Strategic Management and Core Competencies - Dissertation Example

Strategic Management and Core Competencies “A business strategy describes how a particular business intends to succeed in its chosen market place against its competitors. It therefore represents the best attempt that the management can make at defining and securing the future of that business” (Oxford University Press, n.d., p.1). Each of the businesses should have their own business strategies to survive the competition and compete over its competitors. This is more important in the present day business scenario in which business organizations are breaching geographical boundaries in an attempt to capture a share of market. This calls for the need to ensure greater competency and efficiency in their business operations. Hence is important not only to generate a brand image but also to create competitive advantage in the present competitive market. The business strategy is driven by certain significant factors. One major influential factor is the competence of the enterprise to drive the business strategy. The ultimate goal of the organisations is to identify one exclusive core competence which can help them to differentiate from the competition. However, this is not easy to do as the evaluation of own capabilities may not be so effortless; it demands honest assessment with an appropriate understanding of the customer requirements. Favourable business strategies are those that are evolved by using the capabilities of the firm to address the consumer requirements in a way leading to sustainable competitive advantage. The competitive advantage is required to be addressed logically by a careful analysis of the business processes of the organization. Any business strategy should define the foundation of competition, the stage for changes to happen and the way the competitive strategies would be built upon this changing business environment. The aspect of sustainable competitive advantage has been a matter of debate among the strategists and management thinkers alike. When one thinks back in the 1980s, the top executives were judged on their ability to reorganize, and reform their corporations. Then in the 1990s, they would be assessed on their ability to identify, encourage and take advantage of the core competencies promoting the organisational growth (Prahalad & Hamel, 1990, p.1-2). However, with the changing business environment, the management must re-evaluate the core competencies of the organisation to fetch success in the long run with a sustainable growth rate. In short run, an organisation’s competitiveness relates to the present performance of the company’s products and services. However, in long run, the competitiveness would be derived from the ability to develop with cost effectiveness and rapid pace using the core competencies initiating introduction of wide range of products. A company can have various sources of competitiveness including human resource, operational processes, management ability and technology. In most of the cases, the key sources of competitive advantages are found in the ability of the organisation’s management to consolidate the wide spread technologies and organisational production skills into the firm competencies which would allow the individual business organizations to adapt successfully with the turbulence in the business markets. This makes it essential for management strategists to rethink their claim regarding the inability to establish the core competencies. It may be tough for the large corporations to build up one core competency, but that may not impossible given that the core competencies can be established in the individual business units. The business units are required to be strongly established with nourishment, sustenance and stability in the core competence. Core competency is a highly specific term and is widely different among different organization depending on their business process. The core competencies can be presented as the collective learning in the organisation, specifically the way to coordinate various production skills and integrate various technological streams. Core competencies can be achieved by harmonising the streams of technology. Core competence can include intensive communication, effective involvement or strong commitment to work across the organisational boundaries and it may involve wide levels of people and various functions and business process. An organisation must nurture its core competencies so as to capitalise on its strategic advantages (Prahalad & Hamel, n.d., p.2-3). This is important considering the fact that physical assets can diminish over a specific period of time; however, core competencies are going to enhance as those are practiced and shared. The core competencies are required to be protected and nurtured as knowledge would fade away if that is not used properly. Competencies can be seen as the interconnection between the existing businesses as well as can be the base of new business development. A number of large companies have failed to build the core competencies due to the inability to connect between the individual business units. This reflects the importance of business process integration so as to achieve excellence in operations. Core competencies are the foundation on which the company would formulate the strategies to meet the consumer requirements, survive the competition, attain a sustainable growth and enhance its performance with the coming years. Another significant aspect with regards to core competence is