i,

Exploiting the Core Competences of Your Organization

Mahen Tampoe

article in the Harvard Business Review 16 which drew the readers' attention to the Core Competence of the Corporation. They suggested that 'core competences are the collective learning in the organization, especially 'how to co-ordinate diverse production skills and integrate multiple streams of technologies'. They claimed that once the core competence of the organization is understood it enables executives and strategists to take a more rational and unbiased view of future opportunities which lie beyond their existing markets and current products and services. Whilst the arguments for understanding and using core competences is compelling, there is little literature on how an organization can set out to identify and use its core competences. This article sets out to correct this shortcoming and offers a set of management models which show how the core competence of the organization can be linked to its strategic direction and organizational drive to achieve sustained and profitable growth.

IN

JUNE 1990 PRAHALAD

AND HAMEL ~UBLISHED AN

differentiate "between the products and the needs they satisfied ..When these views were expressed the much slower" pace of product imitation and the presence of regional rather than global competition made it possible for competitive advantage to be retained for longer. In today's hot-house atmosphere 1. it is not good enough to produce a good mouse trap today because someone else will produce a better • and cheaper mouse trap tomorrow and take your ) competitive edge away. Certainly, in industrial life we have accelerated the evolutionary cycle. This means that organizations have to dig deeper to understand where their competitive edge comes from.

~ ~

Pergamon 0024-6301(94)E0024-X

Long Range Planning VoL 27. No.4. pp. 66 to 77. 199~ Copyright e 1994 Elsevier Science LId Printed in Great Britain. All rights reserved 0024-6301/94 $7.00+.00

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their revenue and profit streams. To Irvin and Michaels, core skills are 'the critical capabilities that an organization as a whole has-as distinct from the cspabilities of individuals in the organization'. They argue further that core skills are the bridges that link strstegy and implementation and are therefore vital to corporate success. To them a core skill is the collective capability of the organization to execute its strategic vision. Their examples are drawn from both manufacturing and service industries showing that the concept of core competences can be used widely in industry. Irvin and Michaels list three reasons why it is important for organizations to better understand their core skills. The first is that structural barriers are crumbling, the second that companies in the same industries seem to follow similar strategies Idownsizing, alliances, quality improvement, innovation and first to market) even to the extent of imitating their competitors and therefore strategy formulation does not offer an advantage and thirdly, the basis of competitive advantage is moving from capital, natural resouces to 'human capital' thus removing another barrier to aggressive competitor behaviour. Technical Subsystems Post" also focuses on core competences showing how core technologies formed the root or foundation on which organizations build competitive advantage. He refers, in his book to an earlier reference to 'technical subsystems' by Talcott Parsons'> who suggested that 'every organisation has il technical subsystem which is the core of what the entity does and which accounts for its distinctive character', a view shared by Prahalad and Hamel. Post argues that every organization is made up of three key subsystems. An institutional subsystem which acquires and maintains public support for the organization. An administrative subsystem which co-ordinates the core activities and procures input resources and distributes output products. And the technical subsystem which carries out the core activities of the organization which transform inputs -nto outputs. There are echoes of Porter's value thain in the way Post explains and illustrates this attempt at describing the infrastructure of an organIzation. Porter's own contribution to this debate is loa well known to warrant recall in this articleY·H

