Strategic Management and Core Competence

0 Comment

Strategic Management and Business Policy 1. Explain the corporate strategy in different types of organization. A Well-formulated strategy is vital for growth and development of any organization—whether it is a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. Small business, for example, generally operates in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of strategic issue than in larger organizations.

Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing products and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his (her) wisdom gives direction to the company. In large businesses or companies—whether in the private sector, public sector or multinationals—the situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different.

For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plans for manufacturing the cars.

They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector.

The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations have multiple service objectives and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations.

The evaluation criteria also become different. 2. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? Management consultants can play very useful roles in the strategic planning process of a company. Consultants render services in different functional areas of management including the strategic planning and management process. In companies with no separate planning division or unit, consultants can fill that gap. They can undertake planning and strategy exercises or consultancies.

Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants like McKinsey & Company use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issues—be it productivity, cost efficiency, restructuring, long-term growth or diversification. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company.

This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different counties. There are also national consultants. Leading international consultants, in addition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play.

In many companies, a situation develops when the chief executive or the top management needs to bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the company. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is downsizing even when it is required for turning around a company. This happens particularly in public sector companies where implementing change is always difficult.

Consultants are engaged to support or substantiate the company’s point of view (in the form of their recommendations). 3. What is strategic audit? Explain its relevance to corporate strategy and corporate governance. According to Donaldson (1995). Strategic audit is a formal strategic-review process, which imposes its own discipline on both the board and the management very much like the financial audit process. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities.

To understand strategic audit in the correct perspective, one needs to analyze this in terms of its carious elements. 4. What is Corporate Social Responsibility (CSR)? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. Corporate social responsibility can be defined as the alignment of business operations with social values. The issues which involved in analysis of CSR are: Some feel that this is the most problematic issue in deciding company responsibility.

External stakeholders argue that internal that is, greater good of the external stakeholders. Many of them feel that issues like pollution, waster disposals, environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making. Internal stakeholders, on the other hand, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives and profitability. 5.

Distinguish between core competence, distinctive competence, strategic competence and threshold competence. Use examples. Competence is the ability to perform a task or achieve some objectives. Competence levels vary across organizations, and, also, within an organization from time to time. Difference in performance among companies in the same market and product category is, due to the difference in their competence levels. This happens because only some companies are able to demonstrate the competences demanded by particular competitive situations. This applies to a particular company also.

Just for survival, a company needs to possess a particular level of competence; but, for clear competitive advantage or sustained growth, a company would require a different level or type of competence. Four major types or levels of competence may be distinguished: a. Core competence of a company is one of its special or unique internal competence. Core competence is not just a single strength or skill or capability of a company; it is ‘interwoven resources, technology and skill’ or synergy culminating into a special or core competence. Core competence gives a company a clear competitive advantage over its competitors.

Sony has a core competence in miniaturization; Xerox’s core competence is in photocopying; Canon’s core competence lies in optics, imaging and laser control; Honda’s core competence is in engines(for cars and motorcycles); 3M’s core competence is in sticky tape technology; JVC’s in video tape technology; ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels. Hamel and Prahalad, two of the greatest exponents of core competence, argue in ‘The Core Competence of the Corporation’ (HBR, 1990) that the central building block of the corporate strategy is core competence.

Hamel and Prahalad defined core competence as the combination of individual technologies and production skills that underlie a company’s product lines. According to them, Sony’s core competence in manufacturing allows the company to make everything from the Sony walkman to video cameras to notebook computer. b. Distinctive competence is based on the assumption that there are different alternative ways to secure competitive advantage and not only special technical and production expertise as emphasized by core competence.

Distinctive competence includes core competence as one of the alternatives. But, there are other alternatives that are also based on organizational capabilities. So, distinctive competence is more broad based. Since resources are limited, identification of distinctive competence may also help efficient allocation of resources. For example, Reliance Industries has developed its distinctive competence in’ conceiving, implanting and managing large scale projects’ and mobilizing requisite resources for that. They do not think in core competence. c.

