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Core Capabilities.

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INTRODUCTION Debate about the nature and strategic importance of firms' distinctive capabilities has been heightened by the recent assertion that Japanese firms understand, nurture and exploit their core competencies better than their U.S.-based competitors (Prahalad and Hamel, 1990). This paper explores the interaction of such capabilities with a critical strategic activity: the development of new products and processes. In responding to environmental and market changes, development projects become the focal point for tension between innovation and the status quo--microcosms of the paradoxical organizational struggle to maintain, yet renew or replace core capabilities. In this paper, I first examine the history of core capabilities, briefly review relevant literature, and describe a field-based study providing illustrative data. The paper then turns to a deeper description of the nature of core capabilities and detailed evidence about their symbiotic relationship with development projects. However, evidence from the field suggests the need to enhance emerging theory by examining the way that capabilities inhibit as well as enable development, and these arguments are next presented. The paper concludes with a discussion of the project/capabilities interaction as a paradox faced by project managers, observed management tactics, and the potential of product/process development projects to stimulate change. THE HISTORY OF CORE CAPABILITIES Capabilities are considered core if they differentiate a company strategically. The concept is not new. Various authors have called them distinctive competences (Snow and Hrebiniak, 1980; Hitt and Ireland, 1985), core or organizational competencies (Prahalad and Hamel, 1990; Hayes, Wheelwright and Clark, 1988), firm-specific competence (Pavitt 1991), resource deployments (Hofer and Schendel, 1978), and invisible assets (Itami, with Roehl, 1987). Their strategic significance has been discussed for decades, stimulated by such research as Rumelt's (1974) discovery that of nine diversification strategies, the two that were built on an existing skill or resource base in the firm were associated with the highest performance. Mitchell's (1989) observation that industry-specific capabilities increased the likelihood a firm could exploit a new technology within that industry, has confirmed the early work. ...read more.


THE DOWN SIDE: CORE RIGIDITIES INHIBIT DEVELOPMENT Even in projects that eventually succeed, problems often surface as product launch approaches. In response to gaps between product specifications and market information, or problems in manufacture, project managers face unpalatable choices. They can cycle back to prior phases in the design process (Leonard-Barton, 1988a), revisiting previous decisions higher up the design hierarchy (Clark, 1985). but almost certainly at the cost of schedule slippage. Or they may ship an inadequate product. Some such problems are idiosyncratic to the particular project, unlikely to occur again in the same form and hence not easily predicted. Others. however, occur repeatedly in multiple projects. These recurring shortfalls in the process are often traceable to the gap between current environmental requirements and a corporation's core capabilities. Values, skills, managerial systems, a technical systems that served the company well in the past and may still be wholly appropriate for some projects or parts of projects, are experienced by others as core rigidities--inappropriate sets of knowledge. Core rigidities are the flip side of core capabilities. They are not neutral; these deeply embedded knowledge sets actively create problems. While core rigidities are more problematic for projects that are deliberately designed to create new, nontraditional capabilities, rigidities can affect all projects--even those that are reasonably congruent with current core capabilities. SKILLS AND KNOWLEDGE DIMENSION LESS STRENGTH IN NONDOMINANT DISCIPLINES Any corporation's resources are limited, Emphasizing one discipline heavily naturally makes the company somewhat less attractive for top people in a nondominant one. A skilled marketing person knows that she will represent a minority discipline in an engineering-driven firm. Similarly, engineers graduating from top U.S. schools generally regard manufacturing in fabrication industries less attractive than engineering design, (see Hayes et al., 1988) not only because of noncompetitive salaries, but because of a lower level of expertise among potential colleagues. In each of the nonaligned and hence more difficult projects (Table 2), specific nontraditional types of knowledge were missing. ...read more.


As micro-level social systems, they create conflict with the macro system and hence a managerial paradox. Quinn and Cameron argue that recognizing and managing paradox is a powerful lever for change: Having multiple frameworks available...is probably the single most powerful attribute of self-renewing... organizations' (1988: 302). Thus project managers who constructively 'discredit' (Weick, 1979) the systems, skills or values traditionally revered by companies may cause a complete redefinition of core capabilities or initiate new ones. They can consciously manage projects for continuous organizational renewal. As numerous authors have noted, (Clark and Fujimoto, 1991; Hayes et al., 1988; Pavitt, 1991) the need for this kind of emphasis on organizational learning over immediate output alone is a critical element of competition. FOOTNOTES (1) According to Quinn and Cameron, '(t)he key characteristic in paradox is the simultaneous presence by contradictory, even mutually exclusive elements' (1988:2.) (2) Exceptions are historical cases about a developing technical innovation in an industry (see for example, Rosenbloom and Cusumano, 1987.) (3) Other members of the data-collection team on which I served are: Kent Bowen, Douglas Braithwaite, William Hanson, Gil Preuss and Michael Titelbaum. They contributed to the development of the ideas presented herein through discussion and reactions to early drafts of this paper. (4) Barney (1986) is a partial exception in that it poses organizational culture as a competitive advantage. (5) Schein distinguishes between these surface values and 'preconscious' and 'invisible' 'basic assumptions' about the nature of reality (1984: 4). (6) Each core capability draws upon only some of a company's skill and knowledge base, systems and values. Not only do some skills, systems and norms lie outside the domain of a particular core capability, but some may lie outside all core capabilities, as neither unique nor distinctly advantageous. For instance, although every company has personnel and pay systems, they may not constitute an important dimension of any core capability. (7) Such cycles, or 'vicious circles' as psychiatry has labeled them, resemble the examples of self-fulfilling prophecies cited by Weick (1979: 159-164). (8) This observation is akin to Gidden's argument that structure is 'always both constraining and enabling' (1984: 25). ...read more.

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