Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development Author: Dorothy Leonard-Barton Strategic Management Journal Vol. 13, (Summer, 1992) pp. 111-125 Greg Fisher

Overview Examines core capabilities (and core rigidities) in the context of new product and process development projects Paradox: Core capabilities simultaneously enhance and inhibit development projects

Sample Companies and Projects

Core Capabilities – Dimensions Capabilities are “core” if they differentiate a company strategically (unique, difficult to imitate, superior to competition) Differentiated skills, complementary assets, and routines that provide the basis for a firm’s competitive capacities and sustainable advantage (Pisano & Shuen, 1990) Values often derived from a unique heritage, which is difficult to imitate by competitors

Core Capabilities -- Defined Four dimensions to an institutionalized knowledge set that distinguishes and provides competitive advantage: Content in employee knowledge and skills Content in technical systems Knowledge creation and control guided by managerial systems Process is embedded in values and norms

Employee Knowledge and Skills Encompasses both firm-specific techniques and scientific understanding Embodied in people – tacit knowledge

Knowledge in Technical Systems Accumulating, codifying, and structuring tacit knowledge Includes information (databases, test reports, design drawings) and procedures (new product development processes) Whole technical system is greater than the sum of its parts

Knowledge in Managerial Systems Formal and informal methods of creating knowledge Formal and informal methods of controlling knowledge (incentive systems and reporting structures)

Value of Knowledge Firms assign a relative value to the knowledge content of functional areas Firms assign a relative value to education and experience Firms have a culture to manage knowledge (empowerment versus hierarchy) Physical systems to collect and control knowledge are the result of these values

Interaction – Development Projects and Core Capabilities Degree of Congruence – projects can be aligned with core capabilities to varying degrees (number and intensity) Closer alignment of project and core knowledge set = stronger enabling influence

Capabilities Enhance Development Excellence in the dominant discipline, which has rich resources and talent Pervasive technical literacy – internal testing can be completed quickly by technically sophisticated personnel Embedded knowledge left by talented individuals (systems, procedures, and tools)

Capabilities Enhance Development Managerial systems that foster innovative behavior Values dimension: The degree to which project members are empowered High status and visibility for the dominant discipline that drives development projects

Rigidities Inhibit Development Deeply embedded knowledge sets that actively create problems for development projects Core rigidities contrast core capabilities Less strength in nondominant disciplines due to devoting limited resources to dominant area Technical systems can become outdated

Rigidities Inhibit Development Management dimension – talented people won’t work on projects that are undervalued Values dimension – empowerment can lead to entitlement; lack of adequate rewards and recognition can lead to turnover Lower status for nondominant disciplines, which aren’t allowed to contribute Dominant discipline does not take input or learn from other disciplines

Managing the Paradox Managers can face paradox in four ways: Abandon the project Develop the project through return to core capabilities Develop the project through reorientation to nondominant functions Develop the project by isolating it from the rest of the corporation

Paradox Can Prompt Change Projects can highlight core rigidities Projects can introduce new core capabilities New emphasis on nondominant functions Development of new technical systems Introduction of new managerial systems New values will not take root without incentives for desired behaviors

Dimensions and Change Four dimensions vary in ease of change: Technical systems are relatively easy to alter Managerial systems have broader influence Skills and knowledge are tacit = more difficult to change Values are closely bound to culture = most difficult to change

Methodology Case history method 5 manufacturers: Ford Motor, Chaparral Steel, Hewlett-Packard, “Chemicals” (camera film), and “Electronics” (computer hardware) 20 new product development projects Professors of engineering and management interviewed project development team members

Questions?