The Core Competence of the

Corporation

NEC versus GTE

In 1980, NEC is about 1/3 of GTE

In 1988, NEC became 1.3 times of GTE

World leader in semiconductors
First-tier player in telecommunications

Core competence!

Core Competence Logic of NEC

Build C & C (computing and communications) Committee

The way to develop core competence

Acquisition (Strategic alliances)
Accumulation
Sharing

NECs Myriad Strategic Alliances

Core product : semiconductor

NEC entered over 100 alliances to aim at building

competencies rapidly and at low cost

NEC : a portfolio of competencies

GTE : a portfolio of businesses

The Roots of Competitive Advantage

1

End Product 1

End product 2

End Product 3

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11

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End Product 4

Core Product 2

Core Product 1

Core
Competence 1
5

Core
Competence 2

Core
Competence 3

Core
Competence 4

The Roots of Competitive Advantage

Definition

Core competence
Core product
End product
Example: 3M, Honda

What is Core Competence?

Core competencies are the collective learning in the
organization, especially how to coordinate diverse
production skills and integrate multiple streams of
technologies.

Companies could not have imagined all the end products

out of its core competence in the early stages!
Does not mean outspending rivals on research and
development?
Does not mean shared costs!
Differ from SBU!

What is Core Competence ?

Three tests to identify core competence

Provide potential access to a wide variety of markets
Make a significant contribution to the perceived customer benefits
of the end product
Be difficult for competitors to imitate

The ways to build core competence

Internal investment
Strategic alliances

Distinguish between divesting the business and destroying

competencies

From Core Competencies to Core Products

Core products
Link between identified core competencies and end products
The components and subassemblies that actually contribute to the
value of the end products
Example : Hondas engines, Canons laser printer engines, Matsushitas
VCR key components

From Core Competencies to Core Products

Importance of core product

Dominant position in core products allows
a company to shape the evolution of applications and end markets
consistently reduce the cost, time, and risk in new product development
economies of scale and scope

BRAND leadership vs. PRICE leadership

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From Core Competencies to Core Products

Different goal at each level

at the level of core competence
The GOAL is to build world leadership in the design and development.

at the level of core products

The GOAL is to maximize the world manufacturing share in core
products .

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The Tyranny of the SBU

Compare two concepts of the corporation

SBU or Core Competence

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The Tyranny of the SBU

Some troubles with SBU

Underinvestment in developing core competencies and core
products
Imprisoned resources
Bounded innovation

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Developing Strategic Architecture

What is strategic architecture

A road map of the future that identifies which core competencies to
build and their constituent technologies
Make resource allocation priorities transparent to the organization
Establish objectives for competence building
Example : NECs C&C, Vickers, Canon, Honda

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Developing Strategic Architecture

Different companies, different strategic architectures

Three points
Tree
The corporation organized around core products
Core competencies

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Redeploying to Exploit Competencies

Core competencies are corporate resources and may be reallocated by

corporate management
Top managers ask businesses to identify the projects and people closely
connected with them
A reward system must be settled to benefit SBU manager when he made
some positive contribution
The positive contribution of the SBU manager should be made visible
across company
Example : Canon and NEC

People within corporation

Early in their careers a rotation program
In midcareer cross-divisional project teams
Finally competencies carriers should be regularly brought together

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Conclusion

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Core competencies are the wellspring of new business

development.

Win manufacturing leadership in core products and capture

global share through brand-building programs.