The Benefits of Core Competencies Concept and Icarus Paradox - Term Paper Example

? Business strategy Contents Contents 2 2 Introduction 3 Core competency Model 4 The Icarus Paradox 7 Relationship Assessment 8 Reference List 12 Introduction Management of core competence is a critical function of any organization and is invariably identified in literature. There is also a strong consensus among researchers as well as marketers that competitiveness of an organization does depend upon the core competencies of that organization (Drejer, 2000). Even though much literature has been conducted on this topic, irrelevant usage of terms and vague definitions are still common among practitioners and academics. One of the reasons for this ambiguity can be the lack of a productive identification process (Whiddett and Hollyforde, 1999). Core competencies are often recognized in forms of intangible and tangible assets. Equivalent attention should be paid to both intangible and tangible competencies in order to gain sustainable competitive advantage (Bergenhenegouwen, Horn and Mooijman, 1996). This is because the value added and intangible contributions are much influential and critical (Hafeez and Abdelmeguid, 2003). It has also been pointed out that competitive advantage decreases as a result of the tangible assets. Thus, it can be said that the overall competency of an organization cannot be completed unless the personal competencies are also taken into consideration (Whitehill, 1997). This paper will analyze the core competencies in details. The various benefits and drawbacks of the concept will be explained. The paper will also incorporate expert opinions and critics from various researchers and academics regarding concepts of core competencies as well as paradoxes. The next part of the paper will try to examine any relationship between concepts of core competency and Icarus paradox. Core competency Model Core competencies can be described as deep proficiencies enabling an organization to deliver quick and unique value to its customers. It symbolizes a firm’s collective experience and learning. It also helps in understanding the coordination of diverse manufacturing and production skills as well as integration of multiple technologies. This type of competency creates sustainable and long term competitive advantage for an organization and helps it in branching out into a broader category of related markets (Collis, 1991). The best advantage of having core competency is that it is very difficult for competitors to procure or copy. Understanding and evaluation of core competencies permit an organization to invest in various strengths which differentiates them and implement strategies for unifying the entire organization (Agha, Alrubaiee and Jamhour, 2012). The concept of core competency was first introduced in the framework of Prahalad and Hamel. They defined core competency as “An organisation’s major value-creating skills, capabilities, and resources that determine its competitive weapons.” (Hamel and Prahalad, 1990). According to this framework, competition cannot be considered as a market power in the long run. This can be derived from the fact that even though organizations have survived in tough global competition, they are all converging towards similar as well as formidable standards for quality, product cost and timeliness. Thus, managers now need to investigate their internal competencies as well as resources and capabilities for securing sustainable and long-term survival (Eden and Ackermann, 2000). According to the model, core competency can be recognized by application of three tests. These are: Firstly, with the help of a core competency, potential access to a wide market area can be gained. Secondly, core competencies significantly contribute in the creation of perceived consumer benefits of the end service or product. Thirdly, it is hard for competitors to copy or imitate as it involves complex harmonization of production skills and individual technologies. In other words, the understanding of the significance of the competence for competitive differentiation, whether the competency can go beyond single business and the difficulty to imitate the competency for competitors, determines the core competency. (Baker, Jones and Nichols, 1994). Individual level competencies can be represented by traits, skills, behaviours and characteristics distinguishing an individual, while organisational competencies include effective performance with the help of required knowledge and skills. After the establishment of this concept, many global manufacturers like, Sony, Kodak, Canon, Honda, 3M, Sharp and NEC have been progressively pursuing this path for gaining core competence (Gilgeous and Parveen, 2001). Nevertheless, core competencies can be beneficial in many forms. Foresight Foresight means competing for future. The authors have insisted that the first priority should be developing a foresight. It is the prescience about shape and size of future opportunities such as, innovating, new methods of delivering benefits and creating new customer benefits (Barreto, 2010). They thrust on future possibilities rather than focussing on present products, market, business units or organisation. Strategic Architecture It means bringing a company’s foresight to the real time future. According to the theorists, once foresight is clear, the firm should aim for strategic architecture, rather than only strategic planning. It will describe new functionalities as well as new insights which the company is going to offer in the future. It also aims in developing those future competencies which will help in creating new customer benefits and enhancing the consumer interface so that customers are allowed to have better access to these benefits (Chen and Lee, 2009). Strategic Intent Strategic intent talks about something compelling and ambitious which provides intellectual and emotional energy for tomorrow. Thus, strategic architecture can be called the brain and strategic intent, the heart (Hafeez, Essmail and Siddiqi, 2004). However, not all practitioners take this concept on a positive note. Critics have argued that first mover advantage does not necessarily guarantee sustainable competitive advantage and success in future (Bogner and Thomas, 1995). According to them, organisational strategy does not always include presuming future market positioning, which is an absolute priority for Prahalad and Hamel. For example, even though Apple was the first to express their friendly computer vision, it was Microsoft who had won the computer market ultimately. Another instance can be those of Japanese organisations, who neither were first movers nor first inventors of technology, but ultimately has achieved biggest market share (Weightman, 1994). The Icarus Paradox The Icarus Paradox can be described as an observed business phenomenon where it fails after a certain period of time. Icarus paradox was first coined in a 1992 article by Danny Miller (Miller, 1992). In the article, he had mentioned that some business were themselves the downfall during their own accomplishment. It may be through exaggeration, over-confidence and complacency. These behaviour patterns have been described by Miller as follows: Venturing Trajectory: A venturing trajectory converts entrepreneurial, growth-driven, builder organizations managed by creative and imaginative leaders as well as