Why discuss core competency?

To succeed in the business world is about always being the stronger company.
This article is about building and maintaining the strengths that let a corporation
keep its competitive advantage and achieve long-term success. Such strengths
are the most valuable assets of the company, and these are the core
competency. Having a clear vision of the core competency of the corporation is
the basis for strategic planning. Core competency is the real driver for successful
innovation and growth. Successful companies manage portfolio of core
competency instead of portfolio of business.

What is the core competency of the corporation?

Non-indicators of core-competency: R & D spending, level of vertical integration
Core competency is:
Collective learning in the organization about how to coordinate diverse
production skills and integrate multiple streams of technologies
Organization of work and delivery of value
Communication, involvement and commitment to work across
organizational boundaries
The three tests to identify core competency:
Provides potential access to a wide variety of markets.
Makes a significant contribution to the perceived customer benefits of the
end product.
Difficult for competitors to imitate. (why so later).
Specific types of core competency:
Key technology know-how and production capabilities
A complex harmonization of individual technologies and production skills
Exercise: identify the core competency for the following companies and match
their products to the core competencies

How to build core competency?

Acquisition: a quick way to fill in the gap of the competency portfolio but it
first requires identification of current competency, then setting long term
target, finally fine execution in internalizing the acquired knowledge and
skill. Example: HPs acquisition of EDS. AstraZenecas acquisition of
MedImmune.
Strategic alliance: takes longer but less capital demanding. E.g. NEC
entering the semiconductor market
Build it in house: competency is to be nurtured. Its an asset that will grow
when its used right.

Inter-related levels of competency

core competency core product end product (feed back to core competency)
Interesting concept: manufacturing share (for core product ) vs. brand share (for
end product)
OEM-supply strategy: a way to maximize manufacturing share, be a supplier of
some key component indispensable for many end products. By supply
components for many companies that make the end products, it creates a
positive loop with the cash and market penetrance to allow the company to
further build its competency over time. Example, JVCs VHS format winning over
Sonys Betamax format via better VCR supply relationship with European and
American electronics companies.

Organizational structure and management tasks and core

competency
The SBU structure doesnt nurture core competency. Laying out the strategic
map requires management to pool and allocate talent and skills that represent
core competency across SBU boundaries.

Possible case scenarios

1. Diversification
2. M & A

Case study: Hewlett-Packard

HPs core competency: engineering, technological innovation and management
of innovation.
Early years: high-quality electronic test and measurement equipment
Since 1960: semiconductor. Alliance with Japanese companies to enter
Japanese market. Bought back the joint venture in 1999.
1966: entered computer market with minicomputers. (already made good
calculators)
1968: worlds first marketed, mass-produced personal computer, which was
called a calculator. They had the technology of IBM personal computer much
earlier.
1984: inkjet and laser printers, scanner, then all-in-one printers for desktops.
HPs contribution is developing the hardware, firmware and software.
1990: start consumer PC focus. Aquired Apollo Computer and Convex Computer
1999: spinned off the division for scientific instruments and equipment for
measurement and evaluation to be Agilent Technologies.
2000: IT giant like IBM. Merger & Acquisition. Compaq merger 2002, EDS
purchase (2008)

Todays product lines:

imaging and printing: printers, scanners, digital cameras, snapfish
personal systems group: PCs + accessories, workstations, home servers, PDAs
technology solutions: Technical services, EDS, HP Software, Enterprise Storage
and Servers Group, network switches etc.
Competency profile: instrument add semiconductor computer design and
manufacturing imaging and printing software and service
How are these achieved? Use all three means. HP excels at M & A
EDS acquisition deal: $14 billion deal, to compete with IBM in IT service, storage
to corporate market. Massive corporate restructuring afterwards to reposition
workforce in international market. Cut cost and create synergies. IT consulting
revenue doubled after the deal, which is central to enterprise business.
Compaq merger deal: objective was to beat Dell & IBM in PC business. Post
merger issues: branding, global scale, employee retention, needs great
coordination and communication. HP took bold, fast, decisive actions that stick,
and driven by the top. Stick with the best product from each brand for each
category instead of mix and match. Relocate talent and skill according to
competency: laid off 17900 out of 154900 employees, 1 in 10 of the remaining
was moved from one product to another. The new HP has operations in 160
countries and approximately 142,000 employees. Recent market share figures
rank HP as number one in imaging and printing, personal computers, UNIX
servers, Windows servers, LINUX servers, enterprise storage and number three
in IT services.
Questions: most examples in the article is technology companies. How should
the same principles be applied to non-technology companies or service
companies?