core competency-

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Article Presentation: Set 2 Instructor: Dr. Gonca Günay & Dr. H. Pınar İmer Prepared by: Murat Bigvava Student № 20140901011 Kadir Has University Social Sciences Institute / MBA Program MBAD-504 Strategic Management

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Article Presentation: Set 2

Instructor: Dr. Gonca Günay & Dr. H. Pınar İmerPrepared by: Murat BigvavaStudent № 20140901011

Kadir Has UniversitySocial Sciences Institute / MBA ProgramMBAD-504 Strategic Management

Article Presentation Content: Authors:

A. Core Competence: What does It Mean In Practice? Mansour Javidan

B. The Core Competence Of The Corporation C.K.Prahald and Gary Hamel

C. Firm Resources And Sustained Competitive Advantage Jay Barney

……………….. Conclusion of Each Article

……………….. Recommendations Of Each Article

……………….. Overall Conclusion of Article Set

……………….. Overall Recommendations Of Article Set

A. Core Competence: What does It Mean In Practice?

The Notion Of Increased attention of this article was caused by proposing mainly two contribution in strategic management literature :

• New complementary approach to strategic planning

• Which provided tool for achieving better synergies in a multi-businesses corporations among its various businesses units.

While much was investigated on what is core competency,

this article core competency is represented as a tool in

strategic management process and represents to

senior managers clear 8 steps on strategic advantage

to gain more core competency and capabilities.

Better Understanding by Comparison:

Traditional Approach

Usually, it starts from analysis of external threats and opportunities

Analysis of: macro-environment, stakeholders, industry, competitors and trends

Then, company develops strategy with existing resources and addresses threats and opportunities.

Finally, sets up the implementation plan through resource which are allocates and company gradually moves through according to the steps of plan.

New Approach

Prahald and Hamel, proposed the planners not to start from outside-orientation search, but inside. Meaning that, planners should start from internal analysis and then examine external environment.

Core Competence and Core Capabilities needs to understand fully to successfully exploit resources usage.

Basically, this study of thought called “The Resource based View of the Firm”.

It advocates that firms own different types of resources that need to be approached, as they will result different strategies.

Such in-depth understanding can lead to a better match between external opportunities and internal strengths because once the corporation knows its areas of strength, it can search the external environment to identify possible ways of better exploiting those strengths.

Walt Disney’ s core competence in entertaining families has directed it into a seemingly diverse set of businesses such as amusement parks, hotels, video channels and movie studios.

Defining the Concept:

Core competence is a tool for investigating internal analysis.

Core Competency-” the collective learning in the organization, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies”.

As in case of Disney, many multi-business companies realize through integration process, the rise of potential businesses, that called Strategic Business Unit (SBU).

Core Competency, Capabilities and Resources

Competencies

Core Competency

Resources

Capabilities

Increasing

Value Difficulty

The first step in eliciting a companies competencies is universal understanding among all management levels, the drivers-concepts: Core competence, Competencies, Capabilities, Resources.

Figure 1. The competencies hierarchy

Resources- are the inputs of the organizations value chain. Resources categorized into 4 groups: Physical(plant, equipment, location, assets); Human( manpower, management team, training process); Organizational(culture, reputation); Some resources are Tangible(equipment) other Intangible(reputation).

Capabilities- refers to the companies ability to exploit its resources. They are Functionally based, as it represents the process of transition from input to output.

Competencies- is a cross-functional integration and co-ordination of capabilities. It shows, integration between SBUs functional capabilities.

Core Competence- Highest level of hierarchy, as a result of interaction between different SBUs competencies.

Core Competencies, Capabilities and Strategic Hierarchy

Strategic Hierarchy Competencies Hierarchy

MissionStatement

Corporate Strategy

Business Strategy

Functional Strategy

Competencies

Core Competency

Resources

Capabilities

Figure 2 shows how the hierarchy of competencies relates to the hierarchy of strategies in a multi-business company.In formulating business portfolio, senior managers should go beyond identification the place where it want to be:

• They should conduct current and possible competencies.

• This will help them to asset the usage of resources more effectively and efficiently.

• It will help to understand and stay stick with new synergies that would be helpful, which also needs to be filtered.

8 steps:

1) To know how?2) Is this know-how present in one function, one SBU, or across the corporation?3) Are we any better than our competitors?4) Does it matter?5) How durable is our advantage?6) What are the key changes taking place in the industry?7) Given the key changes taking place in the industry8) Where do we go from here?

