Relevance of Core Competency for the Attainment of Competitive Advantage - Essay Example

Relevance of Core Competency for the Attainment of Competitive Advantage Introduction Technology has made the world come closer by breaking geographical barriers and improving modes of communications. It is due to the diminishing communication obstacles that businesses have expanded their horizons and have started operating in foreign lands. The expansion of businesses has given customers greater choice of products and services, instead of just relying on their local organizations to fulfill their needs. This creates greater competition for the companies in the market and makes them strive harder to attain their market share and success. The exponential increase in competition compels the organizations to implement effective strategies with the aid of strategic analysis to survive in the market. Olson and Bolton (2002) stated that the attainment of competitive advantage and development of core competencies have become two of the main goals of business owners in the prevailing times. 2. Overview of Competitive Advantage and Core Competency The domain of competitive advantage has been studied by numerous researchers over the years. Michael Porter is one of the prominent researchers in the study of strategic management and strategic analysis; he stated that competitive advantage is defined as the strategies implemented by an organization to compete in the market while combating the external forces in the environment. The possession of competitive advantage enables the company to have an edge over the prevailing services and products in the market. One of the most vital contributions of Porter (1998) has been the accumulation of strategies to attain competitive advantage in the form of “Wheel of Competitive Advantage”: Figure 1: Wheel of Competitive Strategy (Porter, 1998) It can be seen from the above figure that the attainment of competitive advantage is spread across all the departments and functions of an organization while being influenced by the goals and objectives of the organization. Dividend Tree (2009) stated that core competencies bear great relevance for any organization since they facilitate survival in competitive markets. Brown (2002) defined core competencies in a simple manner and stated that core competencies are those tangible and intangible resources of a company that enable a company to compete in the market in the presence of competitors. Core competencies become sources of great revenues and value for the customers. Gardelliano (2002) stated that core competencies may be an outcome of the following factors: Related Knowledge: Knowledge is an important intangible asset for any organization, for example, customer buying behaviors, sales forecasting on the basis of past and current sales records etc. Set of Skills: Set of skills includes the abilities to perform business operations, for example implementation of business plans, level of expertise possessed by the employees etc. Attributes: Attributes are related to the qualitative aspects of the business operations that might include the quality of the service, customer relations etc. The amalgamation of these aspects results in the production of core competencies for organizations and makes their service and products unique as compared to the competitors in the market. 3. Process of Development of Core Competency Organizational identity is a relevant asset since it has an effect on the competitive advantage of any organization. Glowa (2001) explained that the identity of an organization is an accumulation of the unique aspects, organizational performance and core values that it can introduce in its services and products. Jeyavelu (2006) stated that if organizational identity is directed towards the achievement of unique business goals and operations of the company then it can contribute towards the attainment of competitive advantage. However, Voss, Cable and Voss (2006) pointed out that these factors cannot bear much relevance if organizational identity is not supported by the top management of the organization. Organizational identity also incorporates the following aspects which can be analyzed and developed into core competencies, along with the support from the top management: Figure 2: Factors related to Organizational Identity (Dhalla, 2007) Oliver and Roos (2003) stated that the understanding of the organizational identity can facilitate the promotion of a unified vision and inimitable culture in an organization that can prove to become a unique core competency. However, Duhan, Levy and Powell (2005) pointed out another important factor that had been proposed by Porter- cost leadership strategy; this strategy advocates the acquisition of a greater market share by offering lower costs to the consumer as compared to the competitors. EdBarrows (2010) stated that the development of core competency of an organization begins with the identification of the capabilities. Gardelliano (2002) stated that these capabilities can be of different types, such as technical capabilities, managerial capabilities, functional capabilities etc. The identification of the capabilities of an organization can be performed by using value chain analysis that was proposed by Michael Porter. Recklies (2001) explained the value chain analysis and stated that this type of analysis reveals the organizational aspects that are able to create value for the business, whether tangible or intangible. The identification and development of core competencies can be done according to the following criteria: Rare: The capability must be rare such that the customers should remain