Entrepreneurial approach of Cost Management with reference to core competencies28th February 2021
Core competencies are the resources and capabilities that comprise the strategic advantages of a business. A modern management theory argues that a business must define, cultivate, and exploit its core competencies in order to succeed against the competition.
Core competency is a unique skill or technology that creates distinct customer value. For instance, core competency of Federal express is logistics management. The organizational unique capabilities are mainly personified in the collective knowledge of people as well as the organizational system that influences the way the employees interact. As an organization grows, develops and adjusts to the new environment, so do its core competencies also adjust and change. Thus, core competencies are flexible and developing with time. They do not remain rigid and fixed. The organization can make maximum utilization of the given resources and relate them to new opportunities thrown by the environment.
A variation of the principle that has emerged in recent years recommends that job seekers focus on their personal core competencies in order to stand out from the crowd. These positive characteristics may be developed and listed on a resume. Some personal core competencies include analytical abilities, creative thinking, and problem resolution skills.
Resources and capabilities are the building blocks upon which an organization create and execute value-adding strategy so that an organization can earn reasonable returns and achieve strategic competitiveness.
Three conditions a business activity must meet in order to be a core competency:
- The activity must provide superior value or benefits to the consumer.
- It should be difficult for a competitor to replicate or imitate it.
- It should be rare.
Core functions lay emphasis on the nature of the business. At this stage the firm has to clearly identify its courses of actions with respect to strategy planning, research and development, and product development.
Customer Delivery Function:
This step emphasises more on value addition with various activities such as marketing, sales, manufacturing, quality assurance and control, sourcing, procurement, engineering and maintenance, customer service and technical support etc. Excellence in these activities can create a sort of competitive advantage for the firm if it could harness its resources intelligently than its competitors.
As the name suggests, to support the core activities of business some secondary activities are to be carried out which include IT, Finance and Accounting, HR management, General administration etc.
These activities will facilitate the performance of the core activities in a way that goals of the firm can be accomplished successfully without wasting limited resources. They will also help in synchronizing the different tasks which are to be carried out simultaneously to become cost leader.
Resources are inputs to a firm in the production process. These can be human, financial, technological, physical or organizational. The more unique, valuable and firm specialized the resources are, the more possibly the firm will have core competency. Resources should be used to build on the strengths and remove the firm’s weaknesses. Capabilities refer to organizational skills at integrating it’s team of resources so that they can be used more efficiently and effectively.
Organizational capabilities are generally a result of organizational system, processes and control mechanisms. These are intangible in nature. It might be that a firm has unique and valuable resources, but if it lacks the capability to utilize those resources productively and effectively, then the firm cannot create core competency. The organizational strategies may develop new resources and capabilities or it might make stronger the existing resources and capabilities, hence building the core competencies of the organization.
Core competencies help an organization to distinguish its products from it’s rivals as well as to reduce its costs than its competitors and thereby attain a competitive advantage. It helps in creating customer value. Also, core competencies help in creating and developing new goods and services. Core competencies decide the future of the organization. These decide the features and structure of global competitive organization. Core competencies give way to innovations. Using core competencies, new technologies can be developed. They ensure delivery of quality products and services to the clients.
Core Competency Theory
The core competency theory is the theory of strategy that prescribes actions to be taken by firms to achieve competitive advantage in the marketplace. The concept of core competency states that firms must play to their strengths or those areas or functions in which they have competencies. In addition, the theory also defines what forms a core competency and this is to do with it being not easy for competitors to imitate, it can be reused across the markets that the firm caters to and the products it makes, and it must add value to the end user or the consumers who get benefit from it. In other words, companies must orient their strategies to tap into the core competencies and the core competency is the fundamental basis for the value added by the firm.
Core Competencies and Strategy
The term core competency was coined by the leading management experts, CK Prahalad and Gary Hamel in an article in the famous Harvard Business Review. By providing a basis for firms to compete and achieve sustainable competitive advantage, Prahalad and Hamel pioneered the concept and laid the foundation for companies to follow in practice.
Some core competencies that firms might have include technical superiority, its customer relationship management, and processes that are vastly efficient. In other words, each firm has a specific area in which it does well relative to its competitors, this area of excellence can be reused by the firm in other markets and products, and finally, the area of strength adds value to the consumer. The implications for real world practice are that core competencies must be nurtured and the business model built around them instead of focusing too much on areas where the firm does not have competency. This is not to say that other competencies must be neglected or ignored. Rather, the idea behind the concept is that firms must leverage upon their core strengths and play to their advantages.