By answering above questions, the 45 managers divided into 5-6 groups were asked to

participate in the study that would help in designing company's core competency's and

capabilities in systematic and methodical way.( US Natural Gas Pipeline Company,1995)

Defining Each Question-step:

1) To know how?- managers must identify what ever it is that their company performs very well. They need to identify as many subcategorizes as possible for each skill set.2) Is this know-how present in one function, one SBU, or across the corporation?- the purpose of this question is to decide whether what the company does well is a Capability(functionally based), Competency(SBU based), or a Core Competency(cross-SBU).3) Are we any better than our competitors?- this question enables managers to discuss the corporations capabilities and competencies in twofold context: First, to initiate the process of linking competencies to competitive advantage. Second, is to prevent too much introspection by forcing decision makers to consider the external environment.4) Does it matter?- at this point its critical to distinguish two concepts: competitive advantage and core competency that are closely related but not same, because a succefull competitive advantage is built on the firms core competencies and competitive advantages.5) How durable is our advantage?- in the stage of relative attractive position in the market, the higher pressure on competitors, its time to remind managers that very few advantages last for a long time. The aim is to prepare company for eventual challenge in the environment. 6) What are the key changes taking place in the industry?- the purpose of this question to ensure that managers do not become too introspective, in a way that they need external analysis as well.7) Given the key changes taking place in the industry- ensure a strategic and dynamic discussion of competencies and capabilities, that help to allocate resources according to environment changes.8) Where do we go from here?- at this stage, managers need to fully connect the competency exercise with strategic planning process, specifically within time frame and resource used.

Conclusion: Recommendations:The fundament base of this article is on systematic and methodical analysis of its resources, capabilities, and competencies.

Thereby, to help managers provide clear operational definition of the important concepts.

Several steps need to be considered for companies:

• General consensus on meaning of these concepts.

• The process should be an integral part of the company's strategic planning process, to match external opportunities with internal resources.

• All line managers should be integrated in enhancing in quality improvement of the organization communication and collective learning that will facilitate execution of strategic plans.

The process outlined here is designed to help companies optimally develop and exploit their competencies and capabilities, but this process requires meaningful organizational culture that fosters the value of the organization. A culture that brainstorms the decision making process, evaluate learning outcomes and breaks internal boundaries among the silos which exist in any firms structure.

Three criteria's in collaboration of among different groups needs to be attached:

• A partnering mind-set

• A partnering skill-set

• A supportive organizational context

To sum up, an organization strives to implement the hierarchy of competences is well advised to ensure that the appropriate collaborative mind-set, skill-set and organizational context are in place.

B. The Core Competence Of The Corporation

This article issues the time period within few decades earlier, when managers were lacking to identify and cultivate and exploit the core competency that made growth possible.

Once, the diversified corporation could simply point its business units at particular end product markets and admonish them to become world leaders. But with market boundaries changing ever more quickly, targets are elusive and capture is at best temporary.

A few companies have proven themselves adept at inventing new markets, quickly entering emerging markets, and dramatically shifting patterns of customer choice in established markets. The critical task for management is to create an organization capable of infusing products with irresistible functionality or, better yet, creating products that customers need but have not yet even imagined.

From, 1970 to 1990 the Western perspective of building strong products were in decline comparing with Japanese solutions that were oriented more deeply and established more broadly, through out enhanced organizational scale.

The problem in many Western companies is not that their senior executives are any less capable than those in Japan nor that Japanese companies possess greater technical capabilities. Instead, it is their adherence to a concept of the corporation that unnecessarily limits the ability of individual businesses to fully exploit the deep reservoir of technological capability that many American and European companies possess.

The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller branches are business units; the leaves, flowers, and fruit are end products. The root system that provides nourishment, sustenance, and stability is the core competence. You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves. (See the chart ‘‘Competencies: The Roots of Competitiveness.’’)

Conclusion &Recommendation:

C. Firm Resources And Sustained Competitive Advantage

Recent work has tended to focus primarily on analyzing a firm’s opportunities and threats in its competitive environment.

Environmental model of competitive advantage put little emphasis on the impact of idiosyncratic firm attributes on a firm’s competitive position.

• Assumption 1. firms within an industry(or a strategic group) are identical in terms of strategically relevant resources and strategies

• Assumption 2. If resource heterogeneity develop in an industry or group, this heterogeneity will be very short lived since resources are highly mobile (i.e. competitive factor market)

Resource-based view

• Assumption 1. Firms within an industry (or group) may be heterogeneous with respect to the strategic resources

• Assumption 2.These resources may not be perfectly mobile across firms

This model is used to help organizations attain competitive advantage through internal analysis and external analysis. Similar to SWOT analysis internal factors (the organization’s strengths and weaknesses) and external factors (the organization’s opportunities and threats) affect competitive advantage. After perform analysis in each of these areas, internal analysis and external analysis leads to a corresponding analysis.

Understanding the bias:

Since 1960’s, a single organizing framework has been used to structure much of strategic management research.