Core Competences Prahalad and Hamel's argument is that to stay competitive in today's global markets it is necessary to seek competitive advantage from a capability which lies behind the f.:oducts that serve the market. It is this they call core competences of the corporation. In their view, core competences give organizations a unique competitive advantage because they enable the organization to diversify into new markets by reapplying their core competence. Similarly, because it is a hidden capability which competitors cannot easily imitate it gives the organization a near monopoly position in its chosen markets. Their definition focuses on manufacturing capability and so do their examples of companies that support their thesis. An example they give is of Honda who, realizing that its strength lies in engines and transmission systems (their core product); exploited different markets by selling them in motor cars, lawn mowers, boats, and motor cycles, thus achieving sustained profitable growth through diversifying the application of its core competence. If on the other hand it saw itself as a manufacturer of motorcycles, its corporate history would probably be very different today. Unlike Prahalad and Hamel, John Kay attributes Honda's success in the USA to its ability to market an innovative but simple, low-cost product of quality to a new breed of customer through a new and distinctive distribution network." In doing this it bypassed the traditional retail outlets which preferred customers who wanted powerful long distance motorcycles to those who needed a cheap form of transport. Pascale mirrors Kay's view by pointing out that Honda's success in the USA was as much the result of an opportunistic response to the market supported by the quality of the product it had to sell. Honda's distinctive capability, according to Kay and Pascale, is wider than manufacturing capability and extends to a management mindset which enabled it to match its core competence to markets in which that competence will produce profitable fruit. For core competences to yield revenue and profit they must deliver competitive advantage by being applied in industry and brought to market. There is, therefore, a need to differentiate between core competences and other organizational competences which provide a company with distinctive capabilities from which it derives competitive advantage.
Long Range Planning Vol. 27 August 1994

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1
Distinctive Capabilities John Kay points out that there are four Distinctive

Capabilities-innovation, architecture, reputation and strategic assets-which enable a corporation to achieve and sustain profitable growth.' His argument is that an organization's ability to innovate, make and sustain internal and external relationships (architecture), its brand image and unique assets, i.e. ownership of oil wells or patents, enables it to sustain a competitive advantage. Kay points out that a distinctive capability is one which other firms lack but which to be useful must be both sustainable (survives over time) and appropriate (only benefits the company that owns it). Citing BMWas an example, he suggests that BMW achieved its success using architecture as its Distinctive Capability although, today, due to its success, its brand image is also a Distinctive Capability. It brought together three key factors: A system of production which delivers high quality engineering in a production car; a chosen market segment (young, affluent, European professional); and a reputation for product quality. Other manufacturers such as Mercedes Benz or Porsche also have a reputation for high quality engineering and product quality. Where they differ from BMW is in the market at which they target their cars. Although similar in concept to core competences, Kay argues that the foundations of corporate success are built on a multi-faceted base of different components. Discussion Distinctive capabilities are visible to the competition and vulnerable over time, because they can be imitated. Similarly, management systems, production processes or mission critical systems such as airline reservation systems, JIT. or management techniques such as quality circles and management strategies" are competences that contribute to corporate success but they are not CORE competences because they can be imitated or acquired and do not remain the preserve of anyone organization for long. Core competences, by definition, differ from other organizational competences such as distinctive capabilities, end products, core products, strategic business units, or core businesses as they are part of the technical sub-system of an organization and therefore embedded within its production and management processes. This reinforces the view that
Exploiting the Core Competences of Your Organization

the true core competence of an organization lies' ,.• its technical subsystem. III The technical subsystem comprises both the creative and the implementation capability of the organizatio~. This would be true of an advertiSing agency, as It would be true of a manufacturing company. It is in the R&D laboratories of Merck or G1axo or Sony or Honda or HP or the creative teams in an advertising agency; combined with their ability to implement this creativity that true hidden ingredients of corporate success lie. The importance of being able to convert creative outcomes into. marketable products is emphasized by Florida and Kenney who argue that 'the inability of US high. technology firms to capitalize on their innovations and turn them into products" is a prime reason for the USA not benefiting as much as it should from its creative talent. This does mean that architecture, brand images or strategic assets are important as levers to exploit the core competences and the results of their application, but they do not provide that extra something which gives an organization unique strengths. Unfortunately, it is the lack of recognition and understanding of the value of this hidden asset that makes companies focus on the more visible end products. In summary a core competence is the equivalent of the family silver which should not be pawned or sold for short term gain. The test of core competences (as opposed to the other competences of an organization) is their ability to meet the following criteria They must be:

essential to corporate survival in the short and long term, invisible to competitors, unique to the corporation, a mix of skills, resources, and processes, a capability which the organization can sustain over time,