financial managers into greedy and impulsive imperialists, who sternly overburden their assets by mounting chaos into businesses that they have no idea about. Focusing trajectory: It takes quality-driven and punctilious craftsmen business with their airtight operations and masterful engineers and converts them into severely controlled, detail-obsessed organizations, whose technocratic and insular monocultures estrange customers with ideal but irrelevant contributions. Inventing Trajectory: It takes pioneers with excellent R&D departments, elastic think tank procedures and state-of-art returns towards a path, where they waste their resources in pursuit of futuristic and grand inventions. Decoupling trajectory: This trajectory turns salesman firms with unparallel skills in marketing, well-known brand names as well as broad marketplaces into bureaucratic and aimless drifters, selling fetish and obscure design issues and producing disjointed and stale line of offerings. Relationship Assessment Many organizations so overwhelmed with their early success had started thinking that operating in the similar manner will always keep them successful in future. As a result, the company becomes so niche, specialized and inner-directed, that it lost sight of the realities of the market. The most common example in this context is that of DEC Company. By 1990, the superiority of DEC in high quality VAX minicomputers productions had helped it in becoming one of the biggest corporations across the globe. However, this success could not continue very far. The company had started focusing only on engineering capabilities and neglected other major functions such as, servicing, marketing and management. With time, the organization had become dull compared to the dynamic industry conditions and customer needs. The sales went down and finally Compaq acquired DEC in 1998 (Rao, Rao and Sivaramakrishna, 2009). Another revealing fact which strengthens this concept is that out of 100 listed companies from Fortune 1966, 66 of them no longer exist. Also, very few companies could make it to the 2012 list. This can be attributed to the fact that over years, these organizations had concentrated only on few offerings that had made them famous (Miller, 1990). However, with time, the industry had changed and so did consumer preferences. By this time, it was too late for these companies to make any fundamental changes. It can be noted here that any drastic change in the fundamental visions and aims of an organization can have drastic effect on the internal and external resources. It is also certain that the organization will suffer setbacks. Thus, the crux of this concept is that for an organization to succeed in present as well as future, it will have to continuously improve (Drejer, 2002). This is in line with the concept of core competency which advocates that in order to survive in future, companies need to improve and innovate continuously. Business environments are constantly evolving which includes changing customer demands, new competitors and troublesome business models. Yet, the organizations continue to assume and proclaim that they are always right with their strategies and tactics, which ultimately leads to their downfall. Many successful organizations are muted into false belief of future growth and security based on established processes and beliefs. These processes and beliefs become liabilities in case of environmental changes. In other words, success brings confidence and commitment to the present action course, while decision making capabilities of future become biased (Vermeulen, 2009). This theory can be directly related to the three steps given in Prahalad and Hamel’s core competency model namely, foresight, strategic architecture and strategic intent. According to this model, organizations need a foresight in order to understand future market possibilities and strategies for new customer offerings. This future idea will then be converted into action plan and later, implementation. Another interesting aspect of Icarus paradox as stated by Miller was its sociological perspective. According to the perspective, success creates internal pathologies that tempt organizations to misuse their resources. Thus, dominant organizations must overcome their natural tendencies in order to remain successful in future (Nahapiet and Ghoshal, 1998). Another relationship which can be derived from the concepts of core competencies as well as Icarus paradox can be explained in forms of strategies in order to avoid failure (Hill and Jones, 2012). These strategies as described in the core competency model by Prahalad and Hamel are essentially arising in order to avoid downfalls associated by Icarus Paradox. According to the core competency model, focus should be given on various building blocks for sustainable competitive advantage. In order to maintain this, organization will have to give importance to all four fundamentals factors which are quality, efficiency, customer responsiveness and innovation (Tampoe, 1994). It also focuses on developing distinctive competencies contributing superior performance in the above areas. The Icarus Paradox of Miller encourages the message which states that even with enhancing only one distinct competency, victorious organizations might run the risk of being unbalanced entirely. An important aspect of core competency theory is their stress on continuous learning and improvement. Change is inevitable and continuous and present foundation for competitive advantage may soon become obsolete and common among competitors and new entries. In a fast-paced and dynamic environment, the only way to ensure a successful future is through continuous improvement in quality, efficiency, responsiveness and innovativeness. The companies, who are continuously adopting new strategies and ways to improve their overall operations, are the ones which thrive till the end. The concept is aligned with Miller’s Icarus Paradox, which states that organizations that undervalue constant learning, end up with services and products which has lost its value to the customers and industry. Another strategy which aligns the concept of Core competency model and Icarus Paradox is overcoming inertia. Overcoming inertia basically suggests raising above the change barriers within a firm in order to maintain competitive advantage (Wynne and Stringer, 1996). Identifying change barriers is a crucial first step. Once they are identified, implementation of the process for overcoming the barriers requires good leadership, judicious power use and appropriate acceptance to changes in the structure of organizations as well as in its control systems. From the above analysis, it is clear that both Icarus Paradox and Core competencies are aligned in various ways. Though very few literatures have emphasized on recognizing the links between these two theories, yet it can be a very interesting review to work upon. Reference List Agha, S., Alrubaiee, L. and Jamhour, M., 2012. Effect of core competence on competitive advantage and organizational performance. 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Knowledge-based strategy to deliver sustained competitive advantage, Long Range Planning, 30(4), pp. 621-7. Wynne, B. and Stringer, D., 1996. Competencies: A practical guide to understanding and applying competencies. PettsWood: Technical Communications (Publishing) Limited. Read More