Core Competency and Strategic Advantage

By Dr.Ashvini RaviAssociate Dean – Academics

myBskool.comashvini@mybskool.com

Organisation resources + Organisation Behaviour

Synergistic Effects

Organisational Capability

CORE COMPETENCIES

STRATEGIC ADVANTAGE

S WO T

S W O T

SWOT UK - A CASE STUDY – SKODA In 1895 in Czechoslovakia,

two keen cyclists, Vaclav Laurin and Vaclav Klement, designed and produced their own bicycle.

Their business became Skoda in 1925

Skoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. 

Skoda overcame hard times over the next 65 years. These included war, economic depression and political change.

By 1990 the Czech management of Skoda was looking for a strong foreign partner. Volkswagen AG (VAG) was chosen

Volkswagen had a reputation for strength, quality and reliability. It is the largest car manufacturer in Europe providing an average of more than five million cars a year giving it a 12% share of the world car market.

Volkswagen AG comprises Volkswagen, Audi, Skoda, SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific character and is independent in the market

Brand Positioning Skoda UK”s management needed to assess its

brand positioning. Brand positioning means establishing a distinctive image for the brand compared to competing brands. Only then could it grow from being a small player.

To aid its decision-making, Skoda UK obtained market research data from internal and external strategic audits.

1. StrengthsThose potential factors inside the firm that make a firm more competitive than its direct competitors;

2. Weaknesses

Both potential limitations and defects inside an organisation and/or weak factors relative to direct competitors;

SKODA – Strengths

Skoda has been in the top five manufacturers in JD Power survey for the past 13 years

Top Gear survey voted Skoda the 'number 1 car maker'.  Skoda's Octavia model has also won the 2008 Auto Express Driver Power 'Best Car'.

Skoda concentrates on owner experience rather than on sales.

It has considered 'the human touch' from design through to sale.

Skoda knows that 98% of its drivers would recommend Skoda to a friend.

This is a clearly identifiable and quantifiable strength.

Skoda adopted a strategy focused on building cars that their owners would enjoy.

This is different from simply maximising sales of a product.

As a result, Skoda's biggest strength was the satisfaction of its customers.

This means the brand is associated with a quality product and happy customers.

SKODA – Weakness

Skoda has only 1.7% market share. This made it a very small player in the market for cars. 

Out-dated perceptions of the brand.

Had an image of poor vehicle quality, design, assembly and materials.

This poor perception also affected Skoda owners

For many people, car ownership is all about image.

If you are a Skoda driver, what do other people think?

Under Volkswagen AG ownership, Skoda changed this negative image.

Skoda cars were no longer seen as low-budget or low quality.  I

Research In 2006 showed that Skoda still had a weak and neutral image in the mid-market range it occupies, compared to other players in this area, for example, Ford, Peugeot and Renault.

This meant that, whilst the brand no longer had a poor image, it did not have a strong appeal either.

Perceptions

In the past , the company had sought to correct old perceptions and demonstrate what Skoda cars were not.

It realised it was now time to say what the brand does stand for

Skoda owners were known to be happy and contented with their cars.

Skoda cars were great to own and drive.

3. OpportunitiesThose future factors outside that allow the organisation to improve its relative competitive position;

4. TreatsThose future factors outside that reduce the firm's relative competitive position.

SKODA – Opportunities

Skoda noted that its

competitors' marketing

approaches focused on

the product itself.

• Audi emphasises the technology through its strapline, -'advantage through technology’

• BMW promotes 'the ultimate driving machine'.

Skoda UK discovered that its customers loved their cars more than owners of competitor brands

Helped Skoda to differentiate its product range.

Allowed it to develop a strategy to strengthen the brand and take advantage of the opportunities in the market.

It focused on its existing strengths and provided cars focused on the customer experience.

The focus on ‘Happy Skoda customers’ enables Skoda to differentiate the Skoda brand to make it stand out from the competition.

