This article was recently published by The American Chamber of Commerce of the Philippines in the AmCham Business Journal April 2010 Issue (Cover Story).

Almost 2 years ago, the pharmaceutical industry in the Philippines faced greater challenges when the President of the Philippines, Her Excellency Gloria Macapagal Arroyo signed into law the Republic Act No. 9502: Universally Accessible Cheaper and Quality Medicine Act of 2008. Some of the important points of the implementing rules and regulations of the Act that affected the pharmaceutical industry were the following:

First, it amended the Republic Act No. 8293: The Intellectual Property (IP) Code which allows local generic medicine manufacturers to test, produce and register their generic versions of patented drugs so that these could be sold immediately upon the expiration of the patents. Furthermore, to prevent the owners of patented drugs from extending the term of their patents by declaring newly discovered uses for the components of their drugs, the law prohibits the grant of new patents using this provision.

Second, the law now allows the conduct of parallel importation of patented medicine from other countries such as Pakistan and India where the prices are significantly lower than the prevailing price in the Philippines. In addition, even the Republic Act No. 6675: The Generics Act of 1988 and Republic Act No. 5921: The Pharmacy Law were also amended in support to R.A. No. 9502 and the President has now the power to impose price ceilings on various drugs such as for chronic illnesses and other life threatening diseases.

The law primarily aimed to bring affordable and quality medicines to the general public and that the government is determined to prove that health comes first before business.

With this law, both the local and multinational pharmaceutical firms were faced a greater challenges both on how to keep the business going and still comply to the new law. Most common strategy is to bring down the operational cost of producing the medicines. Digging deeper, what makes the price of these drugs high? Primarily, the drug development itself gets the bigger share of the pie where research and development requires extensive studies for discovering new drugs and new applications. That’s where patent comes into play. Pharmaceutical companies have their patents on drug discoveries to primarily protect the technology involved and recover the high cost of investments. In the context of the amendment on the IP Code, this greatly upsets the industry. Recently, there have been some controversies between pharmaceutical firms with regards to patents reflecting conflicts and different issues on the patent rights.

On the second important note, with the parallel importation, the competition on the industry were intensified with more players coming around where price becomes now the key basis (with the assumption of quality being a constant).

Philippines being a member of the ASEAN Free Trade Area (AFTA), where the agreement is to increase competitive edge as a production base in the world market and to attract more foreign direct investments to the country, this will revolutionize the name of the game of the multi-national and even local players of the industry.  On the other hand, this also breaks the monopoly of the pharmaceutical industry in the spirit of competition and will open a new game where innovation and entrepreneurship comes into play which in turn will give greater market flexibility .  In the end, the consuming public will have more choices and better pricing scheme because of the greater number of sources made available to them.

About the author:

Christopher P. Perez is a graduate of Doctor of Philosophy in Management and Political Economy at the International Academy of Management and Economics (I.AME). He is also a graduate of Master of Technology Management (MTM) @ the Technology Management Center, University of the Philippines – Diliman and a degree holder of Bachelor of Science in Chemical Engineering from University of San Agustin. He also took some units of Master in Business Administration (MBA) in Colegio De San Juan De Letran and units in Diploma on Technology Management in De La Salle – College of Saint Benilde (Certificate Program Center).

He’s been heavily involved in the Manufacturing, Technical & Corporate Training (including Corporate University establishment), Quality Management, and Management of Technology in various companies such as Procter and Gamble, San Miguel Corporation, United Laboratories, Incorporated , and currently the Dean, Executive Director and COO of the International Academy of Management and Economics located at Makati City, Philippines.

He’s also one of the co-founders and one of the facilitators of CID Technical Trainers (a training consultancy group servicing various companies and organizations such as Bangko Sentral ng Pilipinas, School of Professional and Continuing Education (De La Salle – College of Saint Benilde), Philippine Society for Training and Development (PSTD), Meralco Management and Leadership Development Center, and JGC Philippines, Inc.

He is a current member of The Philippine Council of Management (PHILCOMAN) and The Philippine British Society.

He ‘s an Associate Fellow of the Institute of Strategic and International Studies and Associate Editor of the Philippine British Society Newsletter.

He is recently appointed as Secretary General of LAKAS NG BAYAN 2G (LABAN 2G) and a Consultant of John F. Kennedy Legacy Foundation Inc. and Teachers Organization of the Philippines.

