Redeploying to Exploit Competencies in Corporation

If the company’s core competencies are its critical resource and if top management must ensure that competence carriers are not held hostage by some particular business, then it follows that SBUs should bid for core compe- tencies in the same way they bid for capital. We’ve made this point glancingly. It is impor- tant enough to consider more deeply.

Once top management (with the help of di-visional and SBU managers) has identified overarching competencies, it must ask busi- nesses to identify the projects and people closely connected with them. Corporate offic- ers should direct an audit of the location, num- ber, and quality of the people who embody competence.

This sends an important signal to middle managers: core competencies are corporate re- sources and may be reallocated by corporate management. An individual business doesn’t own anybody. SBUs are entitled to the services of individual employees so long as SBU man- agement can demonstrate that the opportunity it is pursuing yields the highest possible pay-off on the investment in their skills. This message is further underlined if each year in the strate- gic planning or budgeting process, unit manag-ers must justify their hold on the people who carry the company’s core competencies.

Elements of Canon’s core competence in op- tics are spread across businesses as diverse as cameras, copiers, and semiconductor litho- graphic equipment and are shown in ‘‘Core Competencies at Canon.’’ When Canon identi- fied an opportunity in digital laser printers, it gave SBU managers the right to raid other SBUs to pull together the required pool of tal-ent. When Canon’s reprographics products di- vision undertook to develop microprocessor- controlled copiers, it turned to the photo prod- ucts group, which had developed the world’s first microprocessor-controlled camera.

Also reward systems that focus only on product-line results and career paths that sel- dom cross SBU boundaries engender patterns of behavior among unit managers that are de- structively competitive. At NEC, divisional managers come together to identify next-gen- eration competencies. Together they decide how much investment needs to be made to build up each future competency and the con- tribution in capital and staff support that each division will need to make. There is also a sense of equitable exchange. One division may make a disproportionate contribution or may benefit less from the progress made, but such short- term inequalities will balance out over the long term.

Incidentally, the positive contribution of the SBU manager should be made visible across the company. An SBU manager is unlikely to sur- render key people if only the other business (or the general manager of that business who may be a competitor for promotion) is going to ben- efit from the redeployment. Cooperative SBU managers should be celebrated as team players. Where priorities are clear, transfers are less likely to be seen as idiosyncratic and politically motivated.

Transfers for the sake of building core com- petence must be recorded and appreciated in the corporate memory. It is reasonable to ex- pect a business that has surrendered core skills on behalf of corporate opportunities in other areas to lose, for a time, some of its competi- tiveness. If these losses in performance bring immediate censure, SBUs will be unlikely to as- sent to skills transfers next time.

Finally, there are ways to wean key employ- ees off the idea that they belong in perpetuity to any particular business. Early in their ca- reers, people may be exposed to a variety of businesses through a carefully planned rota- tion program. At Canon, critical people move regularly between the camera business and the copier business and between the copier busi- ness and the professional optical-products busi- ness. In mid-career, periodic assignments to cross-divisional project teams may be neces- sary, both for diffusing core competencies and for loosening the bonds that might tie an indi- vidual to one business even when brighter op-portunities beckon elsewhere. Those who embody critical core competencies should know that their careers are tracked and guided by corporate human resource professionals. In the early 1980s at Canon, all engineers under 30 were invited to apply for membership on a seven-person committee that was to spend two years plotting Canon’s future direction, includ- ing its strategic architecture.

Competence carriers should be regularly brought together from across the corporation to trade notes and ideas. The goal is to build a strong feeling of community among these peo- ple. To a great extent, their loyalty should be to the integrity of the core competence area they represent and not just to particular businesses. In traveling regularly, talking frequently to cus- tomers, and meeting with peers, competence carriers may be encouraged to discover new market opportunities.

Core competencies are the wellspring of new business development. They should constitute the focus for strategy at the corporate level. Managers have to win manufacturing leadership in core products and capture global share through brand-building programs aimed at exploiting economies of scope. Only if the company is conceived of as a hierarchy of core competencies, core products, and market-focused business units will it be fit to fight.

Nor can top management be just another layer of accounting consolidation, which it often is in a regime of radical decentralization. Top management must add value by enunciating the strategic architecture that guides the competence acquisition process. We believe an obsession with competence building will characterize the global winners of the 1990s. With the decade underway, the time for rethinking the concept of the corporation is already overdue.

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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