotmeanoutspendingrivalsonresearchanddevelopment Corecompetencedoesnotmeansharedcosts aswhenatwoormoreSBUsuseacommonfacility aplant servicefacility orsalesforce orshareacommoncomponent Cultivatingcorecompetencedoesnotmeangettingbusinessestobecomemoreverticallyintegrated 3 HowNottoThinkofCompetence Sohowtoidentifycorecompetencies Structure Fromcorecompetenciestocoreproducts Identifycorecompetencies threetests CoreCompetencies Identify Corecompetenciesprovidepotentialaccesstoawidevarietyofmarket Corecompetenciesshouldmakeasignificantcontributiontotheperceivedcustomerbenefitsoftheendproducts Corecompetenciesshouldbediffucultforcompetitorstoimitate Losingcorecompetencies CoreCompetencies Lose Outsourcingthecorecompetencies Havinganallianceorwithoutknowingwheretobuiltcompetenceleadership Forgoingopportunitiestoestablishcompetencies TwoLessons Thecostsoflosingacorecompetencecanbeonlypartlycalculatedinadvance Acompanyhasfailedtoinvestincorecompetencebuildingwillfinditverydifficulttoenteranemergingmarket Throwoutababywithbathwaterindivestmentdecisions Whenitcomestocorecompetencies itisdifficulttogetoffthetrain walktothestation andthenreboard FromCoreCompetenciestoCoreProducts CoreCompetencies CoreProducts Endproducts Linchpin 关键 Thephysicalembodimentsofcorecompetencies Thecomponentsorsubassembliesactuallycontributingtothevalueoftheendproducts GlobalCompetitionatEachLevel CoreCompetencies CoreProducts Endproducts Buildordefendleadershipoveralongtime Buildworldleadershipinthedesignanddevelopmentofaparticularclassofproductfunctionality Seektomaximizeworldmanufacturingshareincoreproducts Movedownstreamtobuildbrandshare Structure TwoConceptsoftheCorporation Competitivenessoftoday sproducts Interfirmcompetitiontobuildcompetencies Portfolioofbusinessesrelatedinproduct marketterms Portfolioofcompetenciescoreproducts andbusiness theSBU owns allresourcesotherthancash SBUisapotentialreservoirofcorecompetencies Resourceisallocatedbusinessbybusiness topmanagementallocatescapitalandtalent Optimizingcorporatereturnsthroughcapitalallocationtrade offsamongbusinesses Clarifystrategicarchitectureandbuildingcompetenciestosecurethefuture SBU CoreCompetence ThereconceptualizationofSBU Whatarethecostsofthisdistortion Inmanycompanies theSBUprismmeansthatonlyoneplaneoftheglobalcompetitivebattleisvisibletotopmanagers 1 UnderinvestmentinDevelopingCoreCompetenciesandCoreProducts Reasons Nosinglebusinessmayfeelresponsibleformaintainingaviableresponsibility Noonecanjustifytheinvestmentrequiredtobuildworldleadershipinsomecorecompetence CorporatemanagementmaynotimposeamorecomprehensiveviewtoeachSBU Result SBUmanagerstendtounderinvest 2 ImprisonedResources Reason Peoplewhoembodytheuniquecompetenceareseenasthesolepropertyofthebusinesstheygrowup SBUmanagersareunwillingtolendtheircompetencecarriers Result Thepeoplecan tgetassignedtothemostexcitingopportunities andtheirskillsbegintoatrophy 3 BoundedInnovation Reason Corecompetencearenotrecognized Result IndividualSBUwillpursueonlythoseinnovationopportunitiesthatcloseathand Conceivingofthecorporationintermsofcorecompetence StrategicArchitecture What sthestrategicarchitecture Aroadmapofthefuturethatidentifieswhichcorecompetenciestobuildandtheirconstituenttechnologies Advantages Motivateorganizationstolearnfromalliances Helporganizationstoensureinternaldevelopmentefforts Reducetheinvestmentneededtosecurefuturemarketleadership Helpcompaniestofindadistinctcompetitiveadvantage Atoolforcommunicatingwithcustomersandotherexternalconstituents Whatastrategicarchitectureshouldlooklike Thearchitectureprovidesalogicforproductandmarketdiversification Thestrategicarchitectureshouldmakeresourceallocationprioritiestransparenttotheentireorganization Thestrategicarchitectureisnotaforecastofspecificproductsorspecifictechnologiesbetweencustomerfunctionalityrequirements potentialtechnologies andcorecompetencies Example Vickers Seethepotential Developtheirstrategicarchitecture Maketargetedacquisitions Reorganization Buildingadministrativesystems Reapbenefits Goal toensurethatchangeintechnologydoesnotdisplaceVickersfromItscustomers Amapofemergingcustomerneeds
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