Focusing on.docx

7/27/2019 Focusing on.docx

1/10

Term paper report

On

Core competency

Business to Business

Submitted by,

A.Abhinav 121106,

C.Srikanth 122142

D.Aravind 121108

P.Vivek Reddy 123353

Ravi Prakash Pandey 121134

V.Thirumalesh 121359


2/10

Focusing on core competencies creates unique, integrated systems that reinforce fit among

the firms diverse production and technology skillsa systematic advantage the competitors

cannot copy discus

Core competency:

Core competency is a concept in management theory advocated by two business authors,

C.K. Prahalad and Gary Hamel and they give definition as "The Core Competence of the

Corporation", is lead to development of core products which further can be used to build many

products for end users.

Core competency is having excellent skills or technologies owned and controlled by thespecific company and it enables to provide a particular benefit or value to its customers.

Core competency may Assets (people, brand name), Tangible (Financial, Physical, HR,Organizational), Intangible (Technological, innovation, reputation).

Core competency may relationships with customers and suppliers, it also includesproduct development and it may through brand awareness and brand recognition.

Core competence is having the edge-over the competitors. Examples: Federal Expresson time delivery core competence is logistics management Motorolauntethered communication Core competence is wireless communication Walt Disney- animations core competency is animatronics and Show Design

Benefits of Core competency:

Enhances the company to get maximum market share It will helps in building the brand Increased perception in the customer mind Easy diversification Hard to imitate for Competitors

Core Products

Companies maintain the core products that serve as a link between the competencies and

end products. Core products increase value in the end products. Examples of firms and some of

their core products include:

Canon - laser printer subsystems Matsushita - VCR subsystems, compressors NEC - semiconductors Honda - gasoline powered engines

The core products are used to launch a variety of end products. For example, Honda uses

its engines in automobiles, motorcycles, lawn mowers, and portable generators.


3/10

Because firms may sell their core products to other firms that use them as the basis for

end user products, traditional measures of brand market share are insufficient for evaluating the

success of core competencies.

Once a firm has successful core products, it can expand the number of uses in order to

gain a cost advantage via economies of scale and economies of scope.

How core competencies creates uniqueness and integrated systems in business:

Core competency is company owned skill or technology that is not owned by itscompetitors through that company providing the additional value to the customers and

this additional value is not providing by the competitors, here it creates uniqueness in the

business or goods or services.

Hard to imitate:

The core competence may not practice or imitate by the other company due to lack ofparticular skill set or technology, it creates uniqueness from competitors.

Example: Google simplicity (only shows one search tab, only shows texts on the result)this work can do by anyone However, they cannot copy superior search algorithm, over

450,000 servers.

Here, Google created uniqueness by the superior search algorithm and it really hard toimitate the complex system.

Cost Leadership:

The term Cost Leadership Strategy is to offer goods or services at the lowest cost. Thechallenge is to earn a suitable profit for the company. Products are to be created at the

lowest cost in the industry.

Example: Wal-Mart providing low prices to its customers by having the core competencyin the supply chain management, here Wal-Mart created the uniqueness in low prices.

Federal Expressbenefit is on time deliveryby core competence of logisticsmanagement it is able to delivery on time.

Competitive advantage:

Core competency is competitive advantage of the particular company because that is notable to implement by its competitors.

Competitive advantage is created by using resources and capabilities to achieve either alower cost structure or a differentiated product. A firm positions itself in its industry

through its choice of low cost or differentiation. This decision is a central component of

the firm's competitive strategy.

Example: Samsungs top technology and aggressive marketing in cell phone industry itleads to top rank in global market.


4/10

Here, top technology and aggressive marketing is actively doing by the Samsung so itbecomes a competitive advantage for Samsung.

Differentiation Strategy:

core competency is a Competitor Differentiation, it creates a uniqueness by thiscapability

The Differentiation Strategy is to provide a variety of goods and services, or extrafeatures with different colors to consumers that competitors are not yet offering or they

are unable to offer that characteristics.

By providing having differentiation the company able to provide a unique product orservice that none of its competitors is able to offer.

Example: Honda created a power train it becomes a core competence at Honda and whichhas never been so at Fords.

Example: Dell which launched mass-customizations on computers to its customers. Itcreated Dell as a differentiator from their competitors and dell make its first product to be

the star of its sales.

Innovation Strategy

Innovation creates uniqueness in core comptency. The Innovation Strategy is to advancethe competitor by the introduction of completely new or better goods or services.

It requires new technology and more advanced information. New technology is hard touse by the start-up companies by this it is easily eliminate from the market.

It is harder for established companies to pursue this strategy because their productoffering has achieved market acceptance.

Example: Apple introduced of iPod personal music players, and iPad tablets, here Applecontinuously innovating new product which not offering by the competitors

If the competitors want to get more market share then the Apple, they must investheavily in their research and development department.

Example: Honda able to produce worlds best engines it provides customers with highlyvalued benefits of superior fuel economy, less noise and vibration.

Operational Effectiveness Strategy

The Operational Effectiveness is to perform internal business activities better thancompetitors, which means easy access, easy communication and etc.

Simply they are making the company easier or more pleasurable to do business with thanother market choices. It improves the characteristics of the company while lowering the

time it takes to get the products on the market with a great start.


5/10

Example: State Farm Insurance implemented this strategy by promoting their agents as"good neighbors" who actively help customers.

Extendibility:

A core competitive is truly core when it focuses the basis for entry into new productmarkets.

SKF, the worlds leading manufacturer of roller bearing has competencies in precisionengineering and making perfectly spherical devices.

In order to achieve extendibility, SKF must be capable of manufacturing the round, highprecision recording heads that go inside a VCR, most of which are now manufactured by

Japanese firms.