I:)

a difficult to imitate,

o
Q
Q

a greater than the competence of an individual, a essential to the development of core products and
eventually to end products,
Q

essential to the implementation vision of the corporation,

of the strategiC

69

:;] essential to the strategic decisions of the corporation, i.e, on diversification downsizing, rationalizing, making alliances, and joint ventures,

o
o

marketable and commercially few in number.

valuable,

A core competence of the organization can be defined as: 'a technical or management subsystem which integrates diverse technologies. processes, resources and know-how to deliver products and services which confer sustainable and unique competitive advantage and added value to an organization' . A question which most clients ask is whether a conglomerate or a diversified business has a single set of core competences or whether there are many. The answer often is that core competences can be hierarchical. A holding company, e.g. Hanson Trust or BTR. will have core competences which make it good at managing a diversified business. Goold and Campbell suggest that the core competency of these conglomerates is Financial Control." However. the different companies within the Group will have specific core competences which may he alien to the holding company. The fast growth of ABB (see Box 1) can be attrihuted to the dynamism of its leader whose personal core competence seems to be a strong vision and enormous energy to expand and still control a. vast empire. The different organizations which.form part of what is now ABB have their
BOl(

own core competences which must be distinct from those of the holding company. For example: Kennedy records how, Percy Barnevik, 'having acquired Stromberg-the Finnish power and electrical company-converted it to ABB's worldwide centre of excellence for one key group of products, electrical drives," In contrast Ciba-Geigy (see Box 2} is still an integrated business whose core competence of discovering and marketing safedrugs sustains the whole business.

Isolating Core Competences

In the author's experience core competences are hidden, not only from competitors, but also from the organization itself. This is because most managers have grown-up with the organization and taken its core competences for granted. A less charitable explanation would be that they never bothered to understand where the true source of the organization's competitive advantage came from. Any attempt to unearth core competences hits the mental barriers of end products and markets and the personal bias of leaders and strong influencers seeking to protect their empires or because they are genuinely confused by the process. Not withstanding this handicap going from the known to the unknown is still the most effective way to discover the core competences of the corporation. The methodology proposed starts at the end products or

l-ABB .

Percy Barnevf.Ktook over as the chief executive of the Swedish company Asea-a highly respected company with a strong pedigree-7 years ago. He recognised then that the Single European Act, by creating a 'seamless' European market could threaten the existence of Asea. In addition, there were big but slow European and American competitors, operating in reasonably secure home markets, who might, when they woke from their slumbers wish to swallow up or wipe out Asea because of the over capacity in the markets they served. The competition had names like Brown Boveri, Westinghouse T & D, Siemans, GEe, and Alsthom. He knew that some of them had plans to merge or form strategic alliances. He had few choices. He could rollover and wait to be taken over, initiate talks to merge with one of the larger companies or plan an aggressive strategy of his own to wrong foot the opposition. Being a man of vision and confidence in his and his Company's ability to play David to the Goliaths he decided to become ABS and a major global player. Today ASS is a global business with a US$29bn turnover, 1200 companies in the group, 215,000 employees, 25,000 ~anagers, and 5000 profit centres of roughly 45 people each. It has experienced four-fold revenue growth, an eight"fold nse in profits and a twenty-fold increase in shareholder value, Today, it is unquestionably a leader in the electrical power and equipment industry. Growth has been achieved by the acquisition of other global or national companies in the same business as Asea. Brown Boveri was the first, others such as Westinghouse T & D, Stromberg in Finland, Marelli in Italy were also swallowed up, along with over 1.30others, some like Stromberg to become a world leader in the supply of electric drives. Between 1988 and 1990 Asea had grown from 70,000 employees to 235,000 which has since been reduced to 215,000, (Information drawn from Kennedy," Peters14 and other articles and discussions with executives in the UK Power Systems tndustry and their suppliers-ABB's competitors.)