that of the influence of the Critical Success Factors. These serve as the foundations for core competence of an organization. A unique example in this regards is that of Honda Motors which has used its Critical Success Factors i.e., its expertise in engine design to build a core competence on this factor (Heizer, Render & Rajashekhar, 2009, p.48). If an organisation wants to achieve potential access to a wide variety of markets, it would surely drive to achieve the core competencies to enable the development of new products and services. For an instance, Saga has established strong leadership in offering financial services and holiday packages to the aged population. The core competencies of Saga, which have enabled it to enter into entirely different businesses, are their clear unique brand proposition which would focus entirely on a precisely defined consumer group. The organisation has significant marketing skills including sales conversion through call centre, database management and direct mailing campaigns. It has also achieved its competency in the customer relationship management (Chaston, 2009, p.100). Core competencies can also be defined as the skills which would enable the business to deliver enhanced customer benefits. The company must analyze the characteristics which would lead the customers to choose one product or service over another product or service offered by one of its competitors. Organizations may aim to offer value on the products and services offered to the consumers. Tesco has been considerably successful in capturing leadership in the online grocery shopping market. The core competence of the organization lies in its efficient supply chain management process backed by an ERP program that interlinks the different departments of the organization. The company has been competent in designing and implementing their supply systems which effectively connect the existing shops with their corporate website. TESCO has strong technological ability which enables it to design and deliver an effective customer interface which has been able to customise the online shopping and make it easier, more efficient and customer friendly. The company has an efficient and reliable delivery infrastructure including distribution, product picking and handling customer satisfaction (Fernie, 2005, p.28-36). Core competencies of the companies should be framed in a way which is difficult to imitate. In other words, the core competence is required to be competitively unique. In a number of industries, major skills can be considered as the requirement for the operation and that do not establish any considerable differentiation with the competitors. To qualify the competitive advantages as the ‘core competencies’, the competitive advantages should be difficult for the competitors to imitate. In these many years, Dell has made a unique and significant place in the computer market. The company has effectively used its core competence of business process integration to achieve cost effectiveness and operational excellence to add value to the product offering of the firm. Dell has achieved excellence in customisation of computers for their consumers. The company has also been able to minimise the working capital usage in its production process. Dell has enhanced distribution and manufacturing quality enabling it to sell off reliable, high quality merchandises in competitive prices (Giachetti, 2010, p.153). A competence may be at the central to any business operation. However, that may not be able to create any differentiating factor for the business. Any competence, that is not incomparable in one way or the other, cannot be considered as the core competence. For an instance, a process using the normal computer components, staffed with generally trained workforce cannot be seen as the core competence of the company. Such process is not expected to make a distinguishing advantage over competitor businesses. However, these processes can be developed into core competence with required investment in the appropriate equipment and proper training. The resources which are standardised or easily available would not be able to achieve a competitive advantage over its competitors. Intangible resources can be a part of the core competence components for an organization. Intangible resources comprise of intellectual or technical resources as well as reputation. Competitive technical resources lead the organisation to enhance its ability to innovate and increase the pace of innovation within the organisation. Patents and copyrights are the intellectual property of any organisation, which may be derived from the technological resources of the organisation. One of the significant resources of the leading manufacturing company, Dyson, has been the creative innovation of James Dyson, the founder of this organisation. The competitors were unable to successfully imitate its innovation. Companies can establish valuable strategic knowledge with its culture, processes and employees and can possess an intangible resource, which is not easily transferred or imitated by a competitor in the market. With the increase in the intensity of the competition, the goodwill or the reputation of an organisation is more recognised as a significant intangible asset; however, this can be easily damaged by the poorly structured strategies and marketing campaigns. Dyson has surely established a good name with its innovative vacuum cleaners followed by other products. However, strategies to introduce purple washing machine with two