april 29 core competency

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.3-1

Core Competencies: the strengths that make an

organization distinctive and competitive by

providing goods or services that have uniquevalue to its customers

Ted Rouse

Global Business Practice

Bain and Company

³If you look at most of the corporate tragedies in the last five years,

you¶ll also discover that many of them were companies moving into

other businesses they really shouldn¶t have moved into, that weren¶tclose to their core business and competencies, including Enron,

Kmart, and Worldcom. If you¶re having problems in your core

business and think you can move to another business, it¶s not going to

work. You have to have strong assets you can build on. The farther

away people got from their core business and competencies, the lowertheir rate of success.´




Competencies vs. Core CompetenciesCompetencies vs. Core Competenciesvs. Distinctive Competenciesvs. Distinctive Competencies

A competence is an activity that a companyperforms with real proficiency ²it is usually theproduct of organizational learning

and experience

A core competence is a well-performedinternal activity central to a company¶sstrategy, competitiveness, and profitability

A distinctive competence is a competitively valuable activity a company performs better thanits rivals




Stem from skills, expertise, and cross-functional collaboration

Are usually the product of deliberate

efforts to develop expertise andcompetitive prowess¼Selecting people with requisite skills and know-how

¼Upgrading or expanding individual abilities

¼Molding work products of individuals into a collaborative

effort to create organizational ability ¼Building competitively valuable intellectual capital

Represent the accumulation of learning over timeand gradual buildup of proficiency ²cannot be

developed ³overnight´

Company Competencies and CapabilitiesCompany Competencies and Capabilities




Core CompetenciesCore Competencies ---- AAValuable Company ResourceValuable Company Resource

A competence becomes a core competence when an activity

that a company performs particularly well is central to its

strategy, competitiveness, and profitability

Typically, a core competence¼ Results from collaboration among different parts of a company²it

grows out of cross-functional know-how and expertise rather

than skills/expertise that resides within a single department or

operating unit

¼ Is intellectual capital and resides in a company¶speople, not as assets on the balance sheet

¼ Gives a company a potentially valuable

competitive capability and is thus

a competitive asset




Examples of Core CompetenciesExamples of Core Competencies

Skills in product innovation

Expertise in cost efficient supply chain management

Ability to speed new/next-generation

products to market

Better after -sale service capability

Skills in manufacturing a reliable or durable or high

quality or defect-free product

Capability to fill customer orders accurately and swiftly




Examples: Distinctive CompetenciesExamples: Distinctive Competencies

S harp Corporation

¼Expertise in flat-panel display technology

T oyota and Honda

¼Low-cost, high-quality manufacturing

capability and short design-to-market cycles

I ntel

¼Ability to design and manufacture

ever more powerful microprocessors for PCs

W al-Mart

¼Low-cost distribution and use of

state-of -the-art retail technology




A distinctive competence is a competitively

significant activity that a company performs better

than its competitors

A distinctive competence

¼Represents a competitively valuable

capability rivals do not have

¼Presents attractive potential for being a cornerstone of strategy

¼Can provide a competitive edge in the marketplace ²

because it represents a competitively superior resource

strength

# 1

Distinctive CompetenceDistinctive Competence ---- AACompetitively Superior ResourceCompetitively Superior Resource




Determining the CompetitiveDetermining the CompetitiveValue of a Company ResourceValue of a Company Resource

To be the basis for sustainable competitive

advantage, a ³resource´ must pass 4 tests:

1. Is the resource hard for rivals to copy?

2. Does the resource have staying power ±

is it durable?

3. Is the resource really competitively superior?

Does it actually outclass what rivals have and

provide a meaningful edge in attracting

and/or pleasing customers?

4. Can the resource be trumped by

the different capabilities of rivals?




Core CompetenciesCore Competencies

Resources are difficult (or impossible) to imitate when they are:

¼ Tacit

¼ Path dependent

¼ Socially complex

¼ Causally ambiguous Core Competencies: A set of integrated and harmonized abilities that

distinguish the firm in the marketplace.

¼ Competencies typically combine multiple kinds of abilities.

¼ Several core competencies may underlie a business unit.