Long Range Planning Vol. 27

August

1994

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Box 2-ciba-Geigy k: 1986 an environmental disaster caused by a warehouse fire at Sandoz resulted in a public outcry which was interpretedk br H~ini llppuner, President and chief operating officer of Ciba-Geigy, as the excuse to vent public resentment with the ,I ;r.c!~s~ry. There were other storms brewing. Pharmaceutical companies represented a special kind of market. Governments, in the form of Health Authorities paid for drugs prescribed by doctors and consumed by patients. Health care which cost between 7 and 12 per cent of GOP of developed countries in 1960 had fallen to about 4 to 8 per cent by 1983. But by the late 1980s most governments were putting pressure on their Health and Welfare budgets. Although the cost of drugs amounted to only 15 to 20 per cent of the Health Care budget this was where politicians focused their efforts. Consequently profit rnarqias In the industry were reduced affecting R&D budgets. Simultaneously with this . financial squeeze, the regulatory framework for releasinq drugs required longer testing time thus reducinq the active life of' .". the drug in the market and its life-time profitability. This meant that R&D spend had to be recovered from lower revenues .: ;: and profits. In addition to these pressures that the industry in general suffered, Ciba-Geigy also had to prepare for the . ,; 'borderless' European market looming in 1992, a market in which its larger rivals had a ring-side seat. The challenge to Ciba-Geigy was to formulate and implement a strategy which would ensure that it would emerge through this period of Significant market changes a stronger rather than a weaker company. When you are faced with such industry giants as Merck, Glaxo, BASF, ICI, Hoechst, Bayer, DuPont and others the idea of buying your way out of trouble seems the least attractive option even though it may be a seductive alternative. Survival and growth is more likely to come through evolution rather than revolution and therefore the vision of Heini Lippuner to increase the internal efficiency and effectiveness of the organization by releasing the energies of the staff and using this energy to meet the changing SOCialand environmental pressures on the business seems a very effective way forward. You would therefore charter a course, as he did, under the banner of a different war cry, namely, 'Vision 2000'. The vision was to re-focus the business to its roots in chemicals and pharmaceuticals by selling off unrelated businesses. The second was to empower its employees by giving them directed autonomy and removing central bureaucracy. The Chairman believed that where people grew profits grew. The impact of 'Vision 2000' was felt in the growth of revenue, profits and cash-flows. This vision (as contrasted with Barnevik's) will probably keep Ciba-Geigy exactly where it wants to be in the short term-among the lead pack but not the leader. By deferring to the newer, greener, values of his countrymen and women and his staff Heini Lippuner is drawing strength from a vast reservoir and hopefully this will increase Ciba-Geigy's survivability. For example, by winning the support of the public and gaining a reputation for being the 'honest and respectable' face of the drug suppliers, Ciba-Geigv may offset some of the Governmental and public pressure on profit and lead-time from invention to shop windows. If Ciba-Geiqv can achieve a 10 to 15 per cent reduction here it will improve its profitabifity significantly. When it says that the cost of drugs is only about 15 per cent of the total cost of running the Health services and people hear and believe this so that their perceptions change, Heini Lippuner will have steered Giba-Geigy into a new dawn. (Based on Kennedyil; lynn'O and discussions with executives in the UK Pharmaceutical Industry.)

J:

,-

served markets and finishes when the core technologies which form the input to core competences have been isolated. Having achieved this, new strategies emerge like butterflies from a chrysalis based not on past trappings but on new found strengths. By identifying new opportunites rather than imitating past strategies of the corporation or of competitors the organization is able to surprise and out manoeuvre its competitors. As Kay points out, 'Successful strategy is rarely copycat strategy because to outdo your competitor it is necessary that your market offerings are the result of being able to do well what rivals cannot do or cannot do readily, not what they can do or are already doing'." A flow chart of the steps used by the. author in his consultancy work to unearth core competences are shown in Figure 1. The process starts by dissecting the revenue stream and identifying the products and services offered by the organization to its served
Exploiting the Core Competences of Your Organization

markets. To make tbe process of analysis easier only those products which make a significant contribu· tion to the organization's revenue, profit and strategic purposes are selected for analysis. These products and services are separated to identify the core products and services. These core products and services are then further separated into constituent parts to unearth the basic technologies, people skills, processes and strategic assets which combine to produce these core products. At the end of this activity the core competence of the organization becomes apparent. These findings are then tested against secondary products and services to ascertain whether they are born from the core competences (and if they are not you have potential candidates for divestment or the chop) and whether there are new . markets into which these skills can be deployed. In other words the core competences become inputs into Portfolio Analysis (Le. the Boston Consulting

I'

------------~--------------~~~-------------------------------

SERVED MARKETS

Secondary
products/

END PRODUCTS

I SERVICES

services Decompose into sub-assemblies and components including technologies, skills, processes, strategic assets. etc.