This is Skoda's unique selling proposition (USP) in the motor industry

SKODA – Threats

Threats come from outside of a business. These involve for example, a competitor launching cheaper products. A careful analysis of the nature, source and likelihood of these threats is a key part of the SWOT process.

The UK car market includes 50 different car makers selling 200 models. Within these there are over 2,000 model derivatives.

Skoda UK needed to ensure that its messages were powerful enough for customers to hear within such a crowded and competitive environment.

 If not, potential buyers would overlook Skoda.

This posed the threat of a further loss of market share.

Skoda needed a strong product range to compete in the UK and globally. 

In the UK the Skoda brand is represented by different car categories .

Each one is designed to appeal to different market segments.

• The Skoda Fabia is sold as a basic but quality 'city car‘

• The Skoda Superb offers a more luxurious, 'up-market' appeal

• The Skoda Octavia Estate provides a family with a fun drive but also a great big boot.

Pricing reflects the competitive nature of Skoda's market.

Each model range is priced to appeal to different groups within the mainstream car market.

The combination of a clear range with competitive pricing has overcome the threat of the crowded market.

Another of its threats was the need to respond to EU legal and environmental regulations.

Skoda responded by designing products that are environmentally friendly at every stage of their life cycle.

• Recycling as much as possible. Skoda parts are marked for quick and easy identification when the car is taken apart.

• Using the latest, most environmentally-friendly manufacturing technologies and facilities available.

• For instance, painting areas to protect against corrosion used lead-free, water based colours.

Designing processes to cut fuel consumption and emissions in petrol and diesel engines.

These use lighter parts making vehicles as aerodynamic as possible to use less energy.

Using technology to design cars with lower noise levels and improved sound quality.

Skoda UK's SWOT analysis revealed the

core competence of Skoda to be :

• Skoda car owners were happy about owning a Skoda

• The challenge was how to build on this and develop the brand so that it was a

CORE COMPETENCE

STRATEGIC ADVANTAGE

Skoda UK ‘s new marketing strategy based on the confident slogan,

‘The manufacturer of happy drivers'.

THE STRATEGIC ADVANTAGE

THE STRATEGIC ADVANTAGE The key messages for the campaign

•The 'happy' customer experience and appeal at an emotional rather than a practical level.

•The 'Fabia Cake' TV advert. This showed that the car was 'full of lovely stuff' with the happy music ('Favourite things') in the background.

Customers are able to book test drives and order brochures online.

An improved and redesigned website which is easy and fun to use.Meant for a young audience. It embodies the message 'experience the happiness of Skoda online'.

SKODA – Conclusion Skoda is a global brand offering a range of products

in a highly competitive and fragmented market.

 The company must respond positively to internal and external issues to avoid losing sales and market share.

A SWOT analysis brings order and structure to otherwise random information.  The SWOT model helps managers to look internally as well as externally. 

SWOT , Core competence and the Strategic Advantage The information derived from the SWOT analysis

provides the Core competence and the Competitive Advantage.

It highlights the key internal weaknesses in a business, it focuses on strengths and it alerts managers to opportunities and threats.

Skoda was able to identify where it had strengths to create a core competence and competitive advantage.

The structured review of internal and external factors helped transform Skoda UK's strategic direction by focusing on its Competitive Advantage

SKODA – Case study Summary Shows how Skoda UK transformed its brand

image in the eyes of potential customers and build its Strategic Advantage over rivals.

By developing a marketing strategy playing

on clearly identified strengths of customer happiness, Skoda was able to overcome weaknesses.

It turned its previously defensive position of the brand to a positive customer-focused experience.

Skoda UK

The various awards Skoda has won demonstrate how its communications are reaching customers.

Improved sales show that Skoda UK's new strategy has delivered benefits.

SWOT

The SWOT framework was first described in detail in the late 1960's

by Edmund P. Learned, C. Roland Christinsen, Kenneth Andrews, and William D. Guth

in Business Policy, Text and Cases (Irwin, 1969).

