Developing Strategic Architecture of the Firm in Competence Perspective

The fragmentation of core competencies be-comes inevitable when a diversified com-pany’s information systems, patterns of com-munication, career  paths, managerial rewards, and processes of strategy develop- ment do not transcend SBU lines. We believe that senior management should spend a sig- nificant amount of its time developing a cor-poratewide strategic architecture that estab- lishes objectives for competence building. A strategic architecture is a road map of the fu-ture that identifies which core competencies to build and their constituent technologies.

By providing an impetus for learning from alliances and a focus for internal development efforts, a strategic architecture like NEC’s C&C can dramatically reduce the investment needed to secure future market leadership. How can a company make partnerships intelli- gently without a clear understanding of the core competencies it is trying to build and those it is attempting to prevent from being un- intentionally transferred?

Of course, all of this begs the question of what a strategic architecture should look like. The answer will be different for every com- pany. But it is helpful to think again of that tree, of the corporation organized around core products and, ultimately, core competencies. To sink sufficiently strong roots, a company must answer some fundamental questions: How long could we preserve our competitive- ness in this business if we did not control this particular core competence? How central is this core competence to perceived customer benefits? What future opportunities would be foreclosed if we were to lose this particular competence?

The architecture provides a logic for product and market diversification, moreover. An SBU manager would be asked: Does the new market opportunity add to the overall goal of becom- ing the best player in the world? Does it exploit or add to the core competence? At Vickers, for example, diversification options have been judged in the context of becoming the best power and motion control company in the world (see the insert ‘‘Vickers Learns the Value of Strategic Architecture’’).

The strategic architecture should make re- source allocation priorities transparent to the entire organization. It provides a template for allocation decisions by top management. It helps lower level managers understand the logic of allocation priorities and disciplines se- nior management to maintain consistency. In short, it yields a definition of the company and the markets it serves. 3M, Vickers, NEC, Canon, and Honda all qualify on this score. Honda knew it was exploiting what it had learned from motorcycles—how to make high-revving, smooth-running, lightweight engines—when it entered the car business. The task of creating a strategic architecture forces the organization to identify and commit to the technical and production linkages across SBUs that will pro- vide a distinct competitive advantage.

It is consistency of resource allocation and the development of an administrative infra- structure appropriate to it that breathes life into a strategic architecture and creates a man- agerial culture, teamwork, a capacity to change, and a willingness to share resources, to protect proprietary skills, and to think long term. That is also the reason the specific archi- tecture cannot be copied easily or overnight by competitors. Strategic architecture is a tool for communicating with customers and other ex- ternal constituents. It reveals the broad direc-tion without giving away every step.

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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