Contact Information: (email) perez.cp@gmail.com (mobile) +639178038688

Beyond Project Management

No matter how good the R&D projects the company may have, without systems in place that ensure the original project plans are monitored, modified, and made to happen in optimum way, can be a failure. The ultimate objective of managing R&D is to give results that increase the value of the company in its business and to create new businesses.

R&D’s role in value enhancement is usually expressed in one or more of the classic dimensions such as cost, speed, quality, and image. Successful R&D organizations operates to achieve its outcomes by emphasizing the following goals: (a) a well established communications between organizations; (b) linked structural interfaces across different functions of the business; (c) creating a sense of importance and urgency in individual researchers to established a common understanding and objective of the project and integrated view of how one affects the others in achieving the common objective; (d) transparency: sharing of uncertainty; (e) creating an atmosphere of freedom; (f) willingness to terminate projects which requires a good technical answers, business judgment, and communication skills to justify to the team the reasons; and (g) corporate-wide optimization of resources.

There are 7 key practices that can help managing the process effectively: (a) a key component is the ability to express how technical objectives relates to the business objectives, allowing rigorous communication; (b) a process that jointly develops clearly articulated, mutually agreed-upon, strategically evaluated project objectives, with clearly defined results; (c) a process for setting priorities and allocating scarce but flexible resources; (d) a backlog of ideas; (e) an aggressive approach to project design that addresses most significant technical uncertainties as early as possible; (f) a practical approach to project management and information systems; and (g) an appropriate project-team structure, composition, and authority – the professional management of complex projects along with appropriate integrative mechanisms such as project management office in place.

Typically, project manager plans, supervises, and leads the subtasks and end result, defines goals, and deals constantly with time and cost parameters but most often than not, not solely own the authority over the project. The management decision is the most important factor in the success of the project and how it will be supported can spell a difference. A key element of system-wide project management is the founding of interdisciplinary teams and close, mutually supportive working relationship among the members. It also requires effective team work and leadership which most often than not is the difficult aspect of the project management because by nature, members of the team are diverse (in terms of technical expertise or knowledge) and have different cultures. Each organizations have their own unique way of doing things which primarily depends on what type of organization or business they are in and what other systems they have that integrates their processes. Though there are more and more project management concepts and systems already evolving, there is still complex issues arise during the project implementation and we can say that there is no right recipe or formula that fits. It is because every project is unique though there are main areas that are alike.

Organizing for Smooth Transition from Research and Development to Production

The transition period between the end of the R&D cycle and the beginning of serial production is often jam-packed with problems and conflicts. There are five distinct stages in the classical transition of R&D to manufacturing which involves massive problems such as (a) responsibility factor where there is often a perception that R&D has nothing to do with the tasks related to manufacturing; (b) the maturity of design problem which is due to the desire to meet a deadline to customer (many of the companies launched their new product prematurely); (c) the problem of redesigning for manufacturing where pinpointing of incompetence between R&D and manufacturing occurs.

Fortunately, these interface problems are becoming easier and more manageable through the use of innovative organizational concepts such as (a) organizational methods which new organizational concepts may contribute positively to lower the division-of-responsibility barrier; (b) computer-aided design and manufacturing methods which proven to be contributing to a smooth transition in a number of ways; (c) adapting optimized production technology (OPT) and just-in-time (JIT) methods which the principles in its broad sense can be interpreted as meaning to avoid large investments in anything not necessary to assure the smooth flow of work tasks and resources in the organization; (d) the concurrent engineering approach along with applying the total quality management approach (TQM) resulting to a more flexible work environment that accepts and adapts to the continuous innovation process which proven to bridge the gap between two generations of a product, allowing the companies practicing this method to extend market share.

A number of technology-driven industries, including semiconductor manufacturing in its early development as well as other related industries more recently, have been characterized by the failure of many R&D initiatives to reach the goal of affordable products that can be manufactured on a large scale. What is lacking is a life-cycle template to serve as a methodology for smooth transition from R&D to volume manufacturing. In many of these cases, the failure is due in large measure to the inability of corporate management, using a specific set of attributes, to technically assess the economics of transition from the laboratory to large-scale production.