Membership, roadside rescue, route planning, motor insurance

CORE PRODUCTS

I SERVICES

Test
competences

Databases, critical incident monitoring and control systems, automatic resource deployment

Examine New
Markets with
new products

Consider New Alriancesl

based on cora
.competence

divestmentsl disposals

CORE COMPETENCE

Motor engineering, IT and telecomms, motor vehicles, trained staff

BASIC COMPETENCES

Group Model; Stars, Cows, ? and Dogs) but based this time on whether your core competences are being applied to your stars rather than your dogs. Similarly, they can become inputs into Porter's model of rivalry within the industry where again your search is for substitute core competences rather than products. An example of how this is done for 'International Motorist Rescue Services' (a hypothetical company) is explained in Box 3 and illustrated in Figure 2. This process of reverse engineering is used to understand the business and its prime source of competitive advantage; it must not be seen as confirmation of past strategies and used to consolidate t:18 status quo unless unbiased assessments of market opportunity confirm that Courseof action.

mercial gain by drawing on other capabilities of the organization such as its people or by marketing techniques to exploit known or dormant market opportunities. To do this it is necessary to put core competences in context, particularly, with regard to the strategic intent of the firrn.!" The model (Figure 3} is a step towards showing these relationships. The Model The model is based on the research described in the previous sections of this article and on the wealth of established research and theory in the field of motivation and individual performance. It postulates a causal relationship between four factors-core competence, shared corporate direction, market leverage and a motivated organization. The model
Long Range Planning Vol. 27 August 1994

Using Core Competences for Profit

~nowing your core competences is not particularly lleipful unless they can then be exploited for com-

72

,
I

Box 3- The core competence of the International Motoring Rescue Service'" The company offers a variety of services. These can be listed as: Rescue service at.horne and roadside. __ '.:, Repair service at home and roadside (minor an temporary). Route planning and route information. Insurance services. Membership of motoring organization. Security and comfort. Motorist relevant products. The end product is security provided through a rescue service to its members. Access to this service is via telephone, roadside kiosks and high street offices. The high street offices also sell other services, i.e. secondary products such as insurance and motoring accessories, e.g. maps, and other services which can be bought by anyone. The core technologies,l::~ it uses are motor engineering [mobile motor engineers) with well equipped vans and recovery trucks and a sophisticated ~' IT and telecommunications system and trained operators who can record and respond to each distress call and monitor its " progress. The core products are a combination of databases. critical incidence monitoring and control systems. scheduling and route planning, and resource deployment. Using these care products the staff can: Collect enough information to ensure rescue is effective. Confirm membership. Alert rescue service. Allocate resources and de-allocate resources when the job is complete. The core competence of the company is therefore most likely to be its Ability to comand and control an incident.
Provided the appropriate databases exist the organization can respond to other incidents such as a request for insurance cover or route planning etc. In this way it can exploit its core competence to energize new and profitable revenue streams. This makes it similar to the Police, Ambulance, Fire services in that it helps stranded motorists (provided they are members). Figure 2 illustrates the flow from served markets to core competence. *A hypothetical company.

suggests that the ability of an organization to sustain profitable growth is derived from converting its vision into reality by combining its shared goals, its organizational motivation and its core competence to generate the core and end products and services. These core and end products are deployed using its market leverage [competitive advantageXmarket opportunity) to capture a share of its selected markets. It suggests further that success creates a virtuous, self-fulfilling circle which sustains profitable growth by re-energizing organizational motivation. The model deliberately avoids linking past success to future vision as it is necessary for the vision to be built, not by extrapolating from the past, but by determining a future course based on the leader's understanding of the organizations core competences and the markets which can be exploited by their deployment. This relationship can be expressed as a formula:
Sustained [ core shared, ) profitable = f competence X strate ic X motivated X market . f ,g organization ievsraze growth 0 company direction
0

