Corecompetencies C K Prahlad

The Core Competence of the Corporation
Introduction:
• The Idea in Brief
• NEC vs GTE
• The Idea in Practice
• Identify Core Competencies
• Build Core Competencies
• Cultivate a Core Competency Mindset
Case Study of NEC vs GTE
• In 1980,GTE was a major player in Information Technology.Sales of $9.98 Billion.

• In 1988, GTE’s sales were $16.46 Billion. Its international position eroded.
VS
• In 1980, NEC was smaller with Sales of $3.8 Billion Identify Core Competencies
• In 1988, NEC’s sales were $21.89 Billion. Emerged as World Leader in Semiconductors and
First-tier Player in Telecommunication products and Computers.
WHY - NEC conceived of itself in terms of CORE COMPETENCIES, GTE did not!!
Case Study of NEC vs GTE
What NEC did: PROBLEM with GTE:
• NEC articulated a Strategic Intent to exploit • Senior Executives discussed the implications
the convergence of “C & C” - both Internally
of the evolving Information Technology
and Externally.
industry but there were -
• It formed a “C & C” committee of Top • No Commonly Accepted View,
Managers.
• No “Wide” Communications,
• It reallocated massive resources to strengthen
• Senior Line Managers were too
its position in Components and Central
Processors. “Individualistic”,
• It entered into myriad Strategic Alliances. • Decentralization.
• NEC’s Operating Managers understood the

rationale for these alliances.
Characteristics of core competence
• Core competence is about harmonizing streams of technology, organization of work, and the
delivery of value.
• Cultivating core competence does not mean outspending rivals on R&D or vertically
integrating businesses.
• Maintain world manufacturing dominance in core products, and you will reserve the power to
shape the evolution of end products.
• Top management’s real responsibility is a Strategic Architecture that guides competence
building.
• A company is capable to compete only if it is conceived of as a hierarchy of core competencies,
core products, and market-focused business units.
Rethinking The Corporation

 Build product for customers need but have not yet even
imagined.
 Requires radical change in the management of major companies.
 Understand the changing basis for global leadership
The Roots of Competitive Advantage
 Low cost and high quality.

 Inventing new markets, creating new products and enhancingthem.
 Also in established markets they also made great challenge to Western Companies.
 S Many examples are given in this articles:
 Canon (personal copiers), Honda (from bikes to four wheelers).
 Sony, Casio, Yamaha, Komatsu invented new devices.
 There are major companies that have had the potential to build core competencies but
failed because of an inability to conceive of the company as anything other than a
collection of discreet business.
 Management trapped in the SBU mind-set almost inevitably finds its individual
businesses dependent on external sources for critical components.
How Not To Think of Competence
 In the core competencies underlying them, disparate business become coherent.

• Unlike the battle for global brand dominance, which is visible in the worlds broadcast
and print media, the battle to build world class competencies is invisible to people who
aren’t deliberately looking for it.
• Cultivating core competence does not mean outspending rivals on research and
development or sharing cost between SBU.
 Building core competence is more ambitious and different than integrating vertically.
Identifying Core Competencies And Losing Them

 Three test to identify core competencies of a company:
 How to identify:
• Accessibility: Provide potential access to a variety of markets.
• Value-creation: Make a significant contribution to perceived
customer benefits of the end product.
• Uniqueness: Be difficult for competitors to imitate.
From Core Competencies to Core Products
 Tangible link between identified core competencies and end products is the "core
product
 The components or subassemblies that actually contribute to the value of the end
product. Also in established markets they also made great challenge to Western
Companies.
The Tyranny of SBU - Strategic Business Unit & Core Competence
Two Concepts of the Corporation: SBU or Core Competence
SBU Core Competence

Interfirm competition to build
Basis for competition Competitiveness of today's products competencies
Corporate structure Portfolio of businesses related in Portfolio of competencies, core
product- market terms products, and businesses
Status of the business unit Autonomy is sacrosanct, the SBU SBU is a potential reservoir of core
"owns" all resources other than cash competencies
Resource allocation Discrete businesses are the unit of Businesses and competencies are
analysis; capital is allocated business the unit of analysis: top management
by business allocates capital and talent
Optimizing corporate returns through Enunciating strategic architecture
Value added of top
capital alocation trade-offs among and building competencies to secure
management
businesses the future
SBU put today's competition as main focus, while it has three damage cost:
• Under-investment in developing core competencies and core products

