Core Competency

Core Competency Theory of Strategy

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.

Some Examples

If we take the examples from real world companies and evaluate their core competencies, we find that many firms have benefited from the application of this theory and that they have succeeded in attaining competitive advantage and sustainable strategic advantage. For instance, the core competencies of Walt Disney Corporation lie in its ability to animate and design its shows, the art of storytelling that has been perfected by the company, and the operation of its theme parks that is done in an efficient and productive manner. Hence, Walt Disney Corporation would be well advised to configure its strategy around these core competencies and build a business model that complements these competencies.

Closing Thoughts

The important aspect to be noted is that core competencies provide the companies with a framework wherein they can identify their core strengths and strategize accordingly. Of course, the identification and evaluation of core competencies must be done as accurately and reliably as possible since the divestment of non-core areas must not lead to the firm missing key areas of operation and competitive advantage. Finally, care must be taken when building the organizational edifice around the core competencies to avoid the situation where many or too few of the competencies are identified leading to redundancies or scarcity.

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Strategic Planning

Why Some Firms Do Not Do Strategic Planning

Many firms do not engage in strategic planning and some firms do strategic planning that is poor and ill conceived. Some of the reasons for this sorry state of affairs in these firms are listed below:

• The first and foremost reason for poor strategy is the lack of experience in strategic management which is due to the paucity of managers and executives with experience and the presence of those who do not understand strategic management.
• The next reason has to do with the poor reward structure in place where success goes unrewarded and failures are punished. Because of this “double whammy” of no recognition when things have gone right and blame game when things go wrong, managers are reluctant to engage in strategic management.
• Because an organization is always firefighting which means that is so embroiled in its internal problems, the top management does not have the time or the energy to engage in strategic management. This is often the case with many firms where the lack of coherence and control in organizational processes means that most of the time is spent on tackling problems rather than preempting problems or solving problems.
• Some firms view strategic planning and strategic management as a waste of time since they are under the impression that they can handle the longer-term imperatives by doing things that they have always done in a particular manner. This is the case with firms that have been in business for generations where the new leaders often think that “if it is not broke, do not fix it”. This mindset precludes them from approaching the future in a proactive manner instead of a reactive manner.
• Continuing in the same vein, many firms, especially those that have been successful see no point in formulating newer strategies since their position is comfortable and they are content with success. Success breeds arrogance as the case of Nokia, which went from market leader to the bottom in a few years time reminds us.
• With experience, many managers think that they can weather any storm because they “have been there, done that”. However, this attitude is counterproductive as planning for eventualities is necessary and formal models of strategy have to be drawn up since experience is not always the best guide. This is especially the case with the modern era where the advent of the digital age has changed the rules of the game.
  
  
  
  


• Perhaps one of the most important reasons why firms do not engage in strategic management is that they fear the “unknown”. What they forget is that precisely because of the unknown and the unpredictable; they have to plan in advance. Further, the managers might be uncertain of their abilities to learn new skills, of their aptitude with new systems, and their ability to take on new roles. This happens when organizational arteries are clogged because of inertia and a general sense of laziness and ostrich like mindsets.
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    Finally, the other important reason why firms and the managers within them do not engage in strategic management is the lack of consensus and differing ideas as to what a good strategy ought to be.