Core competence and product design in global markets

Core competence and product design in global markets Virginia Souza de Carvalho Borges Kistmann Universidade Federal do Paraná kistmann@zaz.com.br Abstract: The globalization of markets brought new questions to the traditional organization theory field. It introduced new concepts on analyzing companies intents. Among the new concepts developed we find the concepts of core competence, core products and end products. This work discusses these concepts related to product design activity. Key-words: product design; global product; global product design. Introduction What are the implications of a national politic towards an valorization of product design facing market globalization? This question, when nations look for better invest on programs to increase competence in external markets, was the question that guided this article. To answer it we considered initially the concept of core competence developed by HAMEL and PRAHALAD, that reinforces the strategic aspects of an increased global market.. Following their statements, regaining competitiveness will mean rethinking many of the basic concepts of strategy [1989: 3] and considering the concept of core competence. These authors point out the fact that competitiveness in global markets is directly related to the ability in establishing and defining the core competence of an organization. Core competence well defined increases quality and diminishes costs, allowing companies to compete with considerable advantage. Doing so, economy of scope may be as important as economies of scale in entering global markets [1989:21]. HAMEL and PRAHALAD discuss this question with more emphasis in another article of 1990, where they say that core competence must consider the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies [1990: 82]. As example, they discuss the capacity of Sony, which achieved an leader position in miniaturization and the Phillips with optical fibers expertise through out investment in work processes with apparently not related technologies. Core competence can be so consider as a work organization and value distribution being communication, people involvement and the compromise of working out of the organization s frontiers important elements. But, the quantity of competencies, as it can be supposed, necessarily does not define the success of a company, because many strategic business does not mean successful core competencies. Competencies are the glue that binds existing business development [ibid] but it can be a wrong approach specially if these competencies are based upon a reduced vision of competencies. Based on this, the authors reinforces the difference between an administration based on the SBU- Strategic Business Unit and an administration based on Core Competencies. Facing global markets they say, it is fundamental to choose the last. Core competencies and product design

The first aspect we can consider, taking into account the concept of core competence related to product design, refers to the business portfolio. Products can present themselves diverse or not related, but what bring them together is the core competence, the first level of a strategic intent of a company. It is an error to consider the launch of many products only to cover the market niches without considering the core competence of a company. Design, under these terms can be an important element for achieving new markets. It can transform the strategic intent of a company in concrete products for the market. But this must be considered associated to the concept of core competence and to the second level of a strategic intent developed by the authors, the concept of core products. Core products are defined as those products that make possible the generation of many final products. Core products are closely related to technological development. Accordingly to HAMEL and PRAHALAD [1990], some administrators fail exactly because they consider core products merely as components and transfer their production to external producers. This brings a high risk because core products are in reality configurations core competence and have a close link to them. HAMEL and PRAHALAD [ibid] also show that, accordingly to the emphasis given to each of these levels with final products, different level of competitiveness can be achieved. For example, if a company is in a leader position in terms of core competence, this will make it to overcome its rivals in terms of new business development. The same way, if the company is leading the core product division, probably it will overcome the rivals with better components of products and consequently final products. Doing this, competitiveness in design terms becomes a point related to the capacity of technological innovation. Then, it is important a new product policy linked to technological innovation and product development of company as a whole. Product design activity done by external design offices could be so in a position of disadvantage in relation to the one done indoors, because does not follows the whole process. Another approach of this question can be made when we expand the concept of core products and consider another authors. KODAMA [1992] points out the fact that Japan is investing more and more on non-core technologies. He exemplifies with the case of the textile industry, that has invest between 1980 and 1986 70% of its resources in R&D out of its main area. This brought a considerable technological advantage. He classifies this kind of approach as fusion technology, or as we can we say, a focus on the combination of existing technologies to generate new hybrid technologies, to achieve new global markets. KODAMA [ibid] reinforces that the most important factor for fusion strategies are the way in which three elements are incorporated: demand articulation, knowledge grouping and collaborative R&D. The first, demand articulation, is a two steps process: first to understand marketing data and to transfer them to a product concept and, secondly, decompose this concept into a set of development projects. For this author, this can be well done if the company has a high level of competitiveness as well as operates sophisticated technologies. Apart of this, it helps if company considers the contribution of all workers, taking them as active collectors and considers cross works. KODAMA shows that Asahi-Kasei, a marketing leader textile producer in Japan, that has invest in the application of fiber optics to construction materials and in a filter system for dialysis machines. In this sense, we can say that the so called central products and the central technologies were until recently predominantly linked to engineer and reflected a methodological approach that was linear. Presently, technological advance has been achieved mainly by multidisciplinary groups. This is a key point for global products competitiveness and is closely related to the processes which emphasize other scientific fields, to the multidisciplinary activity and to the investments in Research and Development. Cultivate core competence and construct leading positions does not mean to supplant rivals in R&D or using common components or costs cuts. Alliances and fusions should be done to supplant deficiencies, but always well tuned to the strategic intent and to core competence. Vertical Integration, another frequently discussed theme when considering globalization, many times has also a wrong adoption because traditional administrators fix their decisions only to competitors analyze, based on the Strategic Business Units: Building core competencies is more ambitious and different than integrating vertically. [HAMEL&PRAHALAD:1990, 83] In this case, elements such as

