Basic Information of Core Competence of the Corporation
Author: C. K. Prahalad, Gary HamelPublisher: HBR
Case Number: 6528
Publication Date: Apr 1, 2001
Course Category: Management
Case Summary of Core Competence of the Corporation
1. Summarya. The idea in brief: Diversified corporation – large tree
i. Core products – trunk and major limbs
ii. End products - Leaves, flowers, fruit
iii. Core competence – root system (provides nourishment, stability)
b. The idea in practice
i. Clarify core competencies
1. Articulate a strategic intent
2. Identify core competencies
a. How long could we dominate this business if we didn’t control this competency?
b. What future opportunities would we lose without it?
c. Does it provide access to multiple markets
d. Do customer benefits revolve around it?
ii. Build core competencies
1. invest in needed technology
2. infuse resources throughout business units
3. forge strategic alliances
iii. Cultivate a core-competency mindset
1. stop thinking of business units as sacrosanct
2. identify projects and people who embody the firm’s core competencies
3. gather managers to identify next generation competencies
2. Rethinking the Corporation
a. Critical task of management: create an organization capable of infusing products with irresistible functionality or creating products that customers need but have not yet imagined
b. This is a difficult task and requires radical change in the management of major corporations
c. Top management of Western companies must assume responsibility for competitive decline
3. The Roots of Competitive Advantage
a. Short run – competitiveness derives from price/performance attributes of current products
b. Long run – competitiveness derives from an ability to build at lower cost and more speedily than competitors core competencies that spawn unanticipated products
c. Problem in many western companies: adherence to a concept of the corporation that limits the abilities of individual businesses to exploit their technological capability
d. Diversified corporation – large tree
i. Core products – trunk and major limbs
ii. End products - Leaves, flowers, fruit
iii. Core competence – root system (provides nourishment, stability)
e. Core competence
i. Collective learnings in an organization
ii. Harmonizing stream of technology
iii. Organization of work and delivery of value
iv. Communication, involvement and deep commitment to working across organizational boundaries
v. Does not diminish with use
4. How not to think of competence
a. Does not mean outspending rivals on R&D
b. Does not mean shared costs
c. Different from vertical integration – although decisions about core competencies do provide a logic for vertical integration
5. Identifying Core Competencies – And Losing Them
a. Three test to identify
i. Provides potential access to a wide variety of markets
ii. Should make a significant contribution to the perceived customer benefits of the end product
iii. Should be difficult to imitate
b. Losing core competence
i. Outsourcing – shortcut to a competitive product but it typically contributes little to building the people embodied skills needed to sustain product leadership
ii. Strategic alliance and sourcing strategy requires clear choice about competence leadership
iii. Foregoing opportunities to establish competencies that are evolving in existing businesses (i.e. GE selling off TV business)
c. 2 lessons
i. costs of losing a core competence can only be partly calculated in advance
ii. a company that has failed to invest in core competence building will find it very difficult to enter an emerging market
6. From Core Competencies to Core Products
a. Core products – tangible link between identified core competencies and end products
b. Company must distinguish between brand share and manufacturing share because global competition is played out by different rules and for different stakes at each level.
c. Companies should maximize their world manufacturing share in core products
d. Well-targeted core products can lead to economies of scale and scope
7. The Tyranny of the SBU
a. Underinvestment in developing Core Competencies and Core Products
i. No single business feels responsible for maintaining a viable position in core products
ii. SBU managers conceive competitors the same way they see themselves
b. Imprisoned Resources
i. SBUs may hide talent to prevent its redeployment in the pursuit of new opportunities
c. Bounded Innovation
i. If core competencies are not recognized, individual SBUs will pursue only those innovation opportunities that are close at hand
ii. Core competencies widen the domain of innovation
8. Developing Strategic Architecture
a. Senior managers should develop a corporate wide strategic architecture that establishes the objectives for competence building
b. Consistency of resource allocation and development of an administrative infrastructure breathes life to a strategic architecture
9. Redeploying to Exploit Competencies
a. SBUs should bid for competencies the same way they bid for capital
b. Core competencies are corporate resources and may be reallocated by corporate management
i. Look into reward systems
ii. Reward positive contribution of SBU manager
iii. Discard idea that employees belong in perpetuity to any particular business
iv. Bring together competence carriers
v. Top management must enunciate the strategic architecture
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