1. StrengthsThose potential factors inside the firm that make a firm more competitive than its direct competitors;

2. Weaknesses

Both potential limitations and defects inside in an organisation and/or weak factors relative to direct competitors;

3. Opportunitiesfuture factors outside that allow the organisation to improve its relative competitive position;

4. Threatsthose future factors outside that reduce the firm's relative competitive position.

Phase 1: Detect strategic issues

1. Identify external issues - factors that management cannot directly influence.2. Identify internal issues relevant to the firm's strategic position.3. Analyse and rank the external issues according to probability and impact.

4. List the key strategic issues factors inside or outside the organisation that significantly impact the long-term competitive position in the SWOT matrix.

The steps in the common three phase SWOT analysis process

Impact Likelihood matrix – O and T

High impact low probability meteor hitting the earth and destroying

mankind World war III or Z Attack by aliens

High impact high probability Global warming Depletion of fossil fuel Economic crisis Attack by virulent viruses( ebola, HIV)

Phase 2: Determine the strategy

Phase 2 – formulate and select strategy

5. Identify firm's strategic fit given its internal capabilities and external environment.

6. Formulate alternative strategies to address key issues.

Strategies that combine:a. internal strengths with external opportunities are the most ideal mix,

but require understanding how the internal strengths can support weaknesses in other areas;

b. internal weaknesses with opportunities

must be judged on investment effectiveness to determine if the gain is worth the effort to buy or develop the internal capability,

c. internal strengths with external threats demand knowing the worth of adapting the organisation to change the threat into opportunity;

d. internal weaknesses with threats create an organisation's worst-case scenario. Radical changes such as divestment are required.

9. Select an appropriate strategy.

Phase 3: Implement and monitor strategy

10. Develop action plan to implement strategy;11. Assign responsibilities and budgets;12. Monitor progress;13. Start review process from beginning.

Strength examples could include

Strengths would include:

A strong brand name. Customer loyalty Good Market share. Good reputation. Expertise and skill.

Weaknesses could include:

Low or no market share. Weak image No brand loyalty. Lack of experience.

Opportunities could include

A growing market. Weak competition Increased consumer spending. Selling internationally. Changes in society beneficial to your company

Threats could include Strong and heavy Competitors Cluttered market Government policy eg taxation, laws. Changes in society not beneficial to your

company

Which one of the following is a true definition of SWOT?:

Strengths, Wishes, Opportunities and Tests

Strengths, Weaknesses, Opportunities and Threats

Skills, Work-tasks, Openings and Tests

Strengths, Weaknesses, Organisation and Threats

2

Which one of the following is the true distinction between aspects of SWOT?: S and O are internal factors whereas W and T are external factors.

S and T are internal factors whereas W and O are external factors.

S and W are internal factors whereas O and T are external factors.

S, W and O are internal factors, whereas O is an external factor.

3

In an Organisational context, which two of the following are strengths? 1. New machinery or equipment2. Lack of computing expertise3. A new or developing market4. Competitors developing new products or services5. A new product or service6. Location of the business in respect to the market place7. Extra competitors in the main market area

1 & 5

In an Organisational context, which two of the following are weaknesses?

1. The location of a business in respect to the market place2. A big increase in labour costs3. An unstable workforce4. The possibility of cheaper raw materials5. Government grants offered for new market development6. ISO 9000 Quality' or 'Investors in People' accreditation7. A poor after-sales service record

3 & 7

In an Organisational context, which two of the following are Opportunities?

1. 'ISO 9000 Quality' or 'Investors in People' accreditationAA

2. A big increase in labour costs3. A poor reputation4. A poor after sales service record5. An unstable work force6. The possiblity of purchasing an effective competitor

7. The relaxation or abolition of international tariffs

6 & 7

In an Organisational context, which two of the following are Threats?