Many local companies in the Philippines were not an exception to these problems as well. Many of the previous products launched prematurely and proven to be unsuccessful contributing to these problems and it costs the company valuable losses. These costly learning have been an areas for development and continuous improvement. As we often say, it is only through the actual experience that we will learn the most (learning curve of the company which is also directly related to Knowledge Management concepts), but with the help of emerging new concepts and principles, companies will be much less vulnerable to failures and prevent further losses.

Minimizing the Research and Development Cycle

If a company is to create a perfect and fully performing product before the beginning of the manufacturing cycle, it must allocate sufficient time to R&D. But with the current dynamic business environment, products have much shorter life spans with many products being replaced by newer models in an ever increasing pace and the traditional paradigm of R&D cycle simply not applicable anymore. A reason for this is that the window of market opportunity for commercial success of a product is too brief. To be successful, a company must be organized to introduce its products as closely as possible to the beginning of this time window. Factors that affect the length of R&D cycle that must be considered are: (a) technological uncertainties and innovation risks which may become extremely complicated as interdependencies are introduced in different stages of the cycle; (b) supply of critical materials and parts which requires special attention since inventory policies such as the just-in-time (JIT) policy simply won’t apply due to the uniqueness of R&D organization compared to other units; and (c) bottlenecks in the R&D organization itself since outputs rely primarily on people. People should have the precise knowledge, experience, and expertise to do the job because the real output of R&D organization is not just a prototype or a physical product but also the knowledge and information that accompany it (assuming it is not yet finished and documented). Suggested methods that are effective in reducing cycle time are: (a) managing uncertainties and risks involved by early identification, reducing and monitoring, parallel development, simulation and rapid prototyping by using computer simulation and modeling; (b) applying rational inventory policy for R&D which JIT model is simply inappropriate and requires a different policy which can be a combination of several known policies; (c) reducing bottlenecks in R&D organization by, first, identifying most critical bottlenecks and take appropriate action to open them to speed up the process and shorten the cycle.

The sequence of activities from the R&D decisions to commercialization involves not only the factor of time delays, but substantial uncertainties. Organization should provide an interface system for multiple sources of information and functionality, ensuring that R&D as well as other groups in the organization has the right data and tools to make the right decisions supporting the interoperability between groups, thus resulting to reduced cycle times and move discovery (or innovation) forward. Designing a system that supports different groups’ functions and responsibilities across the entire organization requires an integration and synergy of various systems in-place. Goals, responsibilities and roles of each group should be clear prior to the start of the implementation of the R&D projects so that later on problems such as conflicts between groups can be minimized.

Interfacing R&D with Marketing and Production

Management of innovation requires different and multiple roles. Each role has some unique contributions to make in terms of technical expertise, process facilitation, and organizational resources. Each role requires flexibility when changes occur and organization should be deliberate and conscious about the learning process. R&D interfaces with various units within the company such as general management, production, and marketing. The main cause for more than half of the R&D project failures have occurred for non-technical reasons such as lack of continuing and collaborative relationship between R&D and various groups e.g., marketing, engineering, production (this is due to various reasons such as culture, turf, KM capability, etc.).
Problems that can be encountered during the interfacing can be overcome by setting and agreeing on goals within and across the organization. Potential conflicts can be minimized (if not totally eliminated) by having simple approaches to information management and communication in a more constructive way. The degree of harmony and joint involvement between R&D and the other groups in the company have a significant effect on the success of R&D projects. Effectiveness of information transfer (in a much greater framework: KM – Knowledge Management) and the understanding of user needs are the major variables affecting project outcomes.

Managing the interfaces between different groups is a major challenge to managing innovations. Most projects fail due to lack of communication and openness between various groups in the organization which later producing enormous amount of conflicts (not to mention that competency in terms of where the right knowledge required resides, thus a sound knowledge management is crucial). Company culture should form part of any systems that can help streamline the interfaces between groups. Managing a diverse group of experts such as R&D is even up to now a challenge to management on how to synergize each groups to manage interfaces in a holistic and integrative approach.