¼ Several business units may draw from same competency.

¼ Core competencies should: Be a significant source of competitive differentiation

Cover a range of businesses

Be hard for competitors to imitate




Beware the risk of Core Rigidities«Beware the risk of Core Rigidities«

Competencies can lead to Rigidities

¼ Overcommitment to a core competency can lead to rigidity

¼ Incentives and culture may reward current competencies while

thwarting development of new competencies.¼ Technological change can cause strengths due to prior coherence

to become weaknesses

Dynamic capabilities are competencies that enable the firm to

quickly respond to change.

E.g., firm may develop a set of abilities that enable it to rapidly deploynew product development teams for a new opportunity; firm may

develop competency in working with alliance partners to gain needed

resources quickly.




CORE COMPETENCECORE COMPETENCE

Core competence is a bundle of skills and technologies that enables a company

to provide a particular benefit to customers¶.

For example,

A Sony ± benefit is pocketability

h core competence is miniaturization

At Federal Express ± benefit is on time delivery

h core competence is logistics management

At Motorola± benefit is untethered communication

h core competence is wireless communication.




TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTSTO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTS

Customer Value: Core competencies are the skills that enable a firm to

deliver a fundamental customer benefit.

Competitor Differentiation:A capability must also be competitively

uniquepower trains is a core competence at Honda which has never been so at Ford/s.

Honda¶s ability to produce some of the world¶s best engines and power trains

does provide customers with highly valued benefits of superior fuel economy,

zippy acceleration, less noise and vibration.




TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTSTO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTSContd...Contd...

y Extendibility: A core competitive is truly core

when it focus the basis for entry nto new product markets.

SKF, the world¶s leading manufacturer of roller bearing has

competencies in antification, precision engineering and making

perfectly spherical devices. In order to achieve extendibility, SKF

must be capable of manufacturing the round, high precision

recording heads that go inside a VCR, most of which are now

manufactured by Japanese firms.




RISKS OF IGNORING CORE COMPETENCIESRISKS OF IGNORING CORE COMPETENCIES

Opportunities for growth will be needlessly turned down.

As a company divisionalies and fractures into ever smaller

business units, competencies may become fragmented and

weakened.

The lack of core competence perspective can desensitize acompany to its growing dependence on outside suppliers of core

products.

A company focused only on end products may fail to invest

adequately in new core competencies that can propel growth in

the future.




RISKS OF IGNORING CORE COMPETENCIESRISKS OF IGNORING CORE COMPETENCIESContd...Contd...

y A company that fails to understand the core competence

basis for competition in its industry may be surprised by

new entrants who rely on competencies developed in

other end markets.

y Companies insensitive to the issue of core competence

may unwittingly relinquish valuable skills when they

divest an under -performing business.




CORE COMPETENCE PERSPECTIVECORE COMPETENCE PERSPECTIVE

Identifying existing core competencies

Establishing a core competence acquisition agenda

Building core competencies

Deploying core competencies Protecting and defending core competence leadership




the collective learning of an organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies Hamel and Prahalad - The Core Competences of the Corporation HBR May-June 1990

Goldman Sachs - Relationship Management

Nomura - Deal Structuring for VC Investments

Ikea - Supplier Support

Honda - Engine Technology

What are Core Competences?




What Are the Characteristics of a CoreCapability / Competence?

Truly distinctive / unique to you

Hard to spot from outside

Value recognised internally

Enduring /sustainable

Widely understood Managed as an asset

Embodied / exploited in multiple products / services

A combination of processes,

skills, systems, resources,licences, etc.

Difficult to copy

Essential to NPD

Fundamental to achieving organisational vision

Reflected in key strategic decisions

Architectural support

Reinforced through training /development

Monitored through performance measures

Continuously reviewed and

enhanced Envied by competitors and

benchmark organisations

Embodied in more than one person




Managing Core CompetencesManaging Core Competences --A Hierarchy of QuestionsA Hierarchy of Questions

What are our ambitions?

What is the strategy for fulfilling those ambitions?

What organisation level competences / skills are critical to strategic success?

Which of these competences do we already have?