The justification

for a formula which proposes a

multiplicative relationship between the variables is that success is unlikely to occur if anyone of the variables is unrealized. The effectiveness of the model depends on aU these four factors being carefully researched, understood and implemented. However, it is important to point out that the vision of the leader plays a significant part in both setting the shared strategiC direction and firing the motivation of the organiza· tion. However, this initial impetus will only be sustained if the success enjoyed by the organization is willingly shared with its employees. Finally, the organization must marry its products to its markets and identify those products which afford it the highest potential for sustained profit. To do this it needs to produce a map of its key products and their position in the market in order to ascertain their vulnerability to competitive attack. Figure .• illustrates a model which can be used for thIS purpose. The model is based on the hypothesis that sustained profitable growth is derived from products and services which generate high profits, are diffi· cult for the competition to replicate and afford a high competitive advantage over similar or substitute

Exploiting the Core Competences of Your Organization

.:-::

73

Shared corporate

diTon X

Market opportunity
,

Competitor behaviour

~
Sustained profrtable growth
I

Core Blend

Core Competitive competence advantage of the organization (Shareholdervalue .....- _; - - - - _ - - - - - - - - & income & staff benefits)

Shared organization rewards

productsl services

X~

I I I I I
_

products. The logic of the model is explained

Box 4.

in

Applying the logic to Figure 4 and Box 4, it would be most advantageous for an organization to position itself at the top right hand corner where it can easily respond to challenges from competitors. The company has the innovators advantage of creating a new market and establishing itself as the industry standard. A good example of such a company is Hewlett-Packard (see Box 5) which has been called an 'adaptive paragon"? because of its ability to respond quickly to new directions signalled by the market and to exploit the opportunities its core competence creates. Adaptability is a valuable skill if the organization is in a market where constantly evolving technologies and markets pose a threat to survival from new entrants (Apple, Compaq, Sun and Dell) who can iotn the big league quickly and effectively. Alternately its fleetness of foot enables it to seize opportunities for growth and to establish its market presence and take leadership of that market segment.

The value of adaptiveness is best illustrated by drawing on the experiences of the major computer suppliers on both sides of the Atlantic. The early warning signs of the slowing down of the mainframes market came in the late 1970s when the smaller suppliers of mainframes such as leL found themselves struggling. The difficulties experienced by ICL were not entirely of their own making, but given the smaller size of their customer base the impact of the slow down in the mainframe market coupled with the rapid price performance of minicomputers and PC's wrong-footed the company. DEC felt the pinch in the mid 1980s only because the slow down in its market (mini-computers) took longer to occur. The lack of adaptability and the inability to read the market cost both DEC and IBM dearly; ICL (re-launched in 1980 on the slogan 'survival, profit and profitable growth') refocused to become a supplier of 'total' solutions to specific industries and Government markets. The giants of the industry did not learn from the struggles of the smaller
Long Range Planning VoL 27
August 1994

74

Easy

COMPETITOR RESPONSE

Hard

I
!
Competitve advantage

High

PATENTS

Profit
New product know-how'

Low Sources of market strength

Box 4-A model of survival and future growth Figure 4 is a four-dimensional model. In the top right hand corner the organization is strongest as it has a core competence which enables it to adapt quickly to market and technology drivers. The second band represents a near rnonopolv position because the organization has strategic assets or a reputation which the competition cannot easily rrnnate Or acquire and which has the potential to earn high profits. The objective of any organization would be to place the org~nization's products and services at the top two right hand bands. The third diagonal band represents the position of the InnOvator and the know-how providers where for a period the organization has the potential to earn high profits and nave the market almost to itself. but finds its position eroded due to fast follower and me too activity. The fourth diagonal ba.nd represents the commodity supplier's position where profits are likely to be low as the differentiators used are primarily place and price.

