Harvard Case - Core Competence at NEC and GTE
"Core Competence at NEC and GTE" Harvard business case study is written by Michael J. Enright, Vincent Mak. It deals with the challenges in the field of Strategy. The case study is 27 page(s) long and it was first published on : Sep 23, 2002
At Fern Fort University, we recommend that NEC and GTE focus on leveraging their core competencies in technology and analytics, telecommunications, and global reach to create a sustainable competitive advantage in the rapidly evolving telecommunications industry. This will involve a combination of strategic alliances, mergers and acquisitions, product development, and market expansion into emerging markets.
2. Background
This case study explores the strategic challenges faced by NEC and GTE in the late 1990s, a period marked by rapid technological advancements and globalization in the telecommunications industry. NEC, a Japanese electronics giant, and GTE, a US-based telecommunications company, were both seeking to capitalize on the growth opportunities presented by the convergence of computing and telecommunications. However, both companies faced significant challenges in terms of competitive advantage, market segmentation, and organizational culture.
The main protagonists of the case are:
- NEC: A Japanese electronics giant with a strong presence in telecommunications equipment and technology.
- GTE: A US-based telecommunications company with a strong presence in local telephone services.
3. Analysis of the Case Study
To understand the strategic landscape, we will utilize the Porter's Five Forces framework and a SWOT analysis for both NEC and GTE:
Porter's Five Forces Analysis:
- Threat of New Entrants: High, due to the low barriers to entry in the telecommunications industry, particularly with the rise of new technologies like the Internet.
- Bargaining Power of Buyers: High, as customers have numerous choices and are increasingly price-sensitive.
- Bargaining Power of Suppliers: Moderate, as the industry relies on a limited number of suppliers for key components and technologies.
- Threat of Substitute Products: High, as alternative technologies like wireless communication and internet-based services are constantly emerging.
- Rivalry Among Existing Competitors: Intense, as numerous players compete for market share in a rapidly evolving landscape.
SWOT Analysis:
NEC:
- Strengths: Strong technological capabilities, global reach, and a diverse product portfolio.
- Weaknesses: Limited brand recognition in the US market, bureaucratic decision-making processes, and a lack of focus on emerging technologies like the Internet.
- Opportunities: Expand into new markets, develop innovative products and services, and leverage strategic alliances to enhance its market position.
- Threats: Increased competition from global players, technological obsolescence, and regulatory changes.
GTE:
- Strengths: Strong brand recognition in the US market, established customer base, and a robust infrastructure.
- Weaknesses: Limited technological capabilities, a focus on traditional telephone services, and a lack of global reach.
- Opportunities: Expand into new markets, develop innovative products and services, and leverage strategic alliances to enhance its technological capabilities.
- Threats: Increased competition from cable companies and wireless carriers, declining demand for traditional telephone services, and technological obsolescence.
Key Observations:
- Both companies faced significant challenges in terms of competitive advantage and market segmentation.
- NEC needed to enhance its brand recognition in the US market and develop a more customer-centric approach.
- GTE needed to upgrade its technological capabilities and expand its global reach.
- Both companies needed to develop a stronger focus on innovation and disruptive technologies.
4. Recommendations
To address these challenges, we recommend the following:
For NEC:
- Focus on innovation and disruptive technologies: Invest in research and development to develop innovative products and services, particularly in areas like internet-based communications, mobile technologies, and AI.
- Expand into emerging markets: Leverage its global reach to expand into high-growth markets like China, India, and Southeast Asia.
- Develop strategic alliances: Partner with other companies to enhance its technological capabilities and market reach.
- Increase brand recognition in the US market: Develop a more customer-centric approach and invest in marketing and advertising campaigns.
- Streamline decision-making processes: Implement a more agile and responsive organizational structure to facilitate faster decision-making.
For GTE:
- Upgrade technological capabilities: Invest in research and development to enhance its technological capabilities and develop new products and services.
- Expand into new markets: Explore opportunities in emerging markets and expand its global reach.
- Develop strategic alliances: Partner with other companies to enhance its technological capabilities and market reach.
- Embrace digital transformation: Invest in digital technologies to improve operational efficiency and customer experience.
