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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.´
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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
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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
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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
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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
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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
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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
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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?
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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?
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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
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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 ?
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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?
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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.
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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!
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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
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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.
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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
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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
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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
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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´
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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´
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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
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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
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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.