cost, quality and design are easily detected and copied. But if copy does not take as base a strategy related to the core competence, it will no offer any advantage for the company. The large use of copying by the japanese companies in the 60 s, although roughly seeing as a simple approach, in reality was a very well defined strategy. Copy in this case meant an advance in markets leadership, using cheap labor and an important gain in technological terms, when appropriating new technologies. This vision were well accompanied by attitudes towards new leader positions. Core competence in this case, because it s abstract character instead of a cost, style or value concept, is consequently more difficult to be identified and so copied. That is why many administrators are astonished by the success of companies which adopted a copy policy and achieved success, as the japanese companies. Unfortunately this isn t the case of many other countries that adopted copy without having a strategic intent on it, or, as say Hamel and Prahalad, a core competence defined. The famous reengineering is another topic discussed by HAMEL and PRAHALAD, considered as a good action in terms of localized attitudes. Nevertheless, what they again mention is that in many cases success is achieved by the companies that based the decision upon the concept of core competence. In this case, alliances between companies and cut off in mature or low return businesses are important when we think of product design. Frequently companies introduce or cancel products based on their marketing position or in cost reduction without considering their core competence. Doing so they affect the long term position in global as well national markets. Besides the fusion technology, we can find the capacity of identifying the loose bricks in the market. For the authors, new layers of advantage can be achieved by searching new marketing opportunities, changing attitudes and competing with collaboration. The construction of layers of advantage was also an important approach used by japanese industry, made possible by the investments on regional manufacturers and design centers. The advantage leverage achieved in terms of product design can seen clearly in the japanese auto industry: Using flexible manufacturing technologies and better marketing intelligence they are moving away from standardized world products like the Mazdas mini-van. Doing this, japanese companies identified global market demands instead of thinking only to their own demands. The key for competitive success was finding out the loose brick that offered new different spaces in different countries. It wasn t finding out a niche only, but follow up the leader companies. The scope was look for what could become a particular segment of a product, a segment of a value chain or a specific geographic market. Another authors that discuss this theme are STALK, EVANS and SCHULMAN [1992:66]. They say: competencies and capabilities represent two different but complementary dimensions for an emerging paradigm for corporate strategy. Both concepts emphasize behavioral aspects of strategy in contrast to the traditional structural model. But whereas core competence emphasizes technological and production expertise at specific points along the value chain, capabilities are more broadly based, encompassing the entire value chain. In this respect, capabilities are visible to the customer in a way that core competencies rarely are. We consider that Hamel and Prahalad took this two levels, the competencies and capabilities, as consequences of the concept of core competence, and not as the mentioned authors see, as an main dimension of corporate strategy. But what we see as very interesting is the fact that this constitutes the corporate identity. In the case of product design, this imposes decisively a specific approach on the aesthetical dimension of products, considering here color, graphics, details, etc. Yet for these authors, the traditional design development method separates planning, provision and execution in three sequential activities: a) marketing research, marketing demands, b) product tests, c) and then construction of a prototype. Doing so, the result achieved is a new factory or new organization, costing money and time. Differently, showing how Honda has done, we should develop a process where

