Core Competence of the Corporation - Report Example

Topic: Critical review -- The Core Competence of the Corporation A number of theories and models have been developed to examine the strategic position of a business for the competitive advantage of the company. Kenichi Ohmae, the Japanese strategist and management guru has developed a model known as 3C, which means strategic position of a company depends on the Corporation, the Customer and the Competition; integration of the 3Cs is crucial for long term sustenance of a corporation (Value-based Management 2010). Prahalad and Hamel (2005) have throughout the article on ‘The Core Competence of the Corporation’ focused on the corporation, customer and competition but specific focus has been on not just competition but on a greater level and global platform. They have dwelt on the role of core competence in the consolidation of business and their discussion of the topic has been on a very high level of consolidating the deeper roots of the tree that a corporation can be compared. If roots are strong, competitive advantage is always in reach (Ward & Rivani 2005). As there are different schools of strategic thought and leadership like the Great Man theory of leadership (Bodega 2004)), Prahalad and Hamel (2005) have analysed the leadership issue in detail through the means of consolidating the core competencies to lead not only through SBUs but overall exchange of competencies internally to avail all possible benefits from it. The article) provides knowledge of the strategic positioning of business from a heightened platform and perspective of how corporations should manage their business functions through core competency (Ward & Rivani 2005). The larger perspective of any industry requires P5F MODEL employing suitable tools like SWOT and PEST, then comes the time to strategise. Out of the choicest divisions of schools of thoughts on strategy building, the most comprehensive strategy has been presented by Whittington based on four approaches being Deterministic or Emergent, Single goal or Pluralistic, Strategy style and Influences. Examining the work of Prahalad and Hamel (2005), from Whittington’s model one can easily categorise it to the period of 1990s influencing the global economics with embedded strategy style, both single or plural and deterministic as well as emergent. What Prahalad and Hamel have said can be both compared and contrasted with what Whittington’s (2005) four approaches on strategy development are. The article stresses on both core competencies and core products in collaboration with alliance partners. Contrast seems to be in the deeper understanding and explanation of the tree of core competencies, so crucial for corporate businesses, which otherwise has not been even mentioned by any of the theorists whether it is Mintzberg et al. (1998)) or White (2004)), (Ward & Rivani 2005). The article resembles White’s strategy of planning for distribution of resources but is a step ahead of White by stressing on transparency for middle and lower management to get a view of how top management remains committed and consistent with allocation of resources. Further similarity is visible in White (2005) strategy build up of almost all 14 types of strategies including positioning strategy, leadership strategy, reflecting organizational culture, political process, learning process, transformative process and rest of the other processes can be seen and mentioned indirectly in the article. Contrast appears in the presentation of the concept of core competencies getting discussed and analysed in detail by Prahalad and Hamel. Whittington, Mintzberg and White have propounded the theoretical aspects of strategy which has been elaborated with examples from different company scenarios in the article (Ward & Rivani 2005). Skaik (2009) has commented on Whittington four approaches. As per Skaik’s analysis of Whittington four approaches, the article matches more with evolutionary approach as long term strategies don’t work because the market is unpredictable. Focus of classical approach is on profit making by a corporation, which has not been mentioned by Prahalad and Hamel. Further, in the matter of implementation of strategy the article focuses on innovative evaluation of strategy, which is similar to McKinsey 7S model of evaluation of strategy. Taking the example of two companies for working on core competencies for strategising as NEC did and with in eight years took lead from GTE. The sales volume of GTE was $9.98 billion in 1980 while that of NEC was $3.8 billion. In 1988, the GTE sales were $16.41 billion while the sales of NEC touched a high of $21.89 billion. It happened because GTE changed the focus of business from a major information technology company to telephone operating company. It divested Sylvania TV and Telenet, entered into joint ventures for switching, transmission and PABX while shut down the semiconductors. On the other hand, NEC took the lead in the business of semiconductors and emerged as a first-tier player in telecommunications segment besides concentrating on mainframe computers. NEC added in its list new businesses like life style products, mobile phones, facsimile machines and laptop computers. NEC has become one of the top five profit earning companies in telecommunications, semi-conductors and mainframes (Prahalad & Hamel 1990). Principles of management need to reform particularly in Western companies in both theory and practice by making radical changes at top management level and finding new markets for their products and changing the pattern of consumer needs in stable markets. The example of NEC is one such proof of changing base to get the leverage from core competencies in global arena (Prahalad & Hamel 1990). NEC