rotating drums did not work in the consumer market. Mr. Dyson fetched success in the market of vacuum cleaners and wants to replicate the same success in the washing machine market. However, consumers were not ready to pay much for a new design, sometimes even the performance is better. The price of its washing machines with two drums used to cost around £ 500, almost twice the price of any standard washing machine in the United Kingdom market. Innovation is required to be there, but it is required to be in alignment with consumer requirements. This represents an instance in which a Critical Success Factor has been improperly used to create a strategic gap between the organization and the consumer. According to Grant, present thinking about the resources and capabilities has been an influential factor to shape up the knowledge management. The concept is quite true in the case of Dyson. Knowledge management at Dyson exemplifies the knowledge capability which resides within the Dyson organisation. This capability has enabled the company to re-enter the washing machine market. Integration is another important aspect in the case of Dyson. Dyson’s headquarter is linked to 20 specialist laboratories developed with creative mind people around. This has made the difference and enabled the company to reach the extra height to be successful in its industry. Technology has been the significant core competence of the company with its engineers introducing time tuned ideas. The prevailing culture encourages them to develop new exceptional ideas. Innovation has given the highest preference which is displayed through the organisation’s commitment to new product development as it invests half of its products to the creation of new ideas. Dyson believed that the combination of design and manufacturing is more significant rather than concentrating on design itself. It tries to keep its differentiated products protected with patents. The company has 11 patent separate applications in each of the disciplines of the organisation. So, from the above the above discussion, it is quite clear that Dyson’ most significant core competence is innovation and its commitment towards it, which is supported by its enhanced research and development decisions, skilled and qualified manpower including scientists and engineers. To understand the corporate strategy of Dyson it is better to illustrate the same with reference to Bowman’s Strategy Clock. According to Bowman’s strategy clock, a company can differentiate between differentiation strategies, risk strategies and low price strategies. Each of them can be divided in further segments. These strategies include differentiation, hybrid and focused differentiation. Firms following the hybrid strategy would use low cost of production and invest the profit amount to lower the cost further and to reinvest in the differentiation. One significant strategy is differentiation strategy where the customers recognize an added value of the product. This differentiation is achieved by various product properties like innovation, design, functionality or more additional services inherent to the product. The third strategy, being the focused differentiation strategy, where the company introduces added value to the customers leading the price to be much higher than that of the competitors (Thomson & Fuller, 2010, p.185). Figure: Bowman’s Strategy Clock (Source: Johnson, 2008, p.243) This model also illustrates the risk strategies of the companies. In case of high or standard price and low value, the company is expected to lose its market share as the customers would not prefer to pay much for a low value product. In case of monopoly, the strategy may work well for the company, but in competition it is bound to fail. The companies offering standard value at a higher price may be able to fetch a higher margin if its competitors do not follow. However, there is still a considerable risk prevailing to lose out market share with this strategy. When this model is applied to the Dyson case, it can be seen that the manufacturing company has been following the differentiation and focused differentiation strategy. The company has been indulged in innovation and design to offer a differentiated product to the consumers. However, they also charge a high price to provide the customers with additional product attributes. In the risk strategies, the company has been following a high risk strategy in the washing machine segment. In that segment, the company has introduced a washing machine at a higher price. The strategy has failed as the customers have denied paying a higher price for the washing machines. So, competitive strategy must be introduced keeping the consumers’ demands in mind with an appropriate analysis of both the market and competitors. In the previous segment the case of Dyson has been discussed in the light of core competence and Bowman’s strategy clock. In this segment, the core competence and competitive advantage of Nestle and Apple would be discussed for a better understanding of the theories. Apple’s core competency is its innovative design and technology. The company believes in ‘think different’ and encourages its employees to develop new innovative ideas. Apple develops products which can offer the desired ‘wow’ factor to its customers. Today the iphone has emerged as a desired product with portable digital player, GPS navigator, internet client and more of various enhanced application. The company has changed the buying experience of the clients. Like the Dyson, Apple also has