1. The Core Competence of the Corporation
Prahalad, C.K., Gary Hamel (1990), “The Core Competence of the Corporation,” Harvard Business Review, May-June,

2. Authors Coimbatore K. Prahalad Gary Hamel
Graduate of Harvard School of Business
Professor at Univ. of Michigan School of Business
Advocate of Core Competency Focus for Businesses
Business Consultant
HBR-“He was one of the foremost business thinkers of our time”
Coimbatore K. Prahalad
Graduate of University of Michigan School of Business
Visiting Professor of London Business School
Ranked as the “World’s most influential business thinker” by the Wall Street Journal
Business Consultant and Media Contributor
Gary Hamel
Present

3. Background A turbulent time:
1987 – stock market crash
1989 – Berlin Wall fell
1990 – dissolution of the Soviet Union
1970’s- 1980’s: unchecked growth in corporations
Becoming large, inefficient conglomerates
Acquired what they “needed”: strategic business units (SBUs)
US Corporate (philosophical) Growth
1980s- SBUs
1990s-Core Competence
2001-Networking

4. Outline of the Article
The article emphasizes the importance of core competence of a corporation and asks management to develop their organization based on core competence
Rethinking the Corporation
The Roots of Competitive Advantage
How Not to Think of Competence
Identifying Core Competencies – And Losing Them
From Core Competencies to Core Products
The Tyranny of the SBU
Developing Strategic Architecture
Redeploying to Exploit Competencies

5. Rethinking the Corporation
“The critical task for management is to create an organization capable of infusing products with irresistible functionality or, better yet, creating products that customers but have not yet even imagined.” (P&H-p.80)

6. GTE vs. NEC Example GTE NEC Industry Position 1980
Sales $9.98B, Net Cash Flow $1.73B
Well positioned to become major player in information technology industry
Active in telecommunications
Sales $3.8 B
Comparable technological base and computer business
No experience in telecommunications
Management Concepts
No strategic intent or architecture Senior Managers continued to function as individual business units
Strategic Focus to bridge gap between telecommunications and office automation
Core Competency - Semiconductors
“C&C” – Computing and Communications Committee
Business Moves
Divested Sylvania TV and Telenet
Joint Ventures for switching, transmission and digital PABX Closed down semiconductors
Consolidated position in mainframe computers
Moved beyond switching and transmission to include mobile phones, fax machines
Execution
Increasingly dependent on outsiders for critical skills
Used collaborative arrangements (strategic alliances) to build knowledge
Industry Position 1988
Sales $16.46B
Telephone operating company with position in defense and lighting
Sales $21.89 B
World leader in semiconductors and first-tier in telecommunications
Result
“Portfolio of Businesses”
“Portfolio of Competencies”

7. Roots of Competitive Advantage
“The diversified corporation is a large tree.... The root system that provides nourishment, sustenance, and stability is the core competence.” (P&H-p. 82)
Companies using competencies experience rapid growth:
Canon, Honda outpaced rivals
Sony, Casio, Yamaha invented new devices
Consolidating corporate-wide technologies and resources into competencies is the key to success

8. Diversified corporation as a large tree
Leaves, Flowers and Fruit = End Products
Trunk and Major Limbs = Core Products
Root System = Core Competency provides nourishment, sustenance and stability

9. The Root of Competitiveness

10. Core Competence Core competence is….
the collective learning in the organization
a bundle of skills integrated to make a company unique
the organizational culture based on people, their skills and knowledge make a company competitive
the engine for new business development
created from the coordination, integration and harmonization of diverse skills and multiple streams of technologies
communication, involvement, and working across organizational boundaries
Unlike physical assets, competencies do not deteriorate as they are applied and shared. They grow.

11. How Not to Think of Competence
Companies consider themselves as bundles of product making businesses (remember Marketing Myopia!) and is focused on price/performance attributes of current products
Building core competencies is different from integrating vertically….have no detailed plan on what, where, how to build an organization
Cultivating core competence does not mean outspending rivals on R&D or getting businesses to become more vertically integrated

12. Identifying Core Competencies–And Losing Them
At least three tests can be applied to identify core competencies in a company. They are:
core competencies provide potential access to a variety of markets
make a significant contribution to perceived customer benefits of the end product
should be difficult for competitors to imitate
Core competency can be lost…
through outsourcing (Honda vs. Chrysler)
by giving up opportunities to establish competencies of existing businesses (color television perceived as a mature product)

13. From Core Competencies to Core Products

14. End Products
Smartphones
Laptops
Gaming
TV’s
Cameras

15. The Tyranny of the SBU What is a Strategic Business Unit (SBU)?
US Corporate (philosophical) Growth
1980s- SBUs
1990s-Core Competence
2000s-Networking
Ineffectiveness of SBU model
Underinvestment in developing core competencies or core products
Imprisoned Resources
Bounded Innovation

16. SBU vs. Core Competence

17. Developing Strategic Architecture
A strategic architecture is a road map of the future that identifies core competencies to build and their constituent technologies. A strategic architecture should aim at building competencies. Training helps.
Creates a managerial culture of team work, capacity to change, and willingness to share resources
Protects proprietary skills, offers consistency in resource allocation and allows us to think long term around that
Reduces the investment needed to secure future market leadership
Provides logic for product and market diversification

18. Strategic Architecture
The Strategic Architecture should make resource allocation priorities transparent to the whole organization

19. Redeploying to Exploit Competencies
Identify competencies and the projects and people connected with them.
Recognize that core competencies are corporate recourses and may be reallocated as needed.
Divisional managers come together and decide the needed investment to build each competency.
Cooperative SBU managers must be recognized for their team work.
Expose people by using a rotation program.
End goal: Strong feeling of community and customer focus.

20. Core Competencies at Canon

21. Conclusion
A very timely article, a radical breakthrough in management thinking
Sustaining core competence-what can be done
Individual vs. national core competence-do we really have any?

22. Discussion Questions
What is a “core competence” of a corporation? Why core competencies do not diminish in an organization?
What do the authors mean by “the tyranny of the SBU?” In what ways the two concepts of the corporation, SBU and core competence, differ? Explain.
What would be your (individual) core competence? How would you relate that to your personal development and goals in life?