Most ideas evolve through constant iteration between a new technological capability and a market need. There are, moreover, several paths leading to the combination (techno-market insight) that starts the process of commercialization. In practice, research gets initiated on the basis of a variety of impulses: an idea for a future new product; solving a customer’s problem; a reaction to competitor movers or other threats to a business; and exploiting new principles to build a capability. Getting to a valuable insight quickly is partly serendipitous event but can be “engineered” to some extent. The start of the process of technology commercialization should be seen as a willful act. The engineered insight (or R&D) may not be the one that gets pursued in the end, but simply should be seen as a starting point once excitement has been created. There are three ways to come to a techno-market insight speedily: accelerating the rate of experimentation, using formal creativity techniques; grounding the research in known problems from the start; and intensifying contacts between researchers and the market, allowing them to anticipate uses they may not normally think of. The first task in technology commercialization involves managing the process of idea creation effectively. This means that the organization must provide a wide and rich commercial context as possible, including scenarios of the future; create conditions wherein chosen problems are pursued deeply; encourage contacts, brainstorms, and idea exchanges, rather than encouraging solitary approach.

In this highly competitive and dynamic environment(with globalization in mind), business is challenged by the faster pace of commercialization and the ability to create and commercialize new products quickly as possible has become a central challenge for organizations (Product Life Cycle is another area that we need also to understand which I will discuss in another blog soon). Faster commercialization can secure the organization’s existence, but more importantly it provides several benefits such as the growth of turnover, profits and market. Additionally, organization can reach the position of being the market leader in the local and global business arena. It was also noticed that the significant cost benefits can accrue from compressing the commercialization process by producing product right on time. Currently many firms are increasingly interested in being the first in the market with their new products to gain these benefits and notably, in the Philippines, several organizations are now becoming aware of this practice (due to pressing issues of globalization). However, a systematic analysis of the problems of commercialization and the connection between these problems and the process of commercialization is still missing. There is still no standard methodology as to the process of generating projects down to commercialization. It is varies from organization to organization (or organization within an organization i.e., division, departments, etc.)

Some projects are generated by mere impulse, or what the management finds interesting enough (although objectively, they have a great deal of judgment based on their business acumen as to what business or technology to pursue) and direct the R&D to exploit the technology and build an internal capability. Implementation of the project down to commercialization by all means is assured since it is directly supported by management.

At the end of the day, still the question to organizations is how to accurately come up with the right technology to commercialize (in a techno-market approach) and at the same time fastest way to reach the market (first to market). For further understanding about techno-market model for commercialization, I came across a model that can explain the process in details and you can download it here.

In the premise that Research and Development (R&D) having been recognized as a vital part in most companies and have been investing time and money just to stay competitive, it is also imperative that companies must establish a way of evaluating the value of R&D to the company. Although R&D productivity is difficult to measure, many companies are now trying to come up with the best measurement and evaluation systems and it is becoming a requirement rather than a simple experimentation. But most of these measurement and evaluation systems fail and have negative effects towards the R&D personnel. Failures of such systems are due to: (a) too much emphasis on internal measurement which rely too heavily on in-process measurement and feedback; (b) too much focus on behavior which is based on behavioral aspects that causes people to be overly concerned with the way work is done rather than focusing on the outputs produced plus the fact that behavior is difficult to measure accurately; and (c) measurement system is too complicated which can be put as measuring people on too many variables is as bad as no measurement at all.

An effective and workable system for measuring R&D performance should consider the following: (a) focus on external vs. internal measurement which includes components for measuring outcomes based on receiving system feedback; (b) focus on measuring outcomes and outputs and not on behavior which includes dimensions such as quality, quantity, time, and cost; (c) measure only valuable accomplishments/ outputs; (d) make the measurement system simple; (e) make the measurement system as objective as possible by using outside data whenever possible – this can be achieved by asking engineering or manufacturing (customers) rather than R&D managers themselves; and (f) develop a separate R&D evaluation since it performs different functions and produce quite different outputs compared to the normal manufacturing or engineering.

In reality, companies have difficulties in designing a “perfect” measurement and evaluation systems not only in R&D organization but almost in varying sub-organizations (or departments) within the total organization. The majority of the technical personnel have not been properly evaluated and subjectivity is unavoidable in a much complex areas (or issues). In some cases, such systems may just impede the performance of R&D and will result to a more chaotic demotivation of personnel. In spite of these failures, companies continue to innovate and seek a (more or less) “perfect system” in evaluating the value of R&D especially on the positive viability of their investments. Although designing such systems requires time and money as well, it is normal to measure the value that the company is getting compared to the substantial amount that they are investing in R&D. Take for example a local company I studied, a group that designs such system which admittedly, requires money and time. Proper management deliberations and approval should take place first since this will affect the entire organization and the total business in general. The real value of such system is not going to be simply the performance data collected. The real value is realized when these data are used to shape the R&D program for maximum impact on business results.