been adopting both differentiation and focused differentiation. Apple has been encouraging innovation with the introduction of new products with innovative designs. However, Apple has been charging high price for their products. So, this resembles that the company has been carrying out two differentiation strategies with low risk factor as the company has been charging high for an enhanced and quality products with additional attributes (Daft, 2009, p.68). Nestle has positioned itself as a food, health and wellness company. The company has a well framed corporate strategy enabling the firm to attain leadership in the food retail market. The research and development division has been one of the strong competencies of the company. The company has a well developed innovation heritage with an enhanced visualisation of the future. The company has got access to a number of quality suppliers who support their innovation and quality product development in a cost effective way. The company has segmented its operation in various business units where each of the business units enjoys enough autonomy in the decision making and strategy formulation. The company’s local strategies are the significant core competencies of the company. In countries like Nigeria and China, the company has build up new infrastructures for the betterment of distribution and logical activities. The company has concentrated on the local strategies to achieve a successful position in the global market (Miltenburg, 2005, p.135). The company has been adopted the policy of low cost differentiation and differentiation through the addition of enhanced nutrition value. Due to high competition in the industry, the company has kept the price competitive to offer products with enhanced nutrition value. So the company has been following the low risk strategy to operate, survive and lead the respective market (Galbraith, 2008, p.101). Value Chain is another significant tool that can be used to generate core competence in business organizations. A firm intending to adopt a differentiation strategy would have to focus upon its value chain in areas like product design, sales and customer service. It implies that the firm must bank upon its core competence in the above mentioned areas so as to create greater value for the customers and shareholders in the value chain. In a similar fashion firms intending to adopt price focussed strategy needs to ensure greater efficiency in its business operations so as to manage costs which can ultimately be passed on to the customer as price discounts. In these organizations the core competence in the value chain framework would include aspects like marketing and operational efficiency (Campbell, Stonehouse & Houston, 2002, p. 173, 174). Figure 2: Value Chain and Core Competence (Source: Campbell, Stonehouse & Houston, 2002, p.174) The figure shown above reflects the different primary and support activities of the value chain and how a firm can use its core competence to create a greater value offering in its product or service portfolio by using both differentiation and cost based strategies. It further underlines the need for business organizations to formulate strategies that can help create more value by using its critical success factors as core competence. Aspects like ‘competence based leverage’ are being increasingly used by business organizations to provide value addition to their existing product or service portfolio. This strategy is being increasingly used by organizations to expand into new market areas with their present product portfolio (Campbell, Stonehouse & Houston, 2002, p. 173). “Hamel and Prahalad define competence as a bundle of skills and technologies, and, core competence as a sum of learning across individual skill sets and individual organisational units” (Baitmangalkar, 2004, p.1). In the academia, core competence has different connotations. However, in most of the practical purposes, ‘core competencies’ relates to the concept of the ‘critical capabilities’ and resources which give an edge to the company over its competitors. All these capabilities and resources are required to be internal to the organisation (Drejer, 2002). The paper has illustrated examples of Dyson, Apple and Nestle. These companies have been able to achieve the core competencies in their respective markets. Core competencies are essential part of the companies’ strategies which influence the output by providing the firm with sustainable competitive advantage over its competition. The key to success for the organization lies in its ability to identify its critical success factors and use them as core competence. Adopting such a strategy would not only generate competitive advantage but would also help in creating long term sustainability in its business operations to establish itself in the market. Reference Baitmangalkar, S. (2004). A company’s most valuable resource. Retrieved March 04, 2011. http://www.ajeets.org/archives/CoreCompetence/Core%20Comp.%20A%20Companys%20most%20valuable%20resource.pdf. Campbell, D., Stonehouse, G. & Houston, B. (2002). Business Strategy. Butterworth-Heinemann. Chaston, I. (2009). Boomer Marketing: Selling to a Recession Resistant Market. Taylor & Francis. Daft, R.L. (2009). Organization Theory and Design. Cengage Learning. Drejer, A. (2002). 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Apple's core competency is innovative design and technology. Retrieved from: http://www.opensurgegroup.com/about/about/news_files/3652aabe5e523d78d8b3f82a12b8723d-6.html. Read More