ccmpaniae, pf:rhaps because of corporate arrogance and becall!w they were cushioned by a much larger customer base. Their feet of clay took longer to crumble and they are still struggling to retain their poe-eminent positions in a larger industry than the one they helped create. The next band down represents companies who have a?hieved Success because of patents or other suateglc assets which have effectively locked the competition out. The privatization of state owned utiliyes in. the UK is a very good example of comparnes which came into being with near monopoly
Exploiting the Core Competences of Your Organization

rights and despite regulators have posted ever increasing profits and dividends. Others who enjoy the benefits of near monopoly status are companies such as Glaxo who have patents for specific drugs or companies who have patents on specific technologies, such as Xerox who were able to build 2 global presence and supremacy in photocopying beating such formidable rivals as Kodak and IBM during that time. It took a company like Canon to open a new market segment with a new product by exploiting its core competence something neither Kodak or IBM could do because they did not

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BoX5-Hewlett-Packard-The adaptive corporation In 1991 H-P recorded a turnover of $1.5bn. It employed 89,000 staff worldwide and was the 29th largest corporation in the USA and the 15th most profitable. Seventy per cent of its income was earned in the highly priced competitive computer market and 60 per cent of it from overseas. The company first started bullding its own digital controllers in 1966. In 1968 it built its first hand held calculators. In 1980 the first general purpose computer was built. Today H-P is recognized as a supplier of high quality computers including PC's, palmtops and laser printers. It entered the computer printer supply business in the last decade by selling the Deskjet in competition with the Dot-matrix printers from Japan, and has, in this short :-;,eriodof time won a little over 50 per cent of the world market for computer printing estimated at $5bn per year. It has'sold over 5 million printers, manufacturing and shipping 125,000 units per week. Quite an achievement for a company which started in a garage behind David Packard's house in Palo Alto in 1938. Its success is widely acknowledged to be the result of its corporate culture and distinctive advantage. It shared values, initiated by its founders and sustained throughout its life, can be summarized into the following key themes. 1. Look after customers and staff. 2. Offer alf staff the same proportion bonus. 3. Show competitors what you are doing now but not what you are likely to do. 4. Concentrate on what you do welf and try to do it better. 5. Never bother with products others can sell cheaper. 6. Treat change as inevitable-do not resist it. H·P's core competence stems from the ability of its R&D laboratories to generate new products fast, financial strength which enables it to sell high quality goods at competitive prices and adapting its selling to exploit mail order and retail outlets. Goold and Campbell in an analysis of the company" suggest four factors that have sustained it. Common strategy, i.e. to be the technology leader and to bring out novel products, unified culture embodied in the H-P Way, empathy with and respect for entrepreneurs in the product divisions, management by walk-about.

leverage from the strength of their core competence but attempted to attack Xerox head-on. Band 3 represents companies which compete on the basis of offering products and services which require an element of expertise over and above that of price, product packaging and distribution capability. Examples are: project management organizations, engineering businesses and similar organizations where there are a limited num~r of service providers but enough of them to ensure market conditions prevail, Consultancies, accountancy firms, lawyers and similar expert or knowledge based organizations also fall within this band. Band 4 represents companies who compete on price and place. Organizations with a majority of their products in this band will always be vulnerable to profit erosion and customer fickleness. PCs fit at this end of Figure 4.

proposed in this article is considered far-fetched by the reader Box 5 outlines the key themes of Hewlett Packard's management style which in many ways seems to fit both models discussed. For example: 1. Its technological prowess and market sensitivity keeps it at the top right hand corner of Figure 4. 2. It has a strong vision. and one which is well understood by all levels of its staff. 3. From all accounts it seems to have a motivated organization. 4. It understands that its core competence is derived from its people and their ability to generate new product-fast; and maintains a corporate climate that fosters and encourages 'technopreneurs'. direction, its core competence and its motivated organization into high quality goods at affordable prices which it uses to exploit known or dormant market opportunity. In contrast, IBM seems to have lost its way. It has suffered enormous losses (over $4bn in 1992). Its long term vision is blurred (and will probably continue so if a quote from its new chief executive is to be believed 'the last thing IBM needs right now is a vision') thus offering no big picture which will sustain the drive and motivation of its people. Its short term vision of cost cutting and bottom line improvement will, no doubt, keep it alive but what
Long Range Planning Vol. 27
August 1994

