Core Incompetence - Indian Management - May 2009
-
Upload
souvik-ghosh -
Category
Documents
-
view
224 -
download
0
Transcript of Core Incompetence - Indian Management - May 2009
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 1/7
SUBIR SEN
With nearly two decades of economicliberalisation, we look back at one major
thought-provoking business idea that
generated enormous interest in industry
and academic circles. For the first time, Indian
organisations were not only facing 360-degree
global competition, but were also listening to a
series of lectures from global management gurus.
One of the dominant and at times all-pervasive
was the theory of ‘core competence’. Throughout
the last two decades, the Indian press has
frequently carried out business news about
organisations either deciding to hive off or entersome new business, citing the instance of core
competence. While there is nothing wrong about
some organisation restructuring its business
portfolio, which is surely its management’s
prerogative, but the frequent citing of the reason
of core competence to enter or exit a particular
business is quite unsettling. In fact, the frequency
of the use of the term would make any serious
follower of the subject rather uncomfortable. The
ease with which the term core competence is usedhas given rise to the connotation that it is
perhaps synonymous with the experience of the
organisation in that particular business. If it was
so, why did the world have to wait till the 1990s
for Prahalad and Hamel to put forward their
theory on core competence?
If focusing on a business that you know the
best is what success is all about — it was iden-
tified long ago bymany, including Peters andWa-
78 I N D I A N M A N A G E M E N T — M A Y 2 0 1 0
How Indian organisations can leveragethis tool to make their presence felt in theglobal market
S T R A T E G Y
CORE
INCOMPETENCE:IGNORE AND PERISH
CORE
INCOMPETENCE:IGNORE AND PERISH
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 2/7
terman as “stick to the knitting”. Are we then in-competent to untangle themastery that surrounds
this strategy?
Not a buzzwordIs it then that the concept of core competence is
grosslymisplacedwithmost Indian organisations?
It is certainlynot conventionalwisdomto prejudge
all such citations as misplaced views of core com-
petence. But then whyelse, almostinvariably, most
Indian organisations refer to core competence ei-therin terms of products or activities.Products and
activities in certain cases may surely represent a
core competence, but why is it always the case in
India?Why dowe not get to hearat least a fewIn-
dian organisations talking about more subtlecom-
petencies like miniaturisation competence of Sony,
optics, imaging and microprocessor controls in the
case of Canon, or Honda’s core competence in en-
gines and power trains? In case of all such Indian
TO SUBSCRIBE TO INDIAN MANAGEMENT-SMS ‘IMM’ TO 57007TO SUBSCRIBE TO INDIAN MANAGEMENT-SMS ‘IMM’ TO 57007 7I N D I A N M A N A G E M E N T — M A Y 2 0 1 0
S T R A T E G Y
REUT
Core competence isabout collective
learning in an
organisation on
how to coordinate
diverse production
skills, and integrate
multiple streams
of technologies
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 3/7
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 4/7
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 5/7
82 I N D I A N M A N A G E M E N T — M A Y 2 0 1 0 I N D I A N M A N A G E M E N T — F E B R U A R Y 2 0 1 0
ject stands tall as one of the greatest instances of
an Indian organisation in the process of building
a core competence.Appalled at the safety hazards
of two-wheelers, and the pathetic condition of In-
dian roads, Ratan Tata became obsessed with the
creation of a four-wheeler which was affordable
to an average middleclass Indian,yet sturdy enoughto ensure his safety. After some initial hiccups, he
was convinced that if the above opportunity had
to be converted to a global business opportunity,
some path breaking innovations had to be done.
Hisobsession andpassionfor the project made him
move from thegroup’s headquarters to a relatively
unknown affiliate — Engineering Research Cen-
tre (ERC) in Pune for the next few years. Such was
the extent of his clarity of thought that he knew
he hadto break theexisting price barrier radically,
if he had to recreate a new segment altogether. He
then set about with a price targetof delivering a car at the unimag-
inable price of $2,500, something
which stalwarts in Detroit and
Japan thought was impossible.
Strategic architectureAt a time when Maruti-800 comes
at a price of about $4,000 and in-
ternational car majors are scram-
blingtobuildcarsunder$10,000,for
Tata this was no mean task. The
strategicarchitecturewasthe biggest
bottleneck in this breakthrough. The core team atTata Motors initially experimented with a lot of in-
novative ideas likereplacingsteelwithengineering
plastics or reducing metal gauge to break the price
barrier. But Tata realised they needed to come out
with something path breaking to achieve this Her-
culean task. He refused to take “no” for an answer.
That’s when ‘the Nano’ had struck him. The word
“nanotechnology”, first coined byRichardFeynman
in 1959, took almost four decades to have come to
use. Nanotechnology broadly refersto a field of ap-
pliedscienceand technology whose unifyingtheme
is the control of matter at the sub-atomic or mole-cular scale to the order of 10-9, and the fabrication
of devices with critical dimensions that lie within
that size range.It is a highly multi-disciplinary ap-
proach, drawing from diverse streams such as ap-
plied physics, materials science, interface and col-
loid science, device physics, robotics, chemical en-
gineering, mechanical and electrical engineering.
Though from the outside theTata Nano looks little
different from a typical four-wheeler; use of nano-
technology at multiple levels led to 34 patents be-
ing filed anddelivering a car an even unimaginable
price.Around 25,000 cars have already been rolled-
out, leaving speculators and critics awe struck.
