Experience curve, core competence, SCA and

corporate strategyPresented byAkhila B MenonNeenu BabuSreeshma K S

Introduction

• Strategic management is the process of specifying the organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the policies and plans to achieve the organization's objectives

• Experience curve• Core competency• SCA(Sustainable competitive advantage)• Corporate strategy

Experience curve

• In 1960 management consultants at Boston and Consulting group observed this concept.

• It states that “ the more the experience a firm has in producing in a particular product, the lower it’s cost.”

• It has an important strategic implication ,if a firm is able to gain market share over its competitors , it can develop a cost advantage

• It implies the inverse relationship between the cumulative output and unit cost.• The experience curve is calculated as:

Cn = C1 n-

where Cn = cost of the nth unit

C1 = cost of the first unit

n = cumulative number of units

= elasticity of unit costs with respect to cumulative volume

Supporting evidence

Effects of experience curve

• Improved Productivity of Labour • Increased Specialization  • Innovation in Production Methods • Value Engineering and Fine Tuning • Balancing Production Line  

Core competence

• Term coined by C K Prahlad and Gary Hamel

Core competency is

• A bundle of skills integrated to make a company unique.

• The engine for new business development, underlying component of a company’s competitive advantage.

• Created from the coordination, integration and harmonization of diverse skills and multiple streams of technologies.

Identifying core competency

• core competency can identified by using three tests

Core product should• Provide access to a wide variety of markets,• Contribute significantly to the end-product

benefits, and• Be difficult for competitors to imitate.

Importance of core competence• Long term competitive advantage• Outsource all non core activities• Attribute value by the market

The loss of core competence

• Ways to losing the core competencies of a company

1. Get depends on outsourcing. Outsourcing may a good shortcut for a competitive product, but may ruin the core competencies to sustain product leadership.

2. Lack of forecasting the state of marketing3. Lack of a clear framework can make companies

forsake attractive opportunities4. Cost-cutting moves sometimes destroy the ability

to build core competence

Core product

• Core competencies manifest themselves in core products that serve as a link between the competencies and end products. Core products enable value creation in the end products

Core competenci

esCore

product End product

Examples

Ability to make miniature electronics

Strong brand and distinct

taste“secret” coke concentrate

Internet based productivity

tools

Portable music player

Coca cola

Google doc,mail,

searchengine, etc

walkman

Indexing technology and and large scale

hardware

competencies Core product End product

SCA

• Sustainable competitive advantage• SCA are company assests attributes or

ability that are difficult to duplicate or exceed, and provide a superior or favorable long term position over competitors.

Types and examples of SCA

• Low Cost Provider/ Low pricing • Market or Pricing Power• Powerful Brands• Strategic assets• Barriers to entry• Adapting Product Line• Product Differentiation• Strong Balance Sheet / Cash • Outstanding Management / People

Routes to gaining competitive advantage• Intensifying functional differentiation(key

factor of success)• Exploiting competitor’s weakness(relative

superiority)• Asking why –why?(aggressive initiatives)• Maximizing user benefit(strategic degree of

freedom)

Strategies of Competitive Advantage

Cost Leadership

• Similar product at a lower price

Differentiation

• Unique product at a higher price

Corporate strategy

• Decisions related to allocating resources among the different business of a firm, transferring resources from one set of business to others & nurturing a portfolio of business in such a way that the overall corporate objectives are achieved• Established at highest level of management• Decisions are long time horizon relate to

entire organization and direct financial investment

• What business an organization will be in

• How resources will be allocated amoung these business