- Diversify its product portfolio: Offer a wider range of products and services, including internet-based communications, mobile technologies, and data services.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of the competitive landscape, core competencies, and market opportunities. They are designed to help both companies achieve sustainable competitive advantage and long-term growth.
Core competencies and consistency with mission: The recommendations focus on leveraging the core competencies of both companies, including technology, analytics, and global reach. They are also consistent with their missions to provide innovative and reliable telecommunications services.
External customers and internal clients: The recommendations consider the needs of both external customers and internal clients. They aim to provide customers with a better experience and create a more efficient and productive work environment for employees.
Competitors: The recommendations are designed to help both companies compete effectively against their rivals. They focus on developing innovative products and services, expanding into new markets, and leveraging strategic alliances.
Attractiveness ' quantitative measures: The recommendations are expected to generate positive financial returns. They are based on a thorough analysis of market trends, competitive dynamics, and potential growth opportunities.
Assumptions:
- The telecommunications industry will continue to grow and evolve rapidly.
- New technologies will continue to emerge and disrupt the industry.
- Emerging markets will offer significant growth opportunities.
- Strategic alliances will be key to achieving success in the global telecommunications market.
6. Conclusion
By focusing on innovation, global expansion, and strategic alliances, NEC and GTE can achieve sustainable competitive advantage and long-term growth in the rapidly evolving telecommunications industry. These recommendations are designed to help both companies capitalize on the opportunities presented by the convergence of computing and telecommunications.
7. Discussion
Other Alternatives:
- Horizontal Integration: NEC and GTE could pursue horizontal integration by acquiring or merging with other telecommunications companies to expand their market share and product offerings.
- Vertical Integration: Both companies could engage in vertical integration by acquiring or partnering with companies that provide complementary services, such as software development or network infrastructure.
- Outsourcing: Both companies could consider outsourcing certain functions, such as manufacturing or customer service, to reduce costs and improve efficiency.
Risks and Key Assumptions:
- Technological Obsolescence: The rapid pace of technological innovation could render current products and services obsolete.
- Regulatory Changes: Government regulations could impact the telecommunications industry and affect the profitability of both companies.
- Economic Downturn: An economic downturn could reduce consumer demand for telecommunications services.
Options Grid:
| Option | Benefits | Risks | Cost |
|---|---|---|---|
| Focus on innovation | Develop new products and services, increase market share | Technological obsolescence, high investment costs | High |
| Expand into emerging markets | Access new growth opportunities, increase market reach | Political instability, cultural differences | Moderate |
| Develop strategic alliances | Enhance technological capabilities, increase market reach | Loss of control, potential conflicts | Moderate |
| Horizontal integration | Increase market share, expand product offerings | Antitrust scrutiny, integration challenges | High |
| Vertical integration | Increase control over supply chain, reduce costs | Increased complexity, potential conflicts | Moderate |
| Outsourcing | Reduce costs, improve efficiency | Loss of control, potential quality issues | Moderate |
8. Next Steps
- Develop a detailed strategic plan: This plan should outline the specific actions that both companies will take to implement the recommendations.
- Allocate resources: Both companies need to allocate sufficient resources to support the implementation of the strategic plan.
- Monitor progress: Both companies need to monitor the progress of their implementation efforts and make adjustments as needed.
- Communicate effectively: Both companies need to communicate effectively with stakeholders, including employees, customers, and investors, about their strategic plans and progress.
By taking these steps, NEC and GTE can position themselves for success in the rapidly evolving telecommunications industry.
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Case Description
In the Harvard Business Review article "The Core Competence of the Corporation," authors C. K. Prahalad and Gary Hamel put forth the notion of core competence with a comparison of NEC's focus on core competence and GTE's focus on businesses rather than competencies. The article went on to become the best-selling HBR reprint in history and ushered in a wave of consulting and academic work that said that core competence was the key to company performance. The authors predicted a bright future for NEC and other "competence-based" companies and potential obsolescence for GTE and other "business-based" companies. The present case juxtaposes quotes from the article with a discussion of the evolution of NEC and GTE through 1999. It includes performance data on the two companies that allows for a critical assessment (and counterintuitive evaluation) of the core competence idea for the 10 years preceding the publication of the article and the 10 years following the publication.
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