Page 35 - Marketing the Basics 2nd

Marketing as a corporate Function 27
Management professors C.K. Prahalad and Gary Hamel first introduced the concept of core competencies in 1990. They argue that firms should carefully consider the historical success of their firm to understand what makes them world class, and use these experiences, abilities or competencies as a launching pad for future products and market forays. An example they cite is Japanese automotive giant Honda. One of their core competencies is manufacturing high-quality yet inexpensive engines. By tweaking the design, Honda was able to exploit their core competency in engine manufacturing, to move into other product categories that also used motorized engines such as lawn mowers, motorcycles and snow blowers – categories of product which did not very often share the same customers. By harnessing core competencies, a company can leap into seemingly distant product categories.
Core competencies that endure over a long period of time create a sustained competitive advantage. Boeing called the plane the 747. When they introduced the plane in 1970, it was the only long- distance aircraft that could carry over 450 passengers. For another company to build a suitable alternative, they would have needed to invest billions in research and development. Until various European governments agreed to use taxpayer funds to create Airbus, Boeing was the only company that could build cost-effective long-haul airplanes. Their virtual monopoly lasted almost 35 years.
assigning ResouRces To an sBu
As we mentioned earlier, senior management devises a corporate strategic plan and assigns resources to each SBU taking into account the state of the economy. When it comes to allocating resources, managers must contend with the problem of scarcity. To overcome this problem, SBUs are evaluated in a similar manner to how one would evaluate their investment portfolio. However there is a twist. When evaluating one’s personal investments, the majority of funds are placed in high-performing assets, and some funds are diverted to safe investments to offset the risk. When it comes to allocating resources to SBUs a problem emerges. An investor can easily liquidate a bad investment. Business assets cannot be dispensed as quickly. One wrong move ties up resources for a long time.