MHROD , 2011Delhi School of Economics

Group 5:Himanshu Pandey

Kriti UpadhyayKulparkash Singh

Pratibha Dinkar

The Core Competence of the OrganizationBy C.K Prahlad and Gary Hamel

Core CompetencyCore Competency is a specific factor that

a business sees as being central to the way it, or its employees, works. It fulfils two key criteria:It is not easy for competitors to imitateIt can be leveraged widely to many products

and markets.

A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication

The Roots of Competitive Advantage

Core Competence

Core Products

Business Units

End Products

Core Competency In Practice

Clarify Core CompetenciesArticulate a Strategic Intent that

defines the company and its markets.Identify Core competencies that support

that intent.

Build Core CompetencyInvest in needed technologiesInfuse resources throughout business

units to outpace rivals in new business development.

Forge strategic alliances

Core Competency In Practice contd…Cultivate a Core Competency

MindsetStop Thinking of Business Units as sacrosanctIdentify projects and people who embody

firm’s core competencyGather managers to identify next generation

competencies.

Identifying organization’s core competencies

Not all organizations possess core competencies.

Very small organizations and

organizations that provide standard services that are in high demand will usually not possess or need core competencies.

Steps of identification

1. List your organization’s competencies. Examples:

• Workers with knowledge and experience in controlling costs.

• Workers with knowledge and experience in fund raising.

2. Identify the benefit from each competency Examples:

The benefit from knowledge and experience in controlling costs is a reduction in operating expenses.

3. Separate the competency from the product

or service. Example:

• It has been claimed that Volvo’s core competency is safety. This however is perhaps the end result of their competency in terms of customer benefit.

• Their core competency might be more about their ability to source and design high protection components, or to research and respond to market demands concerning safety.

4. Identify those competencies that meet all of

the following criteria:

They make a significant contribution to customer’s perceived value or to the financial health of the organization.

They are unique or performed in a way that is substantially superior to your peers.

They are capable of being applied to new products and services.

These are the core competencies of the organization

What does the Core Competence Achieve?

1. Provides potential access to a wide variety of markets

The key core competencies here are those that enable the creation of new products and services.

Example: Why has Saga established such a strong leadership in supplying financial services (e.g. insurance) and holidays to the older generation?

Core Competencies that enable Saga to enter apparently different markets:

- Clear distinctive brand proposition that focuses solely on a closely-defined customer group

- Leading direct marketing skills - database management; direct-mailing campaigns; call centre sales conversion

- Skills in customer relationship management

2. Makes a significant contribution to the perceived customer benefits of the end product

Core competencies are the skills that enable a business to deliver a fundamental customer benefit - in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one product or service than another?" "What is a customer actually paying for?Example: Why have Tesco been so successful in

capturing leadership of the market for online grocery shopping?

Core competencies that mean customers value the Tesco.com experience so highly:

- Designing and implementing supply systems that effectively link existing shops with the Tesco.com web site

- Ability to design and deliver a "customer interface" that personalises online shopping and makes it more efficient

- Reliable and efficient delivery infrastructure (product picking, distribution, customer satisfaction handling)

3. Difficult for competitors to imitateA core competence should be "competitively

unique": In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as "core", a competence should be something that other competitors wish they had within their own business.Example:Why does Dell have such a strong

position in the personal computer market?Core competencies that are difficult for the

competition to imitate: - Online customer "bespoking" of each computer

built - Minimisation of working capital in the production

process - High manufacturing and distribution quality -

reliable products at competitive prices

Losing core competence

Outsourcing – shortcut to a competitive product but it typically contributes little to building the people embodied skills needed to sustain product leadership.

Strategic alliance and sourcing strategy requires clear choice about competence leadership.

Foregoing opportunities to establish competencies that are evolving in existing businesses (i.e. GE selling off TV business).

Core product

Core products or flagship products are a company's products which are most directly related to their core competencies.

Core products are central to the company's performance and generate money that sustain the business.

Company must distinguish between brand share and manufacturing share because global competition is played out by different rules and for different stakes at each level.

Companies should maximize their world manufacturing share in core products.

Well-targeted core products can lead to economies of scale and scope

ExampleMicrosoft – Windows and Microsoft Office Adobe Systems – Photoshop and Flash Player Oracle Corporation - Oracle databaseGoogle Inc. - Google Search

Strategic business unit

Strategic Business Unit or SBU is understood as a business unit within the overall corporate identity which is distinguishable from other business because it serves a defined external market.

They are managed as self contained planning units for which discrete business strategies can be developed. A Strategic Business Unit can encompass an entire company, or can simply be a smaller part of a company set up to perform a specific task.

The SBU has its own business strategy, objectives and competitors and these will often be different from those of the parent company.

The Tyranny of the SBU Underinvestment in developing Core

Competencies and Core Products No single business feels responsible for maintaining a

viable position in core products SBU managers conceive competitors the same way

they see themselves Imprisoned Resources

SBUs may hide talent to prevent its redeployment in the pursuit of new opportunities

Bounded Innovation If core competencies are not recognized, individual

SBUs will pursue only those innovation opportunities that are close at hand

Core competencies widen the domain of innovation

SBU or Core Competence Focus is on the end product. Portfolio of businesses

related in product-market terms.

SBU owns all resources other cash.

Discrete businesses are unit of analysis. Capital is allocated business by business.

Optimising corporate returns through capital allocation trade-offs among busineses.

Focus is on building competencies.

Portfolio of competencies, core products & businesses.

SBU is a potential reservoir of core competencies.

Business & competencies are unit of analysis. Top management allocates capital & talent.

Enunciating strategic architecture & building competencies to secure future.

Developing Strategic ArchitectureA road map of the future that identifies which

core competencies to build and their constituent technologies.

The task of creating a strategic architecture forces organization to identify and commit to technical and production linkages across SBU’s that will provide a distinctive competitive edge.

SA is a tool for communicating with customers and other external constituents as it tells of the broad direction without necessarily giving away each step.

Examples of Organizations exhibiting core competency

• Gillette powered through the previous decade largely on the strength of a breakthrough product.

• Sensor. Introduced in l990, the new shaving system kept imitators at bay with no fewer than 29 patents.

• Wisely wasting no time after Sensor's launch, Gillette began development of Sensor's offspring, Mach3, which was introduced in l998.

HondaAnother example is of Honda's expertise in

engines.Honda was able to exploit this core

competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles.

Apple• On the other hand disruptive innovation is

the Core Competence of Apple• It has been able to come out with stunning

products like the I-pod,I-phone,I-pad.• Apple follows the Blue Ocean Strategy, as it

have consciously avoided fighting in markets where there is too much competition, and where skills can be easily copied.

ITC• ITC has succeeded in taking on the might of

the market leader Britannia through very innovative advertising campaings and smart packaging. 

• Its product range is also very unique, as it has products that cater to different market segments.

Problems of Core CompetenceThe accumulated skills of an organization may not mean anything in a fast

changing scenario.The focus should be on products and services demanded and not on core

competence.Core Competence can be acquired by purchase

or by strategic alliancesCore competence has a more production

orientation.

In practice, core competence has too often become a “feel good” exercise that no one fails.

THANK YOU

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