1. 1 Business economics and strategy Petros Kavassalis petros@rpcp.mit.edu Unit 4: Resources, Competences and Firm’s Strategic Capabilities

2. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 2 Why talking “competencies”?  Ten years, what a difference make!  80s: restructure, declutter, delayer the corporation  90s: identify, cultivate and exploit the core competencies that make growth possible  Rethinking the Corporation  Why? Market boundaries changer quickly, targets are elusive and value capture is at the best temporary  Need: Invent new markets, enter emerging markets, shift customer choice in established markets  All these, require radical change in the management of major companies: focus on a portfolio of competencies (instead of a portfolio of business)

3. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 3 Beyond price/performance  Japanese firms provided a good example  they have been able to generate a blizzard of features and functional enhancements that bring technological sophistication to everyday products  The return of “long run”  In the short run, a company’s competitiveness derives from the price/performance attributes of current projects  In the long run, competitiveness derives from an ability to build, at lower cost and quickly, the core competencies that spawn unanticipated products

4. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 4 How competencies support products? End products 12345678910 Business 1Business 2Business 3Business 4 Core product 1 Core product 2 Core Competence 1Core Competence 2Core Competence 3

5. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 5 --- is a cross-organizational boundaries culture  Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies  Sony capacity to…  Philips expertise in…  Competence is about  Harmonizing streams of technology  Organization of work  Delivery of value

6. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 6 How to think of competence  Successful companies seem to preside over portfolios of unrelated business in terms of customers, distribution channels, and merchandising strategy…  … because they are able to integrate skills  In that context, core competencies provide strategic flexibility (possibility to enter more markets)  … and of course, is difficult to be imitated  How many: not more than five, six…

7. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 7 From core competences to core products  The tangible link between core competencies and end products is what we call the core products  The physical embodiments of one or more core competencies  Core products are the components or subassemblies that actually contribute that contribute to the value of the end products  Attention to the difference between core competence – core product – end product

8. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 8 Layers of competition  At the level of core competence, the goal should be to build leadership in in the design and the development of a particular class of product functionality  To sustain leadership in their core competence areas, companies seek to maximize their share in core products  They also need to define a strategic architecture  A tree of the corporation organized around core products and core competencies

9. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 9 Competition for competence  Competition to develop and acquire constituent skills and technologies  Competition to synthesize core competencies  Competition to maximize core product share  Competition to maximize end product share

10. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 10 Processes, positions and paths  Processes  Integration  Learning  Reconfiguration and transformation  Positions  Technological assets  Complementary assets  Financial assets  Paths  Path-dependencies  Technological opportunities

11. petros@itc.mit.edu Univ. of Crete/Dpt of Econ./2001-2002 11 Establishing the core competence agenda Core competence New Existing New Market