Knowledge is the heart of Agility – the driving force of both proactive and reactive change. New knowledge demands to be acted upon; and when one business acts upon new knowledge others have no choice but to follow. This human thing we are distinguishes itself from other life by generating and applying knowledge. The increasing population is building upon an increasing body of past knowledge – which increases the frequency of new knowledge generation and speeds the decay of knowledge value – making the general business environment, which is built on knowledge, more unstable. Conscious knowledge management is the practice that will return general stability in the long run. Short term it will provide preemptive advantage to those who master it first.

Core competency knowledge is just one aspect of the total picture – but an important place to start. We’ll explore the design of a knowledge management practice here; in the context of the competency at the GM metal-fabrication plant. This plant stamps and assembles after-model-year auto body parts. But we won’t be talking about things unique to metal fabrication or even small-lot, high variety production – our business practice design will have application everywhere. As seen, the main issue has revealed itself: those with the competency can’t seem to articulate it instructively. Organizations employ tacit knowledge at the intuitive level that even they are unaware of. That’s pretty common everywhere – and only becomes an issue when you decide it’s time to explicitly inventory this kind of knowledge and spread it around. There are more issues that must be addressed by the business practice to design. First and foremost, the knowledge management process itself must be highly adaptable – able to evolve and accept deeper and better competency understandings over time, able to accommodate new applications for that competency, and able to incorporate new knowledge developed elsewhere. A perfect application for the issue-focused, principle-based design methodology we’ve been exploring.
Issue-focused design means we want to understand our requirements objectively before we commit to a solution. Additional key issues on the proactive side include:
People must be interested and perceive value in order to learn effectively.
* The accuracy of knowledge, once it is captured, and the effectiveness of communicating it are both prime areas for constant improvement.
With time, the product and process technology will change, as will the nature of the knowledge and the knowledge focus.
* Some knowledge pays dividends when understood by different types of employees: engineers, skilled trades, accountants, personnel, management, etc – each requiring a modified learning approach.
* Insular knowledge is dangerous. An effective core competency renewal process must be aware of and able to incorporate relevant developments outside the local and greater-corporate environment.

Key issues on the reactive side include:

* All knowledge does not necessarily good, e.g., know how to make a process highly adaptable when there is no value to the company to do so. A self-healing process eliminates both incorrect and poor-value knowledge.
* People in training are employees with front line jobs, and business priorities change daily. There’s no longer a “time-out” for training. Key points: flexible scheduling, and the training time should look like job time.
* A training procedure must accommodate large and small groups, from a few new hires to large groups of existing employees.
* Technology and applications change with time, so fundamental knowledge must be reinterpreted.

For the core competence perspective to take root in an organization, the entire management team must fully understand and participate in the five key competence management tasks: (1) identifying existing core competencies; (2) establishing a core competence acquisition agenda; (3) building core competencies; (4) deploying core competencies; and (5) protecting and defending core competence leadership.

A firm can’t actively “manage” core competencies if managers don’t share a view of what those core competencies are. Thus, the clarity of a firm’s definition of its core competencies and the degree of consensus that attaches to that definition are the most rudimentary tests of a company’s capacity to manage its core competencies. Whereas most managers will have some sense of “what we do well around here”, they may be quite unable to draw any kind of specific link between particular skill sets and the competitiveness of end products and services. The first task in managing core competencies is therefore to produce an “inventory” of core competencies.

Often observed in most companies attempting to define their core competencies, the process tends to be haphazard and political. The first attempt typically produces a lengthy “laundry list” of skills, technologies, and capabilities – some core, but most not. Every participant in the process wants to ensure that the activities he or she manages are regarded as “core”. A substantial amount of effort is required to fully disentangle competencies from the products and services in which they are embedded, to distinguish core from non-core, to cluster and aggregate the skills and technologies in some meaningful way, and to arrive at “labels” that are truly descriptive and promote shared understanding. The time it takes to arrive at an insightful, creative, and shared definition of core competencies is, in a large company, more likely to be measured in months than weeks. In my professional experience, it even took years considering issues e.g., culture, beliefs, generation-gaps, etc.