• Imprisoned resources
• Bounded innovation
Developing Strategic Architecture
 Strategic Architecture is "a road map of the future that identifies which core competencies to build and
their constituent technologies".
 By providing an impetus for learning from alliances and focus for internal development efforts, a
strategic architecture can dramatically reduce the investment needed to secure future market
leadership.
Redeploying to Exploit Competencies
 Core competencies are corporate resources and may be reallocated by corporate management.
 Reward system that focus only on product-line results and career path that seldom cross SBU
boundaries engender pattern of behavior among unit managers that are
destructively competitive.
Ways to wean key employees off the idea that they belong in perpetuity to any particular business:
• In early careers; they may be exposed to variety of business through carefully plane rotation program.
• In mid career; periodic assignment to cross-divisional projects may necessary.
INNOVATION WITHOIT WALLS:
ALLIANCE MANAGEMENT AT ELI LILLY AND COMPANY
Competetive Dynamics of Pharmaceutical Industry

• Dramatic shift – 42 industries in 1988 had consolidated to 16 as of 2003
• Market outside US, japan and Europe accounted for only 12%
• Monopolistic power due to patent power – but high R&D cost
• Pharma firms adopting “out-licensing”
• Pharma biotech deals have steadily increased
Research Alliance
• Early
• Clinical
• Advanced clinical
Alliance strategy at ELI LILLY and Company

• Focused on discovery, development, manufacturing & sales of broadline human health and
Agri products
• Narrowed focus to Pharma, went on to become a global firm in top 20
• Innovation based research strategy
Early Start Alliance
• Major collaboration in 1921 with university oof Toronto for mass production of insulin
• In 1970, alliance with genetech
Office of Alliance Management (OAM)

• This unit expanded Bingham’s innovation sourcing group to three distinct groups, which
could potentially work in concert to coordinate the external innovation processes in a
seamless way
• The mission of the OAM was to help Lilly develop the alignment, commitment and
capabilities needed to achieve the alliance’s vision, and to create an environment that would
maximize the value of these alliances.
• OAM was also involved in vigorous promotion of the alliance management discipline within
the company and promoted its expertise outside the company through industry wide forums
such as Association of Strategic Alliance Professionals (ASAP)
Managing Alliances: A Proprietary Process Development
• These processes, tools, frameworks and approaches were expected to support the alliances
as they went through different stages.
• example, the three-dimensional fit analysis presented a structured way to assess
strategic fit, cultural fit and operational fit between the partners
• Another widely used tool was the alliance health survey, more commonly known within
Lilly as the Voice of Alliance (VOA) survey.
ALLIANCE MANAGER: A VITAL LINK FOR LILLY’S ALLIANCE COMPETENCE

• OAM conceived of three responsibility centers for an alliance: an alliance champion, an
alliance leader and an alliance manager. The alliance champion, usually a senior executive,
was responsible for high-level support and oversight.
• The alliance manager’s responsibilities were broadly in four areas:
(1) To provide pre-deal assessment for potential alliances,
(2) to facilitate the start-up of new alliances,
(3) to support value creation efforts for ongoing and transitioning alliances and
(4) to build Lilly’s capacity and capability for alliances
• Early stage support for new alliances demanded intensive engagement of the alliance
manager
• Lilly-Alpha Partnership: A Research Alliance

• company went public in 1992, and during its peak, had reached a market capitalization
of US$1 billion.
• In the late 1990s, Alpha and Lilly entered into a broad-based alliance for the discovery
and development of products based upon Alpha’s gene-splicing technology.
Lilly-Beta Partnership: A Marketing Alliance
• In 1998, Lilly and Beta signed an agreement to co-promote a novel drug for diabetes
treatment.
• Lilly had the regulatory and marketing capabilities that Beta lacked in the United States at the
time.
• strategic fit was obvious to both sides, there were real difficulties in operationalizing the
alliance.
Lilly-Gamma: A Manufacturing Alliance

• PDS did not manufacture its own products, but worked with external vendors, such as
Gamma, to develop the drug delivery systems by providing project management, quality
oversight and regulatory support.
• The design and development was jointly done by the Lilly and Gamma team, and the final
production and packaging was done by Gamma at its facilities under close supervision by
Lilly.

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The Core Competence of the Corporation

Case Study of NEC vs GTE

• In 1980,GTE was a major player in Information Technology.Sales of $9.98 Billion.

What NEC did: PROBLEM with GTE:

• It entered into myriad Strategic Alliances. • Decentralization.

• NEC’s Operating Managers understood the

Rethinking The Corporation

 Low cost and high quality.

 In the core competencies underlying them, disparate business become coherent.

Identifying Core Competencies And Losing Them

Two Concepts of the Corporation: SBU or Core Competence

SBU Core Competence

• Under-investment in developing core competencies and core products

Redeploying to Exploit Competencies

Competetive Dynamics of Pharmaceutical Industry

Alliance strategy at ELI LILLY and Company

Office of Alliance Management (OAM)

Managing Alliances: A Proprietary Process Development

ALLIANCE MANAGER: A VITAL LINK FOR LILLY’S ALLIANCE COMPETENCE

• Lilly-Alpha Partnership: A Research Alliance

Lilly-Gamma: A Manufacturing Alliance

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