The Core Competence of an Organisation

Core competence of a company is basically the companys collective knowledge about how to coordinate the various and diverse production skills and technology. Invention of new markets, exploiting emerging ones and delighting customers with new products are some of the ways of establishing core competencies. Core competency forms the heart of the organisation. Building core competencies is a difficult task and can be done in various ways like investing in required technologies, infusing resources throughout business units and forging strategic alliances. To build these it is essential to cultivate a core-competency mindset i.e. to stop thinking business units as sacrosanct, identify projects and people who strengthen the firms core competencies and to gather managers to identify next generation competencies and to decide how much investment and capital each unit requires. The best example can be taken of GTE & NEC. GTE was a major player in the information technology industry. It was active in telecommunications and its operations spanned a wide variety of businesses. However NEC made a landmark and it moved beyond public switching and transmission to include lifestyle products such as mobile telephones, facsimile machines and laptop computers-bridging the gap between telecommunication and office automation. This largely happened because NEC focussed on its core competencies, which GTE didnt. With the change in technology and advancement in the economy, it is essential for an organisation to adapt to the changes, otherwise it may lose its foothold in the market. Survival is tough and organisations which are adept at inventing new markets, quickly entering emerging markets and dramatically changing or shifting with customer choice are the ones that will sustain in the market. This requires radical change in how an organisation may function. We can take the example of Japanese car manufacturing companies which have been generating products with functional enhancements and sophistication which give them a competitive edge over the others. Another example can be taken of Canon which on the strength of its product features is now a player in facsimile transmission machines, desktop laser printers as well as semi conductor manufacturing equipments. In the short run, a companys competitiveness derives from the price/performance attributes of current products. Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. Core competencies can be best described with the example of Sony for having its capacity to miniaturize or Philips optical media expertise. Core competency is all about harmonizing streams of technology, but it is also about the organization of work and delivery of work. Now, it is essential for Sony to ensure that technologists, engineers and marketers should have a better understanding of customer needs and of technological possibilities. Core competence is communication, involvement and a deep commitment to working across organizational boundaries. It involves many levels of people and all organization. It does not diminish with use, unlike physical assets. Management trapped in the strategic business unit (SBU) mindset almost inevitably finds its individual business dependent on external sources for critical components, such as motors and compressors .In the race of building strong competencies, companies have stopped thinking themselves as bundles of business making products. Companies like Canon, Honda, Casio or NEC preside over portfolios of businesses unrelated in terms of customers, distribution channels, and merchandising strategy.

Its Hondas core competence in engines and power trains, that give it a distinctive advantage in cars, motorcycle and generator business. Canons core competence in optics, imaging and microprocessor controls have enabled it to enter and, in some cases, even dominate, markets as seemingly diverse as copiers ,laser printers, cameras and image scanners. Cultivating core competencies does not mean battling and removing rivals in terms of research & development. Building core competencies is more challenging and different than integrating vertically. Managers who start with deciding whether to make or buy starts with end products and look upstream to the efficiencies of the supply chain and downstream towards distribution chain & customers. Identifying core competencies is a tough task to perform and there are basically three different tests which can be applied to identify competencies in a company. First, a core competence provides potential access to a wide variety of markets. Second, a core competence should make a significant contribution to the perceived customer benefits of the end product .e.g. Hondas engine expertise. Finally, a core competence should be difficult for competitors to imitate i.e. core competency attributes play an important role and it has to be difficult since it is a complex harmonization of individual technologies and production skills. A rival might acquire some of the core competencies but the internal coordination and learning cannot be copied. Another way of losing the core competency is forgoing opportunities to establish competencies that are evolving in existing businesses. Core products are a tangible link between competencies and end products. Core products are the components or subassemblies that actually contribute to the assembly of the end product. For e.g. Canon is known to have its 84% share in desktop laser printers engines even though its brand share in it is minuscule. It is essential to differentiate between core competencies, core products and end products because global competition is different at different levels with different stakes. The main motive is to build global leadership and companies sustain this by maximizing their share in core products. A dominant position in core products allows a company to shape the evolution of applications and end markets. Well targeted core products lead to economies of scale and scope. When organisation is conceived of as a multiplicity of SBUs no single business may feel responsible for maintaining a viable position in core products nor be able to justify the investment required to build world leadership in some core competence. This leads to underinvestment in developing competencies and core products. The fragmentation of core competencies become inevitable when the ongoing process and strategy development dont go in line with SBU .By learning from alliances and focussing for internal development efforts, a strategic architecture can lead to reduction in investment for securing future market leadership. In case a companys core competence is its critical resource, then it has to ensure that SBUs should bid for it in the same way as they do for capital. Core competencies are corporate resources and may be reallocated by corporate management. Thus it can be inferred that core competencies are the pioneering differentiating factor for a new business and they should constitute the focus for strategy at the corporate level. Only if the company if the company has core competencies, core products and has market focussed units will it be able to fight and sustain in the market.

