Diversified giant NEC competed in seemingly disparate businesses—semiconductors, telecommunications, computing, and consumer electronics—and dominated them all.

How? It considered itself not a collection of strategic business units, but a portfolio of core competencies—the company’s collective knowledge about how to coordinate diverse production skills and technologies.

NEC used its core competencies to achieve what most companies only attempt: Invent new markets, exploit emerging ones, delight customers with products they hadn’t even imagined—but definitely needed.

Think of a diversified company as a tree: the trunk and major limbs as core products, smaller branches as business units, leaves and fruit as end products. Nourishing and stabilizing everything is the root system: core competencies.

Focusing on core competencies creates unique, integrated systems that reinforce fit among your firm’s diverse production and technology skills—a systemic advantage your competitors can’t copy.

The Idea in Practice

Clarify Core Competencies

When you clarify competencies, your entire organization knows how to support your competitive advantage—and readily allocates resources to build cross-unit technological and production links. Use these steps:

Articulate a strategic intent that defines your company and its markets (e.g., NEC’s “exploit the convergence of computing and communications”).

Identify core competencies that support that intent. Ask:

How long could we dominate our business if we didn’t control this competency?

What future opportunities would we lose without it?

Does it provide access to multiple markets? (Casio’s core competence with display systems let it succeed in calculators, laptop monitors, car dashboards.)

Do customer benefits revolve around it? (Honda’s competence with high-revving, lightweight engines offers multiple consumer benefits.)

Build Core Competencies

Once you’ve identified core competencies, enhance them:

Invest in needed technologies. Citicorp trumped rivals by adopting an operating system that leveraged its competencies—and let it participate in world markets 24 hours a day.

Infuse resources throughout business units to outpace rivals in new business development. 3M and Honda won races for global brand dominance by creating wide varieties of products from their core competencies. Results? They built image, customer loyalty, and access to distribution channels for all their businesses.

Forge strategic alliances. NEC’s collaboration with partners like Honeywell gave it access to the mainframe and semiconductor technologies it needed to build core competencies.

Cultivate a Core-Competency Mind-Set

Competency-savvy managers work well across organizational boundaries, willingly share resources, and think long term. To encourage this mind-set:

Stop thinking of business units as sacrosanct. That imprisons resources in units and motivates managers to hide talent as the company pursues hot opportunities.

Identify projects and people who embody the firm’s core competencies. This sends a message: Core competencies are corporate—not unit—resources, and those who embody them can be reallocated. (When Canon spotted opportunities in digital laser printers, it let managers raid other units to assemble talent.)

Gather managers to identify next-generation competencies. Decide how much investment each needs, and how much capital and staff each division should contribute.