Core Competences at NEC and GTE

Team Bach Mgt693 Spring 2008

Core Competencies
Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.
Prahalad and Hamel, pg. 13

A core competency is something the firm does well, that meets the following 3 tests:

It contributes significantly to the customers perceived value. Its hard for competitors to imitate. It can be leveraged widely, to many products and markets.

Core Competencies

Hondas internal combustion engines

Core Competencies

What is Sonys Core Competency?

Core Competencies
Start from the inside, out.

What does our firm do best?

Porters Five Forces

Looks at the environment, and starts from the outside, in.

What is the competition doing?

A Japanese multinational IT company, NEC provides IT and network solutions to business enterprises, communications services providers and government.

GTE was the largest of the independent US telephone companies. Service: provided local telephone service to a large number of areas of the US In 2000, GTE was bought by Bell Atlantic, renaming itself Verizon Communications.
http://www22.verizon.com/

NEC - Core Competency

Communications Equipment Radio broadcast Microwave communications technology Computers 1950 entered the computer industry 1959 worlds first working transistorized computer 1974 first Japanese microprocessor 1979 developed it first PC

NEC

Semiconductors 1958 Signed a technology licensing agreement with GE 1960 established its Integrated Circuits Division 1960s moved into LSIs 1967 moved into VLSIs

NEC - Core Competency

Strategy: C&C
Vision of NECs future as an integrator of Computers and Communications through semiconductor technology
Worldwide electronic supplier ranking (1987)
Computers Telecommunication Semiconductor

1 2 3 4 5

IBM Unisys DEC Fujutsu NEC

AT&T Alcatel-ITT
Northern Telecom

NEC Hitachi Toshiba Motorola TI

NEC Siemens

GTE - Core Business

Lighting

GTE

Precision materials

Telecommunications
1983 acquired GTE Sprint and GTE Spacenet

GTE-Core Business
Strategy:
Sell or transfer underperforming or non-core businesses Sold: Television & radio manufacturing operations Consumer communication products GTE Sprint Worldwide lighting, electronic product, space-based communications, and aircraft cellular phone business Transferred: 80% of GTEs communication transmission and central-office switchmanufacturing activities 80% of GTEs business systems and PABX business 1990s The merger with Contel Corporation Alliance with Vodaphone Airtouch Purchased BBN Agreements with Lycos, Qwest, and Cisco to enhance its position in Internet-related business Expand to foreign markets Focus on new and enhanced communication businesses

Performance of NEC vs. GTE Sales

Sales in Millions of $'s NEC vs GTE
$50,000 $40,000 $30,000 $20,000 $10,000
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

GTE NEC

$-

Performance of NEC vs. GTE Gross Domestic Product

Year on Year GDP Growth Japan vs. US

35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Japan GDP Grow th US GDP Grow th

19 80

19 82

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

Average year on year growth 1980-1988 Average year on year growth 1989-1999

US 7.2% 5.2%

Japan 11.2% 3.1%

Performance of NEC vs. GTE Growth Within Stock Markets

Nikkei 225 vs S & P 500 Year on Year Growth
60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0%
19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99

S & P 500 Nikkei 225

Performance of NEC vs. GTE Net Income

Net Income in Million's of US $ NEC vs GTE 1980-1999
$3,500 $2,500 $1,500 $500 $(500) $(1,500) $(2,500)
19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98

GTE NEC

From 1981-1988, GTEs profit was almost 6 times that of NEC From 1989-1998, GTEs profit was almost 4 times that of NEC

Why Core Capabilities and not Core Competence?

Core Competencies are important but they arent everything. The ultimate goal of any enterprise is profitability. According to Grant, there are 2 major sources of profitability: Industry Attractiveness Competitive Advantage Core Competencies are only key if they can be exploited to create a strong competitive advantage.

Resource Based Management: Where NEC Failed

NEC lacked Organizational Capability & Flexibility NEC failed to effectively exploit or develop:

Sustainable competitive advantage:

Continuously developing both existing and new capabilities/resources in response to a dynamic market.

Distinctive Capabilities
Characteristics of your business that your competitors cannot replicate (your source of competitive advantage)

Reproducible Capabilities
Things that your competitors can easily acquire.

Synergy = Distinctive Capabilities + Reproducible Capabilities