showed an inclination for strategic intent since 1970s to leverage from the convergence of computing and communications, called “C&C”. Focus of the managers was on gaining competencies, specifically in the business of semi-conductors. By following a suitable “strategic architecture”, the company published its design to the outside world. By constructing coordination groups and committees, the C&C developed core competencies and core products in collaboration with other business partners. It opened varied doors of opportunities through attained competence for different segments of company businesses (Prahalad & Hamel 1990). NEC used the competence acquisitions as a tool to get technological know-how at low cost, which was not done by the management of GTE. Losses of not focusing on core competencies and decentralization were felt at GTE. Examples of Japanese companies are given like Honda, Canon, Xerox and Chrysler for getting competitive advantage through innovative products. A line of features and functionalities are being added by Japanese companies. At the heart of competencies lies the low cost and fast delivery of innovative products. True advantage lies in the consolidation of technologies and skills into competencies for new opportunities (Prahalad & Hamel 1990). Companies should be dynamic in approach and not tied to the concept of corporations alone to let go opportunities unexploited. Strengths The article elucidates assumptions through real company examples. Comparison between NEC and GTE provides a clear and vivid picture of how companies not managed strategically through consolidation of core competencies start realizing the affects in turnover. By taking the example of SBUs, difference between manufacturing and services firms becomes prominent because of the dependence of SBUs on external sources for critical parts increases like motors or processors. Comparison of competencies with intangible resources that do not depreciate with time but increase is interesting and provoking to be understood by the students of the subject. The language of the article throughout is simple to understand like companies need not invest huge amount of money in R & D or to expand vertically to gain core competencies. It helps in understanding the relation between competencies and vertical growth of the companies as a comparison between both holds no value as former is very crucial while latter develops in stages as the business grows. The topic of core competencies has been elaborately treated leaving no scope for confusion. Benefits of core competencies help readers in understanding the complexity of the topic; three main benefits of attaining core competence have been elaborated. First, companies can have access to varied markets, secondly, end customers get the benefit and finally, competitors cannot easily copy the complex assimilation of technologies. Companies can develop as many core competencies as possible to leverage from reduced costs through partnerships for missing competencies. Competencies should not be viewed from price/performance perspective only, wrongly assuming them as “cost centres” to be discarded in favour of outside suppliers as it affects the core competencies. A number of related business functions are discussed like outsourcing. Competitive products can be out of market if not based on core competencies; how outsourcing can make a product line competitive but not leader in the segment. A change of technologies can put the competitive product on the risk on marketing and distribution front but with core competencies intact such risk does not exist. Alliance strategy would suffer if focus is not on the competence leadership. Negative impact of SBUs has got sufficient treatment as given below, how SBUs distort the view by fighting for competition on a singular global platform by offering competitive products. It affects the development of core competencies and core products as investment goes below the required level. Companies should develop core products for both internal and external customers. SBUs hide their talented resources from associate SBUs, thus not availing the benefits of competencies. Those who possess skills and competencies don’t get interesting opportunities because managers of SBUs don’t allow movement and flexibility of the intangible assets across. The domain of innovation of SBUs is limited not availing hybrid opportunities. Corporations can become world leaders in a number of products by working on core competence, which the SBUs don’t try; they try only such opportunities available nearby by allowing only marginal product-line extensions or geographical enhancement (Prahalad & Hamel 1990). The article provides comprehensive and detailed information on strategic architecture a company needs to be developed for hindering the division of core competencies caused by not adhering to SBU lines in different internal processes of strategy development. The treatment of all related topics including the main topic is so vivid by making comparisons among American, Japanese and European companies’ management strategies that nothing is left unclear and obscure. References Prahalad, C.K. & Hamel, Gary 1990 The core competence of the corporation’, Harvard Business Review. Skaik, Samer H 2009. Implementing strategic management in construction. General Management, viewed 8 November 2010, . Value-Based Management 2010. 3C’s model – Ohmae the strategic triangle of 3C’s. Value-Based Management.net, viewed 8 November 2010, < http://www.valuebasedmanagement.net/methods_3C%27s.html>. Ward, Dr. David & Rivani, Elena 2010, An overview of strategy development models and the Ward-Rivani model, IDEAS, viewed 8 November 2010, < http://ideas.repec.org/p/wpa/wuwpgt/0506002.html>. Read More