Building core competencies

Indian companies need to identify and build core competencies
With each passing day, it is becoming increasingly clear that only organisations that have a clear vision of where they are going and how they are going to get there will succeed in the marketplace. One highly powerful and meaningful concept in strategic management that has changed the strategic landscape of many an organisation, the world over, is the concept of core competence.
In the simplest of words, core competence refers to a bundle of skills and technologies that enables an organisation to offer superior benefits to customers. In doing so, the organisation develops a competitive advantage that places it far ahead of its nearest competitors, and virtually builds for the organisation a market of its own. Since there are so many entry barriers for any new competitor, the organisation would march ahead with a variety of strategies to cement its position in the particular business segment it does its business in, and stay the undisputed market leader for a very long period of time.

The Impossibility of emulation
Core competencies take a long time to build and practise. But when practised over a long period of time, akin to the persistent consistency of a master batsman in modern cricket, the particular sets of skills that give rise to the particular core competency, make it impossible for any new competitor or even existing competitor to imitate or emulate. Once again, core competencies are part and parcel of a grand strategy born out of the vision of the founder.
A good example of such an organisation is the Chennai-based Sundram Fasteners Ltd. Its tool making capabilities are a clear core competence. While it takes 40 different tools to make a fastener, it has tools in multiples of lakhs, and these take years to make and specialise in usage. It is at least two-and-a-half times bigger than its nearest competitor.
Since it would take 15 years or more to build this tool-making competency, there is a clear entry barrier for any new potential competitor. And its existing competitors also find it difficult to match its present level of highly specialised skills. Similarly, it has excellent logistics management skills.
Since the organisation does have a very viable knowledge base, it becomes imperative for it to manage it effectively. One of the most important checkpoints for the management is a vital litmus test: the various core competencies should be widespread throughout the organisation. To this end, knowledge-transfer and the acquisition of new skill sets should be made very easy, and the organisation should actively and systematically facilitate this process.
In practice, this is never easy. Once managers know that they have a core competency, they will never be willing to share it with others or develop others to acquire such competencies. For example, if logistics management is a core competency, the intricacies of the supply chain, the regulatory environment management practices, the finer details of the movement of trucks loaded with the finished goods and so on, should be sets of skills that are embedded in the psyche of a very large number of people, and anyone in the organisation should have access to such knowledge. In the recent past, there have been many management experts who have questioned the logic of core competence on one main ground — would it be possible for an organisation like Hero Honda to stick to just one line of products, two-wheelers, and still be profitable for any length of time? What happens when there is saturation in the markets or the markets do not grow for whatever reason?
This kind of an argument is based on a very narrow interpretation of the concept of core competence. C.K. Prahalad has repeatedly emphasised that core competence does not mean that an organisation should be present in only one business; they should leverage competencies across multiple businesses. For example, ITC has a very wide-ranging knowledge of marketing cigarettes. The knowledge and skills of hundreds of its professional managers is now being used to grow its FMCG business. Its growth rate in the biscuit market is now very impressive, and it is taking both Britannia and Hindustan Lever Ltd head-on in several product segments of the FMCG market. Its rural marketing initiative — e-choupal — where the farmers are trained to use information technology to access the markets and eliminate middlemen has also successfully leveraged its marketing expertise.
The concept of core competence is a very intrinsically sound concept. It has enabled organisations like Ranbaxy Laboratories, ITC, Hindustan Lever, Wipro, Infosys Technolgies, Dr Reddy's Laboratories, Larsen and Toubro, and the Murugappa group, among others, to grow their businesses from strength to strength. However, these organisations have always been those that have systematically honed their HR practices and have enviable people processes that ensure continuity in acquiring core competencies.
The most important point is that it is impossible for any organisation to build core competencies in the short term. They take years to build. The vision, mission and values and beliefs of the organisation should be clearly defined and strictly adhered to. They should also be constantly and systematically communicated to all employees. This is extremely important. Once this is done, building core competencies will require tremendous amount of energy and time, in training and re-training people, making continual improvements, building databases where knowledge can be stored and retrieved and making core competencies embedded throughout the organisation.
Such a process is very much HR-oriented, and hence any organisation keen on building core competencies should have highly qualified and competent HR professionals who will contribute to the effective building of such people processes.
Short-sighted approaches to managerial excellence will not work anymore . It takes several years to build teams of extremely motivated and achievement-oriented managers. Investment in management development is a must. For example, the Tata group has an excellent cadre of managers, made possible through its highly-acclaimed Tata Administrative Service. Such managers have very good leadership qualities and it is possible for such managers to grow businesses with a highly natural entrepreneurial streak.
Positive influence
Such managers will have an infectious and positive influence on other managers who will learn from their experiences and marry their own expertise to create knowledge and skill bases for their organisation. The grand revival of Tata Motors is now a case study in many business schools. This is the stuff that great organisations with great core competencies are made of.
In the years to come, only organisations with several core competencies will succeed. It is an imperative, therefore, that Indian organisations are prepared for the long haul, and systematically invest in building core competencies. The process of identifying which core competencies to develop is a task in itself. Much would depend on the nature of the product(s), the position of competitors, present or potential growth of the market for each product, the possibility of the product(s) becoming obsolete and so on.
There is a general simple rule of thumb , which many Indian organisations now follow: are we number one or two in the market we operate in, be it manufacturing or services? Or, can we become number two based on our existing strengths? If the answer is yes, it is eminently possible to build core competencies. If it is no, it is wise to quit the particular business, even if the business is cyclical in nature and has the potential to grow when the economic growth is very good. For Indian organisations, the choice is clear — build core competencies and flourish or simple go under.

POSTED BY:-
SHWETA RANI
PGDM-3rd sem