Value Creation

The company creates value by performing a series of activities that Porter identified asthe Value chain.

To achieve a competitive advantage, the firm must perform one or more value creatingactivities in a way that creates more overall value than do competitors.

Superior value is created through lower costs or superior benefits to the consumer. The core competency integrates the company Executives to leverage the future

challenges and opportunities of the business in order to restrict the competitor to enter

and capture more market as well as to be stay on top of the game companies must

emphasizes on the core competency.

Examples: Granules India Limited, which integrates the employees to maintain its corecompetency of paracetamo l0 % in the global market.

Core competencies integrate through the continuous improvements over the period oftime rather than a single large change.

According to Prahalad and Hamel, core competencies lead to the development of core

products. Core products are not directly sold to end users; rather, they are used to build a larger

number of end-user products.

For example, motors are a core product that can be used in wide array of end products.

The business units of the corporation each tap into the relatively few core products to develop a

larger number of end user products based on the core product technology. This flow from core

competencies to end products is shown in the following diagram:


6/10

Core Competencies to End Products

End Products

1 2 3 4 5 6 7 8 9 0 1 2

Business

1

Business

2

Business

3

Business

4

Core Product 1

Core Product 2

Competence

1

Competence

2

Competence

3

Competence

4

Developing Core Competencies and diversify:

According to Prahalad and Hamel, core competencies may arise from theintegration of multiple technologies and the coordination of diverse production

skills.

Examples: Sonys ability to miniaturize electronics.


7/10

Core competencies tend to monitor as well as recreates the integration andcoordinate with in the various groups in the organization.

Company may be able to hire a team of brilliant scientists in a particulartechnology, in doing so it does not automatically gain a core competence in that

technology.

It is the effective coordination among all the groups involved in bringing aproduct to market that result in a core competence.

It is not necessarily an expensive undertaking to develop core competencies. Themissing pieces of a core competency often can be acquired at a low cost through

alliances and licensing agreements.

In many cases an organizational design that facilitates sharing of competenciescan result in much more effective utilization of those competencies for little or no

additional cost.

To better understand how to develop core competencies, it is worthwhile tounderstand what they do not entail. According to Prahalad and Hamel, corecompetencies are not necessarily about:

outspending rivals on R&D sharing costs among business units integrating vertically

The Loss of Core Competencies

Cost-cutting moves sometimes destroy the ability to build core competencies. For

example, decentralization makes it more difficult to build core competencies becauseautonomous groups rely on outsourcing of critical tasks, and this outsourcing prevents the firm

from developing core competencies in those tasks since it no longer consolidates the know-how

that is spread throughout the company.

Failure to recognize core competencies may lead to decisions that result in their loss. For

example, in the 1970's many U.S. manufacturers divested themselves of their television

manufacturing businesses, reasoning that the industry was mature and that high quality, low cost

models were available from Far East manufacturers. In the process, they lost their core

competence in video, and this loss resulted in a handicap in the newer digital television industry.

Similarly, Motorola divested itself of its semiconductor DRAM business at 256Kb level,

and then was unable to enter the 1Mb market on its own. By recognizing its core competencies

and understanding the time required to build them or regain them, a company can make better

divestment decisions.


8/10

Implications for Corporate Management

Prahalad and Hamel suggest that a corporation should be organized into a portfolio of

core competencies rather than a portfolio of independent business units. Business unit managers

tend to focus on getting immediate end-products to market rapidly and usually do not feel

responsible for developing company-wide core competencies. Consequently, without the

incentive and direction from corporate management to do otherwise, strategic business units are

inclined to underinvest in the building of core competencies.

If a business unit does manage to develop its own core competencies over time, due to its

autonomy it may not share them with other business units. As a solution to this problem,

Prahalad and Hamel suggest that corporate managers should have the ability to allocate not only

cash but also core competencies among business units. Business units that lose key employees

for the sake of a corporate core competency should be recognized for their contribution.

Michael Porter identified two basic types of competitive advantage:

cost advantage differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as

competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of

competing products (differentiation advantage). Thus, a competitive advantage enables the firm

to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known aspositional advantages since they

describe the firm's position in the industry as a leader in either cost or differentiation.

A resource-based view emphasizes that a firm utilizes its resources and capabilities to

create a competitive advantage that ultimately results in superior value creation. The following

diagram combines the resource-based and positioning views to illustrate the concept of

competitive advantage:


9/10

A Model of Competitive Advantage

Resources

Distin

ctive

Competencies

Cost Advantage

or

Differentiation Advantage

Value

Creation

Capabilities

Resources and Capabilities

According to the resource-based view, in order to develop a competitive advantage the

firm must have resources and capabilities that are superior to those of its competitors. Without

this superiority, the competitors simply could replicate what the firm was doing and any

advantage quickly would disappear.

Resources are the firm-specific assets useful for creating a cost or differentiation

advantage and that few competitors can acquire easily. The following are some examples of such

resources:

Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm Brand equity


10/10

Capabilities refer to the firm's ability to utilize its resources effectively. An example of a

capability is the ability to bring a product to market faster than competitors. Such capabilities are

embedded in the routines of the organization and are not easily documented as procedures and

thus are difficult for competitors to replicate.

The firm's resources and capabilities together form its distinctive competencies. These

competencies enable innovation, efficiency, quality, and customer responsiveness, all of which

can be leveraged to create a cost advantage or a differentiation advantage.

VISION Focused, Stretch, Actionable

Position in Industry Understanding Profit

Drivers, Differentiation, cost,Mkt structure, Supply Chain

Leveraging Capabilities

Skills, Resources,Systems, Learning

Neutralisingcompetition

Comp capabilities,Nature of Comp game,Role of Partners

Focusing on.docx

Documents

Transcript of Focusing on.docx