dependent on the specific organization for its supply or provision. Valuable: Chabert (1998) stated that the capability must be able to create value for the customers in terms of quality, price etc and for the organization in terms of greater market shares. Inimitable: Chen and Chang (2011) stated that such capabilities should be very difficult to be imitated by the competitors; these factors might include a continued legacy of quality of an organization or unmatchable customer service. Jeyavelu (2006) stated that ambiguous and uncertain aspects that produce value for the customers often prove to be inimitable by the competitors in the market. Non-substitutable: A product or service cannot be substituted with the productions of another organization due to its distinguishing features. Huvard, Salcedo, Tuppince, Wentz and Zolad (2006) stated that if a product can be replaced by another organization’s productions then it cannot prove to attain competitive advantage for the company. 4. Examples of Development of Core Competencies The study of strategies adopted by different organizations bears great lessons about the required tactics to attain greater success in the presence of external threats. Apple has been responsible for producing the first personal computer in the history of computing and was believed to attain competitive advantage over the competitors in the market for an elongated period of time. However, it could not be sustained for long in the 1980s when Microsoft entered the market with their innovative operating system MS-DOS. Schoettler (2006) stated that Apple could not retain their market share in those days since their attention and efforts were divided in different domains such as production of hardware, as well as development of software. Microsoft concentrated their efforts for the development of a single core competency of operating systems and were able to replace the Apple’s software platform. Apple did not focus on the development of a single core competency and therefore failed to sustain their competitive advantage in the market. As a result of effective strategic planning for a core competency, Microsoft retained competitive advantage as the preferred choice for operating system for numerous years. Bani-Hani and Faleh (2009) stated that organizations can only attain short term benefits and goals if they are not directed towards the development and sustaining of core competencies. Ong and Ismail (2008) stated that the attainment of competitive advantage is not as difficult as the tasks to sustain it in the presence of external and internal forces. In the light of available literature, it can be said that Apple was able to attain competitive advantage in the software industry but could not develop their core competency to such an extent that they could sustain their competitive advantage in the presence of Microsoft’s operating system. Glowa (2001) discussed the coffee serving giant in the modern world, Starbucks, and stated that Starbucks learned the strategic relevance of maximization of efforts on core competencies after suffering few losses. After attaining commendable market share in the coffee industry, they decided to expand their business operations as a consumer lifestyle product at the end of the past century. Glowa (2001) stated that they invested in Living.com and Talk City Inc. but could never attain as much of a market share as the prevailing giants in the industry, namely IKEA, Martha Stewart etc. After suffering losses, they realized that they should continue to focus on the expansion and development of their core competency of coffee. Glowa (2001) pointed out that those initial losses were enough to make Starbucks realize that their future expansions should only be concerned with the experience of consuming coffee. Linn (2009) stated that Starbucks has set a goal of reaching a gigantic figure of 40,000 stores around the world in the near future and they plan to achieve this objective by concentrating on their core competency of serving good quality coffee to the world. 5. Conclusion The modern times face extreme competition in the markets due to the growing trends of international expansion of businesses. Companies need to be equipped with effective strategic planning to develop core competencies according to their business objectives, vision and capabilities to be able to attain competitive advantage in the market. The study of companies who were able to attain and sustain competitive advantage revealed that efforts need to be maximized on a single core competency at a time to ensure success and greater customer value. The division of efforts at numerous domains provides avenues for competitors to provide substitute products to the consumer. Core competencies are developed after the identification of the capabilities of the business. The capabilities should be evaluated with respect to the following factors; rarity, value, non-substitutability and inimitability. References Bani-Hani, JS., Faleh, AA 2009, ‘The Impact of Core Competencies on Competitive Advantage: Strategic Challenge’, International Bulletin of Business Administration, Issue 6. Brown, MD 2002, ‘Choosing and Using Core Competencies’, The ChemQuest Group. Chen, HM., Chang, WY 2011, ‘Core competence: What “core” you mean? - From a strategic human resource management perspective’, African Journal of Business Management, Vol. 5(14), pp. 5738-5745. Chabert, JM 1998, ‘A model for the development and implementation of core competencies in restaurant companies for superior financial performance’, Dissertation, Virginia Polytechnic Institute and State University. 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