Companies typically fall into one of several traps when attempting to identify core competencies. One of the most frequent is delegating the task to the technical group. There is a clear danger in taking such an approach. Core competencies are the soul of the company and as such they must be an integral part of the process of general management. When only the technical group feels ownership, the usefulness of the concept in building new business is jeopardized considerably. Too often the concept of core competencies is highjacked by the technical group in a bid for stature and resources.

Other traps include mistaking assets and infrastructure for core competencies and in inability to escape an orthodox product-centered view of a firm’s capabilities. Additionally, if executives are too rushed to “get the job done”, they may fail to generate a deep and common understanding of what the chosen core competence “labels” mean. A wide group of people in the organization must be capable of describing the competence in reasonably similar terms and share an understanding of just what constituent skills are embodied within the competence. There is yet another frequent pitfall. Companies often fail to apply the test of “customer perceived value” to their list of competencies. Understanding the link between competence and benefit is critical in identifying competencies that are genuinely core. We often recommend that several teams work on defining core competencies. Each team should encompass a broad cross-section of employees – functionally, divisionally, geographically, and hierarchically. Seeking a diversity of views ensures that the best possible definition emerges.

It is important not just to identify and agree on what the core competencies are but also to identify the elements that contribute to each core competency. For example, expertise in the science of color, inks, dyes, substrates, coating, paper handling, and a host of such elements or discreet skills adds up to the core competence in chemical imaging at Eastman Kodak. It is important that these discrete skills are identified and an inventory of people who possess those skills developed. One company succeeded in developing a hierarchy that extended from competencies to skills and technologies to individual employees – “competence holders”. This hierarchy could be accessed through a computer database so that if someone in the company needed to access a particular competence, he or she could locate the right person. Such visibility to a firm’s core competence resources is vital if they are to be fully exploited and easily redeployed.

Further, companies need to benchmark their core competencies with other firms. Senior managers must be full participants in the process of identifying core competencies. The process will involve many meetings, heated debates, frequent disagreements, unexpected insights, and a sense of excitement about potential new opportunities. The task of discovering a firm’s core competencies is not one that senior management can delegate; neither can it be squeezed into a two-or three-day “offsite” workshop. The goal of the process is to develop a wide and deep understanding of the skills that currently underpin the firm’s success, to escape the myopia of the served market, to highlight the “shared property” of the firm, to point the way to new business, to raise sensitivity to the reality of competition for competence, and to provide the basis for actively managing what, after all, are the firm’s most valuable resources. The exercise to identify core competencies cannot take a mechanistic, follow-the-checklist approach.

Given that it may take five, ten, or more years to build world leadership in a core competence area, consistency of effort is key. Consistency depends first of all on a deep consensus about which competencies to build and support, and second, on the stability of the management teams charged with competence development. Such consistency is unlikely unless senior managers agree on what new competencies should be built. Without such consensus, a company may well fragment its competence-building efforts, as various business units pursue their independent competence-building agenda, or the firm may simply fail to build new competencies. Stability to senior management teams and, correspondingly, strategic agenda is also a key.

To leverage a core competence across multiple businesses and into new markets often requires redeploying that competence internally – from one division or strategic business unit to another. Some companies are better at this than others, and hence get greater effective use out of their competencies. We sometimes define a company’s core competencies in the same way a country defines its money supply; stock (the number of bills printed, or the number of people who “carry” a particular skill) multiplied by velocity (how fast the bills change hands, or how quickly and easily competence carriers can be redeployed into new opportunity areas). Many companies have a sizable stock of core competencies – many people with truly world-class skills – but almost zero competence velocity – the ability to redeploy those individuals behind new market opportunities.