Strategic Competence coexists with, or supports, core competence and distinctive competence. Strategic competence is the competence level required to formulate, implement and produce results with a particular strategy, for example, to outwit competitors. Hindustan Unilever did this. In the mid- and the late 80s, they used their strategic competence to out manoevre Nirma (which was launched very aggressively) and re-establish their leadership in the detergent market. Strategic competence may also involve combination or convergence of different capabilities as in the case of Hindustan Unilever. d.

Threshold Competence is the competence level required just for survival in the market or business. The competence level of a company may be weaker than many of its competitors. Threshold competence may be adopted by No. 5 or No. 6 player in the market or those struggling to survive. Companies with threshold competence can, over time, graduate to a higher level of competence. But, continued threshold competence can also lead to closure of business. e. Multi-product or multi-SBU companies may often possess portfolio of competences. In some product or business, they may have core competence, but, not in all.

ITC’s core competence is in tobacco and cigarettes, but, they have distinctive competence in hospitality business and agri-business. Hindustan Unilever has distinctive competence and strategic competence in much business. But, they had been surviving with threshold competence in vanaspati business (Dalda) for some time, and finally they exited from that business. A conceptual portfolio of organizational competence consisting of core competence, distinctive competence, strategic competence and threshold competence is shown in below fig. Core Competence| | Distinctive Competence| Organizational Competence

Threshold Competence| | Strategic Competence| Portfolio of Organizational Competence 6. What is global industry? Explain with examples, international strategy, multi-domestic strategy, global strategy and transnational strategy. Competition in global industries poses a different kind of challenge because it cuts across national boundaries and, international or global forces come into play. These forces create, among others, two distinctive pressures: cost pressure because of global competition and, pressure for local responsiveness, that is, adaptation to local needs or values and consumer tastes and preferences.

For some products, cost pressure may be more: for some others, the need for local adaptation is more. Guided by these two factors and product type or structure, companies, which wish to compete globally, generally adopt one of the four strategies: International strategy, multi-domestic strategy, global strategy, and transnational strategy. Pressure for Local responsiveness Low High International Strategy Global Strategy| Multidomestic Strategy Transnational Strategy| Low

High Four Basic Global Competitive Strategies International strategy can be adopted for those products and services which are not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. International strategies are not very common or popular. Some examples are: Kellogg’s, Indian software, and Indian handicrafts. Multidomestic strategy is almost opposite of international strategy. Multidomestic strategy involves high degree of local responsiveness or local content.

Products are highly customized to suit local requirements or conditions. Because of high customization, cost pressure is less; cost effectiveness maybe also difficult to achieve because of lack of scale economies. Examples: Asian Paints (paints in general), Indian garments. Global strategy suits companies which make highly standardized sophisticated products, and, are in a position to reap benefits of economies of scale and experience effects. These also include high technology products which have universal applicability and hardly require any local adaptation.

Examples are: Intel, Motorola, Microsoft, Texas Instruments. Global retail chains like Walmart and <Marks & Spencer also come under this category. Transnational strategy is the most difficult strategy to follow because this is based on a combination of two apparently contradictory factors, i. e. , cost effectiveness and local adaptation. But, this may be a ‘true’ global strategy because, in global business, there is always a price pressure or cost pressure; and, also the need to make the product as close to a particular country’s expectation as possible to maximize value offerings.

In facts, many, including Bartlett and Ghoshal (1989), feel that the transnational strategy is the only viable competitive strategy in global business. Many companies are adopting this approach to become successful. Some good examples are: Caterpillar (taking on Komatsu and Hitachi), McDonald’s, Coca-Cola, Pepsi and Domino’s Pizza, Many multinational FMCG companies like Unilever and Procter & Gamble follow transnational strategies through their fully owned subsidiaries in different countries.

Leave a Reply

Your email address will not be published. Required fields are marked *