What additional core competences will we need to develop?

How best can we exploit / leverage our competences?

Do our people fully understand the nature and importance of our core competences ?

Do we know and understand our competences - what are they based on and why are

we good at them?

How many of our competences are reliant on the expertise of a few key individuals?

How will we enhance, build or acquire our competences?

Do we have a real process in place for managing core competences ?




Core Competencies ExerciseCore Competencies Exercise

In groups

¼Select one company

¼From the outside, what do you perceive as the core

competencies?¼Why?

¼What are the elements that combine to create those core

competencies?




Back to the drawing board«Back to the drawing board«

Defining Strategic Intent

¼A long-term goal that is ambitious, builds upon and stretches firm¶s core

competencies, and draws from all levels of the organization.

Typically looks 10-20 years ahead, establishes clear milestones

Firm should identify resources and capabilities needed to close gap betweenstrategic intent and current position.




Concept of Strategic IntentConcept of Strategic Intent

A company exhibits strategic intent when

it relentlessly pursues an ambitious

strategic objective, concentrating the fullforce of its resources and competitive

actions on achieving that objective!




Characteristics of Strategic IntentCharacteristics of Strategic Intent

Indicates firm¶s intent to making quantum gains in

competing against key rivals and to establishing itself as a

winner in the marketplace, often against long odds

Involves establishing a grandiose performance target out

of proportion to immediate capabilities and market position

but then devoting a firm¶s full resources and energies to

achieving the target over time

Signals relentless commitment to

achieving a particular market position

and competitive standing




Test Your KnowledgeTest Your Knowledge

A company pursues strategic intent when

A. it pursues its strategic vision.

B. it crafts a strategy and proceeds to implement it.

C. it adopts a strategic plan and tries to execute it.

D. it sets objectives and pursues their achievement.

E. it relentlessly pursues an ambitious strategic objective

and concentrates its full resources and competitive

actions on achieving that objective.




Objectives Are Needed at All LevelsObjectives Are Needed at All Levels

The process is more top-down than bottom up

1. First, establish organization-wide objectives and

performance targets

2. Next, set business and

product line objectives

3. Then, establish functional and departmental objectives

4. I ndividual objectives are established last




Strategic IntentStrategic Intent

Challenges the traditional notions of strategy

Based on the observation that leading world

firms began with ambitions that were out of

proportion to their capabilities

They created an obsession with winning at all

levels of the organization and then sustainedthis obsession for 10 years or more

This obsession they called strategic

intent




Characteristics of Strategic IntentCharacteristics of Strategic Intent

Focuses attention on the essence of winning

Is stable over time

Sets a target that deserves personal effort and commitment

Leaves room for individual and team contributions

Sustains enthusiasm by providing new operational definitions as

situations change

Provides guidance and consistency to resource

allocations




ExamplesExamples

Canon

Honda

British Airways

CNN

³Beat Xerox´

³To be a second ³Ford´

³Become the world¶s favourite

airline´ ³To create a global news

network´




Other Examples of IntentOther Examples of Intent

Oracle:

³Enable the Information Age Through Network

Computing´

Business Objective

³Make Oracle an Essential Choice For Network

Computing´




Types of IntentTypes of Intent

Some firms combine both quantitative and qualitative

Common enemy: involve David vs. Goliath Thinking

Role model intent often suits up-and-coming firms

Internal transformation intent often suits

established firms




Mission, Vision, and IntentMission, Vision, and Intent

MISSION STATEMENT: Statement of the nature

and scope of the work to be performed

VISION STATEMENT: Statement of the ideal state

of the firm: describes the future and kind of firm it

will be if intent is being accomplished

VALUES STATEMENT: Explicit statement of theimportant values of the firm in key areas:

e.g. importance of customers, respect for employees

duties to suppliers, the environment,ethical standards




Vision StatementVision Statement

A statement of the ideal state

of the firm

Describes the future and the

kind of company the firm will be

Energizes and mobilizes

Shows what the firm will look

like if the intent is being

accomplished

Who is hired

Reputation

Product leadership

Work environment etc.

Documents

april 29 core competency