According to some recent reports, the Nano
project cannot besaid to benot facing a crisis.How-
ever, the current problems need not be considereda major setback for the projectas they are far more
in the nature of teething troubles visible in simi-
lar projects.
The critical testAuthors have applied three critical tests to iden-
tifycore competence in an organisation.First,core
competenceprovides potential accessto a wide va-
riety of markets. Competence in nano technology,
for example, mayenableTata Motorsto participate
in such diverse businesses as — artificial intelli-
gence and robotics, semi-conduc-tors and optoelectronic devices,
power transmission, etc. What
seems very interesting at this point
is that though these businesses
seem disparate in nature, at the
roots of an organisation, they are
highly coherent and consistent.Sec-
ond, corecompetenceshould make
significant contribution to theper-
ceived customer benefits of theend
product.Imagine thepride on a po-
tential 400-million middle-class
market that never imagined that they would beableto upgrade from two-wheeler to a four-wheeler.
Finally, core competence should be difficult for
others to imitate, and hence sustainable. A lot of
expressions of initial interest were raised by in-
dustry majors such as — Bajaj, Suzuki, Hyundai
and Renault after the press conference by Tata in
2008.However, a lot of the heat was already ebbed
out; perhaps untangling the causal ambiguity
proved to be an onerous task,as it involved a com-
plex harmonisation of diverse stream of technolo-
gies and production skills.
The entire scenario has taken a slightly differ-ent twist recently with some authors challenging
the efficacy of focus in the emerging market. They
have further argued that conglomeration is the
route to success for organisations operating in
emergingmarkets,andnot theonethroughcore com-
petence. They believe that as emerging markets
open up to global competition, organisations op-
erating in suchmarketsareincreasinglypressurised
to conform to theWestern practicesof scaling back
S T R A T E G Y
BUILDING CORECOMPETENCE
REVOLVES AROUNDOBSESSION, CLARITY
OF THOUGHTAND AN
ORGANISATION’SSTRATEGIC
ARCHITECTURE
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 6/7
8/8/2019 Core Incompetence - Indian Management - May 2009
http://slidepdf.com/reader/full/core-incompetence-indian-management-may-2009 7/7
scopeof theirbusiness activities.Their contending
logic is that conglomerate is the dinosaur of or-
ganisationaldesign, to unwieldy andslow to adapt
in today’s fast-changing business environment.
They observe that organisations in emerging mar-
kets face a different context altogether that is in-
stitutional voids: Buyersand sellers suffer fromse-
vere dearth of information, scarcity of technically
trained people, inefficient judicial systems, unre-
liable financial reporting mechanism, corruption
in bureaucracy, etc. In this context, organisations
are well suited to adopt the conglomeration route.
Organisations infact addvaluebyimitatingthefunc-
tions of several institutions that are taken for
granted in advanced economies by adopting this
route.Therefore,organisationsin emergingmarkets
need not ape strategies adopted by their Western
counterpartswithoutunderstanding itsbroad con-
textual setting and implications.However, our own
research indicates that factors that result in these
institutional voids are slowly atrophying in India
(by conservativeestimates which aredown to aboutone-third in thelast two decades).For instance,the
formationof CreditInformationBureauof India has
largely removed information bottlenecks that ex-
isted between the borrower’s credit information
and lending institutions.
Further, growing mobile and internet penetra-
tion, literacy rates, trained engineers and man-
agement graduates, newspaper circulations and
trading volumes in National Stock Exchange have
resulted in closing of these voids. With these in-
stitutional voids slowly atrophying,the value these
conglomerates addby having their presence in dis-parate businesses may be also saturating.
Therefore,an organisationin emerging markets
too cannot afford to ignore — core competence. If
they do, that will be at their own peril. IM
ABOUT THE AUTHOR
The author is a full-time faculty member of the ICFAI
Business School, Kolkata. He can be reached at
S T R A T E G Y
84 I N D I A N M A N A G E M E N T -- M A Y 2 0 1 0
Ratan Tata realised
the group needed
to come out with
something
path-breaking,
and the result was
the Tata Nano
Prahalad, C. K. and Hamel,G. (1990), “The CoreCompetence of theCorporation”,Harvard BusinessReview, 68(3): 79-93.
Peters,T andWaterman, R. (1982), “InSearchof Excellence: Lessons fromAmerica’sBest-RunCompanies”,Harper & Row.
Wernerfelt, B. (1984), “A Resource-BasedView of theFirm”, StrategicManagement Journal, 5: 171-180.
http://www.zyvex.com/nanotech/feynman.html/ dated30.03.10 (12:40 hours)
http://www.vicky.in/straightfrmtheheart/tata-motors-investigating-nano-fire-incident/ dated 30.03.10(12:40 hours)
Khanna,T. andPalepu, K. (1997), “WhyFocusedStrategiesmay bewrong for EmergingMarkets,”Harvard BusinessReview, 75(4): 45-50.
Sen,S. (2007), “EmergingMarkets,Market ImperfectionandBusinessGroups”,Conference PresentationatOperationalResearchas Competitive Edge, organizedbyOperations ResearchSociety of India(ORSI) andIIT- Kharagpur.
REFERENCES