It converts its shared corporate

Application
Many of the points raised in this article are applied either intuitively or by design by many exceptional organizations worldwide. Whilst some have acquired Worldfame as much for their management style as lor their products there is no doubt that there are many unsung heoes as well. In case the methodology

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.'

will it be surviving for? Its employees are demoralized by a lack of direction and a redundancy programme started a few years back and is expected to shed another 60,000 people in the next 18 months. Its core competence honed to produce mainframes and market them is probably inappropriate for the markets of the future which seem to be moving rapidly away from mainframes into an amazing plethora of mixed technologies embracing networks, multi-media, distributed databases and eventually information utilities designed to match the needs of an ever growing band of staff and private individuals distributed globally and seeking to sustain communication channels with peers and corporate colleagues.' Given this immense opportunity and its vast resources in people skills, customer loyalty and financial muscle, the proposed actions by its new chief executive seem sterile and unimaginative. Undoubtedly survival is vital but surely cannot be an end in itself and will certainly not be the future IBM employees will warm to in the longer term. If this set of circumstances was applied to the model (Figure 3) we would predict an organization which may achieve profit but not sustained profitable growth unless its vision, its core competence and the motivation of its people is focused on a more exciting yet achievable goal. In contrast ABB (Box 1) is a company growing apace through acquisition rather than evolution. The dynamism of the organization seems to come from a strong visionary leader and an organization from which the dead hand of bureaucracy has been removed by the dispersal of corporate units and the release of both the energies of its employees and the core competences of the many different organizations which come under the umbrella of ABB. The inevitable question is whether this new dynamism will be sustained over time or whether it will peter out when Barnevik leaves in search of new and bigger pastures or retires. The answer to this question depends very much on whether the whole company is living one man's dream or whether the dynamism and spirit of enterprise has become enshrined in the new culture of ABB. In many senses his behaviour is reminiscent of the heady days of Harold Geneen, when he expanded ITT only to leave

behind an awesome legacy for his successor to.'.., manage." The Chief Executive of Ciba-Geigy on the other hand is focusing his attention on bUilding 8 mo.ivated organization where through a Sharedi vision he is attempting to lay the foundations of. business which will show sound and steady growth. It reflects his firm belief that 'where people grow'~ profits growt--a recognition that Ciba-Geigy's COlt;; competence rests with its scientists and researcheI$,f: whose belief in its ethical and moral values are ail.;~ essential ingredient and spur to their creativity.~~ Perhaps once it has succeeded in releasing the:} organizational drive Ciba-Ceigy will reach for bigger';) goals. It will be interesting to judge if effective"i followers make great companies and protect them~;' from the vagaries of leadership changes. Drawing strength from the followers to achieve the leaders vision is not new. Hewlett-Packard among the industrial companies also excels at keepill8. organizational drive and commitment at fever pitch...

Conclusion
The art of successful competitive advantage depends on the ability of companies to leverage from their .' strengths. To do this it is important that they undet4 stand where their strength really lies. Core com~~:. tences will help them do this by enabling them to gel<' behind their end products and served markets to the,Wi core technologies and technical subsystemsthat all?_;: generally invisible to them and their competitors. However, it is important to remember that it is one further technique among many which organiz&tions can use to position themselves for success in the corporate battles which confront them. Used as a means to acquire a new and different insight into the workings of their companies managers and strategists in organizations may be able to envision new futures through exploiting new wants and needs in a rapidly expanding world economy where challenges and threats corne from unexpected sources and opportunities from emergent customers, It is not a substitute for product quality, effecti't't marketing, sound financial management or corpOl'" ate governance.

Exploiting the Core Competences of Your Organization

77

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August 1994