Rethinking the Corporation in The Core Competence Perspetive

Once, the diversified corporation could simply point its business units at particular end prod- uct markets and admonish them to become world leaders. But with market boundaries changing ever more quickly, targets are elu- sive and capture is at best temporary. A few companies have proven themselves adept at inventing new markets, quickly entering emerging markets, and dramatically shifting patterns of customer choice in established markets. These are the ones to emulate. The critical task for management is to create an or-ganization capable of infusing products with irresistible functionality or, better yet, creat- ing products that customers need but have not yet even imagined.

This is a deceptively difficult task. Ulti- mately, it requires radical change in the man- agement of major companies. It means, first of all, that top managements of Western compa- nies must assume responsibility for competi- tive decline. Everyone knows about high inter- est rates, Japanese protectionism, outdated antitrust laws, obstreperous unions, and impa- tient investors. What is harder to see, or harder to acknowledge, is how little added momen- tum companies actually get from political or macroeconomic ‘‘relief.’’ Both the theory and practice of Western management have created a drag on our forward motion. It is the princi- ples of management that are in need of reform. NEC versus GTE, again, is instructive and only one of many such comparative cases we analyzed to understand the changing basis for global leadership. Early in the 1970s, NEC artic- ulated a strategic intent to exploit the conver- gence of computing and communications, what it called ‘‘C&C.’’ 1 Success, top manage- ment reckoned, would hinge on acquiring com- petencies, particularly in semiconductors. Man- agement adopted an appropriate ‘‘strategic architecture,’’ summarized by C&C, and then communicated its intent to the whole organiza- tion and the outside world during the mid- 1970s.

NEC constituted a ‘‘C&C Committee’’ of top managers to oversee the development of core products and core competencies. NEC put in place coordination groups and committees that cut across the interests of individual businesses. Consistent with its strategic architecture, NEC shifted enormous resources to strengthen its position in components and central processors. By using collaborative arrangements to multi- ply internal resources, NEC was able to accu- mulate a broad array of core competencies.

NEC carefully identified three interrelated streams of technological and market evolution. Top management determined that computing would evolve from large mainframes to distrib- uted processing, components from simple ICs to VLSI, and communications from mechanical cross-bar exchange to complex digital systems we now call ISDN. As things evolved further, NEC reasoned, the computing, communica-tions, and components businesses would so overlap that it would be very hard to distin- guish among them, and that there would be enormous opportunities for any company that had built the competencies needed to serve all three markets.

NEC top management determined that semiconductors would be the company’s most important ‘‘core product.’’ It entered into myr- iad strategic alliances—over 100 as of 1987— aimed at building competencies rapidly and at low cost. In mainframe computers, its most noted relationship was with Honeywell and Bull. Almost all the collaborative arrangements in the semiconductor-component field were oriented toward technology access. As they en- tered collaborative arrangements, NEC’s oper- ating managers understood the rationale for these alliances and the goal of internalizing partner skills. NEC’s director of research summed up its competence acquisition during the 1970s and 1980s this way: ‘‘From an invest- ment standpoint, it was much quicker and cheaper to use foreign technology. There wasn’t a need for us to develop new ideas.’’

No such clarity of strategic intent and strate- gic architecture appeared to exist at GTE. Al-though senior executives discussed the implica-tions of the evolving information technology industry, no commonly accepted view of which competencies would be required to compete in that industry were communicated widely. While significant staff work was done to iden-tify key technologies, senior line managers con- tinued to act as if they were managing indepen-dent business units. Decentralization made it difficult to focus on core competencies. In-stead, individual businesses became increas-ingly dependent on outsiders for critical skills, and collaboration became a route to staged ex-its. Today, with a new management team in place, GTE has repositioned itself to apply its competencies to emerging markets in telecom- munications services.

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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