• Isolating a firm’s opportunities and threats(Porter 1980, 1985)

• Describing firm’s strengths and weaknesses(Penrose 1959, and so on)

• Analyzing how theses are matched to choose strategies

Defining key concept

Firm resources

• All assets, capabilities, organizational processes, firm attributes, information knowledge, etc. controlled by a firm that enable firm to conceive of or implement strategies that improve its efficiency and effectiveness.

• Physical capital asset: technology, plant & equipment, geographic location, access to raw material

• Human capital resources: training, experience, judgment, intelligence, relationships, insight of individual manager and workers

• Organizational capital resources: formal reporting structure, formal and informal planning, controlling, coordinating systems, as well as informal relations among groups within a firm and between a firm and those in its environment

Defining the concepts:

Competitive advantage

• Implementing a value creating strategy not simultaneously being implemented by any current or potential competitors.

Sustained competitive advantage (SCA)

• In addition to above, when these other firms are unable to duplicate the benefits of this strategy.

• ‘Sustained’ does not refer to the period of calendar time, but what depends on the possibility of competitive duplication.

• Theoretically, equilibrium definition (but empirically, long period of time)

• ‘Sustained” does not imply that it will “last forever.”

• “Schumpeterian shocks”, or structural revolutions in an industry redefine which of a firm’s attribute are resources and which are not.

Competition with Homogeneous and Perfectly Mobile Resources

Firms cannot expect to obtain SCAs when strategic resources are evenly distributed across all competing

firms (homogeneous) and highly mobile.

It is not possible for any one firm to obtain a competitive advantage from first moving(first-mover

advantage) by definition

• The existence of first-mover means heterogeneous resources

It is not possible for any one firm to obtain a competitive advantage from Entry/Mobility barriers by

definition

• The existence of entry/mobile barriers means heterogeneous and immobile resources

Thus, in order to understand sources of SCA, it is necessary assumption that firms resources may be

heterogeneous and immobile.

Firm Resources and Sustained Competitive Advantage

In order for firm resources to hold the potential of SCAs, a firm resource must have four attributes: Valuable: Enable a firm to conceive of or implement strategies that improve its efficiency and effectiveness Rare: Even if it is valuable, if it is possessed by many firms, then each of these firms exploit that resource in the same way, implementing same strategy.However, valuable but common resources help ensure a firm’s survival.Imperfectly Imitable: makes ‘sustained’ competitive resources: Unique historical condition, Causal ambiguity, Social complexity: interpersonal relations among managers in a firm, a firm’s culture, a firm’s reputation among suppliers and customers Substitutability: makes ‘sustained’ competitive recourses. Two forms: Similar or Very different

Applying the Framework

Formal strategic planning is not likely to be a source of SCAs by itself (since valuable but not rare and not imitable)

• Informal strategy making process could be a source of SCAs (valuable, rare, socially complex so imperfectly imitable) if formal planning is not substitute for informal strategy making.

Information Processing Systems may hold the potential of SCAs (Relatively few firms creating close manager-computer interface and Socially complex system)

• In spite of close substitute (a close knit, highly experienced top management team) if that substitute is rare and socially complex.

Positive Reputations may hold the potential of SCAs (rare, depends on historical event, informal social relations)

• If guarantee and long-term contract is not a substitute for them

Conclusion:

In environmental model of competitive advantages, Social Welfare concerns were abandoned in favor of the creation of imperfectly competitive industries.

• RBV suggest that strategic management research is consistent with traditional social welfare concerns since a firm with resource advantages is behaving in an efficient and effective manner.

• Efficiency rents VS monopoly rents

Unlike economic models of organizational phenomena, RBV suggest that Organization Theory and Behavior may be a rich source of findings and theories concerning SCAs

RBV emphasizes the importance of Firm Resource Endowments in creating SCAs.

• Since implicit assumption in RBV is that managers are limited in their ability to manipulate all the attributes and characteristics of their firms

Overall Conclusion of Article Set

MissionStatement

Corporate Strategy

Business Strategy

Functional Strategy

Competencies

Core Competency

Resources

Capabilities

What is the Total Outcome of Co-Related Articles?

Core Competency

in relation of

Sustained

competitive

advantage

Outcome

differentiated by

Competitive

advantage

characteristics

Competencies

Strategically

use of

Resources and

Capabilities

The positioning as a strong, favorable and unique sustained competitive advantage company, needs to profile these issues:

• A partnering mind-set

• A partnering skill-set

• A supportive organizational context

• The process should be an integral part of the company's strategic planning process, to match external opportunities with internal resources

• The on-going process of learning the from down till up and vise-versa to conduct the collection of collaborated knowledge to build present and future outstanding performance in actual and potential areas that would apply cohesion process of birth new outcomes.

Thank You !Any Questions?