For more and more companies today, the ratio of market value to asset value is 2:1, 4:1, even 10:1. The difference between asset value and book value is not goodwill, it is core competence – people embodied skills. The numerator in the ratio reflects investors’ beliefs about the uniqueness of the firm’s competencies and the potential value that can be generated by the exploitation of those competencies in the marketplace. The allocation and management of the assets that appear on the balance sheet is an elaborate, time-consuming ritual, infused with analytical rigor and attempts at numerical precision. But what about the other three-fourths or nine-tenths of corporate value? Through what mechanisms are core competencies allocated? How explicit are the choices about where to put talent? How much pressure is put on divisional managers to justify why they should have preferential access to some particular competence pool? Although human resource executives will proudly proclaim that “people are our most important asset”, there is seldom any mechanism for allocating human capital that approaches, in its sophistication and thoroughness, the procedures for capital allocation. In most Western companies the chief financial officer has more organizational status and raw power than does the head of personnel. In many Japanese companies the situation is precisely reversed – as it should be if a company truly believes that competition for competence is the highest order of competitive rivalry, and if it understands that access to competencies, rather than access to cash, is the most critical driver of growth. We sometimes carry out with a company’s divisional managers illustrates a critical precondition to the capacity to redeploy competence assets. We provide each divisional or strategic business unit manager with a product-geography matrix, and then ask each executive to rank, 1 through 10, their company’s near-term growth opportunities. There is usually little correspondence between one manager’s rankings of growth priorities and any other manager’s rankings. Yet, in the absence of a corporate-wide consensus on new business opportunities – that is, agreement on what projects truly are “urgent” or deserved to be labeled “gold” – there can be no logical basis for the internal reallocation of core competence resources.
One Japanese company regularly publishes a list of the company’s top market and product development priorities. Obviously, there is great status attached to working on a high-profile, critical program. If an individual somewhere in the organization believes that he or she can contribute to one of the high priority projects, that individual can “self-promote” himself or herself onto the team. The team leader may not choose to take the applicant, but if the skills offered are critical to the project’s success, the team leader can ask that the individual be transferred. At this point, the employee’s boss has to justify why that individual’s talents are of more value to the corporation in the current job than in new job. As one might expect, the existence of such a system helps ensure that unit managers do their best to keep key people occupied with truly challenging projects. It also ensures that the best people end up working on the biggest potential opportunities.

The mobility of competencies is also aided when the employees who comprise a particular competence meet frequently to exchange ideas and experience. Seminars and conferences are important for instilling a sense of community among people working in the same competence. The cross-fertilization that results accelerates competence-building. The goal is a group of people who see themselves as corporate resources, and whose first loyalty is to the corporation and the integrity of the company’s core competencies, rather than to any single business unit. Geographic proximity can also aid competence mobility. Where a competence is spread across facilities in a dozen countries or more, collective learning and the reallocation of individuals to new projects are difficult. A company should avoid unnecessary geographical fragmentation of its core competencies.

Core competence leadership may be lost in many ways. Competencies may wither through lack of funding; become fragmented through divisionalization, particularly where no single executive feels fully responsible for competence stewardship; be inadvertently surrendered to alliance partners; or be lost when an underperforming business is divested.
Protecting core competencies from erosion takes continued vigilance on the part of top management. Although most senior managers can easily dredge up competitive measures of sales performance, market share, and profitability, few are able to offer a quick and convincing judgment on whether their company is staying ahead of competitors in core competence development. There is no way to protect a firm’s core competencies from erosion if the health of those competencies is not visible to top management. Divisional managers should be assigned cross-corporate stewardship roles for particular competencies, and should be held responsible for the health of those competencies. Regular “competence review” meetings should focus on levels of investment plans for strengthening constituent skills and technologies, internal patterns of deployment, the impact of alliances, and outsourcing.

It is not to be argued that the core competence perspective should supplant a product-market perspective; rather, it should complement it. Given how deeply engrained the strategic business unit perspective is in most companies, it will take substantial effort from senior management to build the complementary core competence view. The goal is not to “hardwire” the core competence into the organization through structural changes, but to “soft-wire” the perspective into the heads of every manager and employee. This means (1) establishing a deeply involving process for identifying core competencies; (2) involving strategic business units in a cross-corporate process for developing a strategic architecture and setting competence acquisition goals; (3) defining a clear set of corporate growth and new business development priorities; (4) establishing explicit “stewardship” roles for core competencies; (5) setting up an explicit mechanism for allocating critical core competence resources; (6) benchmarking competence-building efforts against rivals; (7) regularly reviewing the status of existing and nascent core competencies; and (8) building a community of people within the organization who view themselves as the “carriers” of corporate core competencies.

Having safeguarded the firm’s existing competencies escaped the myopia of existing served markets, and built a forward-looking competence agenda, a company can move on to the finals tasks in managing the migration path to the future: expeditionary marketing and global preemption.

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