Developing Strategic Architecture of the Firm in Competence Perspective

The idea that top management should develop a corporate strategy for acquiring and deploying core competencies is relatively new in most U.S. companies. There are a few exceptions. An early convert was Trinova (previously Libbey Owens Ford), a Toledobased corporation, which enjoys a worldwide position in power and motion controls and engineered plastics. One of its major divisions is Vickers, a premier supplier of hydraulics components like valves, pumps, actuators, and filtration devices to aerospace, marine, defense, automotive, earth-moving, and industrial markets.

Vickers saw the potential for a transformation of its traditional business with the application of electronics disciplines in combination with its traditional technologies. The goal was ‘‘to ensure that change in technology does not displace Vickers from its customers.’’ This, to be sure, was initially a defensive move: Vickers recognized that unless it acquired new skills, it could not protect existing markets or capitalize on new growth opportunities. Managers at Vickers attempted to conceptualize the likely evolution of (a) technologies relevant to the power and motion control business, (b) functionalities that would satisfy emerging customer needs, and (c) new competencies needed to creatively manage the marriage of technology and customer needs.

Despite pressure for short-term earnings, top management looked to a 10- to 15-year time horizon in developing a map of emerging customer needs, changing technologies, and the core competencies that would be necessary to bridge the gap between the two. Its slogan was ‘‘Into the 21st Century.’’ (A simplified version of the overall architecture developed is shown here.) Vickers is currently in fluid-power components. The architecture identifies two additional com petencies, electric-power components and electronic controls. A systems integration capability that would unite hardware, software, and service was also targeted for devel opment.

The strategic architecture, as illustrated by the Vickers example, is not a forecast of specific products or specific technologies but a broad map of the evolving linkages between customer functionality requirements, potential technologies, and core competencies. It assumes that products and systems cannot be defined with certainty for the future but that preempting competitors in the development of new markets requires an early start to building core competencies. The strategic architecture developed by Vickers, while describing the future in competence terms, also provides the basis for making ‘‘here and now’’ decisions about product priorities, acquisitions, alliances, and recruitment.

Since 1986, Vickers has made more than ten clearly targeted acquisitions, each one focused on a specific component or technology gap identified in the overall architecture. The architecture is also the basis for internal development of new competencies. Vickers has undertaken, in parallel, a reorganization to enable the integration of electronics and electrical capabilities with mechanical based competencies. We believe that it will take another two to three years before Vickers reaps the total benefits from developing the strategic architecture, communicating it widely to all its employees, customers, and investors, and building administrative sys tems consistent with the architecture.

Source: Prahalad C.K., Hamel G. (1990), “The core competence of the corporation”, Harvard Business Review (v. 68, no. 3) pp. 79–91.

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