1. Competitors developing new products or services2. A big increase in labour costs3. New machinery or equipment.4. Lack of computing expertise5. An unstable work-force6. The possibility of purchasing an effective competitor7. A poor after sales service record

1 & 2

Which two of the following are an acceptable strategy to use after a SWOT analysis?

1. A focus on Opportunities to overcome Weaknesses2. A Focus on Strengths to take advantage of Opportunities3. A focus on Strengths be used to offset Threats that hinder achievement of objectives and pursuit of Opportunities5. A focus on overcoming Weaknesses to take advantage of Opportunities6. A Focus on overcoming Threats to offset the effects of Weaknesses7. A focus on Weaknesses to offset threats that hinder achievement of objectives and

2 & 3

When can SWOT analysis be used in a complex Planning process?

At the beginning and at the endAt the beginningAt the endAt any time during the process

4

Organisation resources + Organisation Behaviour

Synergistic Effects

Organisational Capability

CORE COMPETENCIES

STRATEGIC ADVANTAGE

S WO T

Organisational Resources

Tangible and Intangible Physical, Human and OrganisationalPhysical- Technology, Plant, access to raw

materialHuman – Training, experience….Organisational- Systems and structuresMere resources don’t make an organisation

capable

Organisational Behaviour

Usage of the resources Leadership, culture and climate, power,

values…. Hardware- resources Software- Behaviour Yin and Yang S & W

S & W

Strength is an inherent capability which can be used to give Strategic Advantage

Weakness is an inherent limitation which creates strategic disadvantage

Synergistic Effects- 2 + 2 = 5 (or 3 ?)

2 or more strengths – synergy2 or more weaknesses – DysergyEg – Samsung mobiles - good product range,

reasonable price , good promotion and good distribution

Ambassador – poor product range and substandard promotion

When conducting the SWOT Analysis of your company, you will end up with a list (preferably long) of strengths.

Some of these strengths are valid but may not provide any value to your customer.

The useful strengths that add value to your customer solution and showcases your capabilities better than those of your

competition are called core competencies.

Scenario Your product is far superior than your

competition's product; though a strength, it is not a core competency.

The competition can reverse engineer (copy) and improve your design to improve their value position in the market.

The competition may be in a reactive mode, but they will overcome that with their own core competency of rapid reverse engineering

what is your core competency? It could be innovation, better development

teams, better research to determine true customer needs, etc.

You have to really analyze your strengths to determine the root cause of your strength.

Likewise you can start to fend off the competition's core competency by making your product more "copy proof". If they have a difficult time reverse engineering your product, you have just neutralized their core competency of rapid reverse engineering.

Core Competencies

All S & W combine to give synergy and

manifests as Competency Competing with rivals

Also known as embedded knowledge

Can do something which others can’t Popularised by Prahlad and Hamel

3 tests of core competence

1. Provide potential access to a wide variety of markets

2. Should make a significant contribution to the percieved customer benefits

3. Should be difficult for competitors to imitate

Eg of Core Competencies

optics, imaging miniaturisation Stick tape engines project management Design and technology Online product search Strong reputation One stop shop for IT consulting

Eg of Core Competencies

Canon- optics, imaging Sony – miniaturisation 3M- Stick tape Honda – engines Reliance – project management Apple - Design and technology Amazon- Online product search Tatas- Strong reputation Infosys- One stop shop for IT consulting

Some questions to ask when analyzing (not compiling) your core competence

What are some advantages created by a strength or combination of strengths?

What value do these strengths add to my product or service that is unique or difficult to imitate by the competition?

Which of the four elements of marketing strategy (product, price, promotion and placement) or what combination of the four elements is driving a perceived customer benefit?

What are the main contributors to that element? Does the customer value the strength or

combination of strengths in the form of repurchase, loyalty, positive word of mouth, paying more or going out of their way to buy your product?

Conclusion SWOT to identify the important strengths

Important Strengths become Core Competencies

Core competencies can be leveraged

for Strategic Advantage