planning and provision could run steadily and simultaneously. This offers the possibility of a new product in an existent factory and organizations, reducing substantially time. Although recognizing the advantage of the new product development method, we see hat the advantage was possible only because the company had a clear core competence strategy. Imagining the same situation at another company that hasn t a core competence strategy, the time could be reduced, but the company still would be fragile, in terms of marketing advantage. This fact can clearly seen in terms of global markets. The three components, core competence, core products and final products, must be considered to achieve leadership. In terms os core competence, companies must look for an excellence in project and development of a specific class of functionality, as Sony has done with miniaturization. To maintain this leadership, companies should diversify their central products, in maximized manufactures. These would offer then chance for new modelling in applications for final products. Considering this looking for global markets does not rely on national products or on a specific production administration but instead on searching for new necessities that can be attended by new technologies. HAMEL and PRAHALAD, criticizing the adepts of the Strategic Business Units approach, say that only upon a clear core competence, a related continuous development of core products a company can offer final products to compete in global markets as well as extend the advantage in terms of near opportunities. Hybrid opportunities appear only when companies have a core competence defined and activated. Product design then can t be seen as innovation. Innovative is the whole process. Product design makes visible or tangible the innovation achieved by innovative components, through core products, and core competencies. Companies success can be achieved by a guerrilla tactic of looking for niches without defence, instead of attacking competitors in clear defined segments. Investments are then focussed in few and well defined core competencies, where managers fell a potential for world leadership. Following HAMEL e PRAHALAD [1993:75-76] a correct approach to develop a national design policy for global markets should be based more upon why than what to produce. They show that core competence offers access to a wide variety of markets; that it makes possible a significant contribution in final products; and it must be difficult to copy. Nevertheless, they show that more important than this, companies should attain to their own values and standards, what through time become a strategic differential, that will reflect through the range of products offered to the market. Another point of globalization consequence on strategic intent of companies is discussed by HIRSCHHORN and GILMORE [1992]. They say that hierarchy, function and geography, traditional frontiers for product development, play now a new and important role. Traditionally, these three elements were linked in a strong way to the structure of organization, what it differs from nowadays. New technologies and markets altered rapidly and a new competitiveness is set by globalization. Companies loose their local frontiers to attend a more fluid business environment. Because of all these new elements designers must play a much wider range of roles, needing a stronger management as a leading work process. For KANTER [1992] and ARGYRIS [1992], this is one the new challenges companies must face, consequence of the new organizational structures that grows from the intense changing markets. Conclusion As above discussed, real competitiveness advantage in global markets are mainly related to the ability of managers in setting widely new technologies which make possible different individual businesses, to face intense market competitiveness and fast change. And only with a high investment in defining the core competence of a company national product design could find new and positive competitive advantage in future global markets.

Another important fact is the possibility of hybrid companies, where strong technological investment, with international partners, as well as the otimization of production and design, would make possible to national industries a strong leverage in the globalization process. Questions considering recent organizational modifications has been discussed by many authors because the new scenery presents commercial, technological and management changes because of global markets. KANTER [ibid], for example, says that these transformations indicate not only the possibility of changing economical aspects but also new competition strategies. The global market waits that organizations have a focus on innovative and flexible structures, what points out to the change. In this sense, core competence is an important element. Through it companies will not loose their scope in a changing world. Product design will not become a mere cosmetic component, with unlucky solutions. Concluding, if we learn from the authors discussed, we suppose that a new approach can be considered for national design, much more related to the ability of companies in establishing their core competence in the presence of the new scenery set by globalization than looking for what competitors do or small niches in the global market. Countries with continental dimensions as well as new countries grouping, like the EU or Mercosul, are also new conditions to consider the position of companies, particularly if we consider alliances, fusions, stretching or hybridization. Above all and always considering the core competence. Bibliography ARGYRIS, Chris. Enfrentando defesas empresariais : facilitando o aprendizado organizacional. Rio de Janeiro: Campus, 1992. 204 p. BRASIL. Ministério da Indústria do Comércio e do Turismo. Secretaria de Política Industrial. Programa Brasileiro do Design. Brasília, 1995. 10 p. HAMEL Gary; PRAHALAD, C.K. Strategy as stretch and leverage. Harvard Business Review, mar./abr., 1993, p. 75-84.. The core competence of the corporation. Harvard Business Review, maio/jun., 1990, p. 79-91.. Strategic Intent. Harvard Business Review, maio/jun., 1989, p. 3-27. HIRSCHHORN, Larry; GILMORE, Thomas. The new boundaries of the boundaryless company. Harvard Business Review, maio/jun., 1992, p. 104-115. KANTER, Rosabeth M. The challenge of organizational change : how companies experience it and leaders guide it. New York: The Free Press, 1992. 535 p. KODAMA, Fumio. Technology fusion and the new R & D. Harvard Business Review, jul./ago., 1992, p. 70-78. STALK, George; EVANS, Philip; SCHULMAN, Lawrence E. Competing on capabilities: the new rules of corporate strategy. Harvard Business Review, p. 57-69, mar./abr. 1992.