What is STRATEGY ?
Each and every organization follows some distinctive set of rules which makes it distinguishable from its competitors. These distinctive rules or unique processes are the identity of the company. Such identity creates perceptions among customers. This is known as Brand. To survive or thrive in the market each and every company adopts a strategy, which in simple words, is bringing in a change with change in market condition i.e. more appropriately said to be adapting to change. There are three key principles underlying strategic positioning briefly described as: 1. Strategy is the creation of a unique and valuable position, involving a different set of activities. Strategic positioning emerges from three different sources: Serving few needs of many customers Serving broad needs of few customers Serving broad needs of many customers in a narrow market 2. Strategy involves making trade-offs in competition i.e. to decide what is to be avoided. It is very much true that gaining on one edge requires sacrifice of the other. Example - Neutrogena is positioned more as a medicinal product rather than as a cleansing agent. The company says no to sales and prohibits sales based on deodorizing. 3. Strategy involves creating fit among a companys activities. Positioning which is referred to as the core of strategy is static in todays dynamic and changing environment and has no relevance as such because rivals can easily copy any market positioning. It is essential to supplement strategy with operational effectiveness which is enhancing the activities undergoing starting from the creation of a product to its delivery. All these contribute to the core competencies of a company. Rightly stated cost is generated because of the ongoing activities in the company and cost advantage arises by performing certain activities in a better way. These can be achieved by better technology, motivating employees or managing activities in a better way. Constant improvement in operational effectiveness is necessary for achieving superior profitability. Competition based on operational effectiveness alone is detrimental since it requires strategy .Companies lacking strategic vision and having performance pressures may tend to buy their rivals. Competitive strategy means about being different which basically is referred to as choosing a different set of activities to deliver a unique mix of value. An example can be taken here with of the Japanese companies which are often said to have no strategies. The Japanese pioneered in fields such as Total Quality Management (TQM) and continuous improvement and they triggered a global revolution in operational effectiveness, due to which they enjoyed substantial cost and quality advantage for a long time. However they never focussed on building strategy, rather they always copied each other. With time, the gap in operational effectiveness narrowed and there was a need for Strategy at this stage to sustain in the market as such. To do so they had to overcome cultural barriers. This was difficult for them, since they heightened differences among individuals rather than solving them. The Japanese also have a drawback of satisfying a customer to the fullest extent or great lengths and such companies end up blurring their positioning and rather affect their competitiveness adversely.

Strategic competition can be referred to as the process of perceiving new positions in the market to woo customers from established positions or to draw more customers in the market. Basically a strategic positioning of the product is done to bring in more customers. Strategic positions emerge from three different sources, basically: Variety based positioning: It is basically based upon the variety of products rather than customer segment. For example we can take various companies which have wide range of product varieties such as Cadbury. There various categories of its product line. Needs based positioning: It is based on targeting a particular set of customers. e.g. premium priced cars for the rich class. Access based positioning: It depends upon the accessibility to the customer segments. It depends upon customer geography. For example, Carmike Cinemas operates in geographical areas where the population is below 200,000. Rural versus urban based customers are one way of access based positioning. Positioning is not only about carving out a niche. Positions emerging from any of the sources can be broad or narrow. A broadly targeted competitor serves a wide array of customers rather than being focussed on one particular segment. To sustain in the market, a sustainable strategic positioning requires which demands tradeoffs. Its difficult to protect valuable position since it is quite often copied by incumbents. There are basically 2 ways in which apposition can be copied i.e. either the competitor can reposition itself to match the superiors performance or either it can try to match the benefits of a successful position while maintaining its existing position. To sustain in the market it is necessary to do trade-offs. For example, Neuterogena positioning is more of a drug company rather than that of a soap company. Positioning choices not only determine which activities a company will perform and how it will configure it but also how activities relate to one another. Basically what is important is how activities fit with one another and reinforce each other. Fit is evidently important since discrete activities often affect one another. For e.g. a sophisticated sales force confers a greater advantage when the companys product embodies premium technology and its marketing approach emphasizes customer assistance and support. There are three types of fit. First order fit is simple consistency between activities and the overall strategy. Example Vanguard aligns all its activities with its low cost activity. Second fit occurs when activities are reinforcing. Third-order fit goes beyond activity reinforcement to what is called the optimization of effort. Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is essential to design a suitable strategy to overcome failures. Threats to strategy are basically due to change in technology or change in behaviour of a competitor. To avoid failure the strategy has to be maintained with regard to it. Developing a strategy in a newly emerging industry is a difficult proposition since, managers face a high uncertainty of needs among customers. Moreover growth is hazardous to strategy. Therefore the goal should be to deepen the strategic positioning rather than broadening it. Having a strong leadership is also one of the pre requisites of strategy, because it is essential as far as implementation of the strategy is concerned and plays an important role in the sustainability of an organisation and is essential for it to maintain a foothold.