Integral View of Core Competences and Core Processes in a Company

Table of contents

  Abbreviations and Table of Figures  IV

  Abstract  1

1  Introduction  2

2  The core of a competence  3

2.1  Identification of strategic success factors  3

2.2  Business competence  4

2.3  The concept of core competencies  4

3  The core of a business process  7

3.1  Business process  7

3.2  Core business process  8

3.3  The concepts behind the core process  8

4  Translating the idea of core competencies into core  

  processes  11

4.1  From strategy to operation  11

4.2  Organizational configuration to support core competence and core process  

  12  

4.3  Managerial functions  16

5  Conclusion  19

  II  

Table of Contents

Appendix V   

  References  X

  Word of honor  XII

  III  

  Integral view of core competencies and core processes in a company  

  Abbreviations and Table of Figures  

  Abbreviations  

  CRM Customer Relationship Management  

  Dept. Department  

  HR Human Resources  

  IT Information Technology  

  TQM Total Quality Management  

  Table of Figures  

  Figure 1: Core Competence Tree after Hamel and Prahalad Appendix V  

  Figure2: Porter’s generic Value Chain Appendix VI  

  Figure 3: Core Process and traditional value chain Appendix VII  

  Figure 4: Strategic Fit Appendix VIII  

  Figure 5: Balanced Scorecard after Kaplan and Norton Appendix IX  

  IV  

Integral view of core competencies and core processes in a company

Abstract

This paper deals with the concepts of core competencies and core processes within the scope of business sciences. It will first give an overview of the classification of the concepts and will then move on explaining how these ideas are implemented within the company. The importance of professional skills is identified and examples will provide a more practical insight into the issue.

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Integral view of core competencies and core processes in a company

1 Introduction

Successful companies rely on three types of competencies: superior technological knowhow, reliable processes, and close external relationships. Therefore different approaches to develop each type of competence are needed. (Baveja, 1998).

The ideas regarding core competencies had probably been the first nameable progress within the field of strategic thinking since Michael Porter directed business management’s attention from market share to the chain of economic added value and business processes. Hamel and Prahalad (1990) then proposed to develop and add more fluency as well as flexibility to the strategy.

The ambition of identifying and applying core competencies and core processes of a company increased particularly during the 90s when Outsourcing became widespread practice. Companies were able to outsource almost every process – therefore it was important to know the central activity that only the company itself was able to fulfil. As these where sometimes only few, com panies had the possibility to completely evolve into a virtual organization. (Ephorie, 2004, online).

Companies’ competencies are seen as the engine for new business development. They may guide patterns of diversification and market entry.

It is vital a company harmonizes the individual technologies and production skills that comprise a core competence. As this is a very complex issue it is in need of a comprehensive pattern of internal coordination and learning.

The management should determine - in a cross-functional sense - what the company’s major activities are t hrough which it provides value-products and services to customers, value being the primary definer of a core activity.

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Integral view of core competencies and core processes in a company

2 The core of a competence

2.1 Identification of strategic success factors

Within the area of Strategic Management plenty of views can be found to research companies’ requirements in a fast changing environment. In order to analyze and identify strategic and critical success factors, two of them can be named: the Market-based view that goes back to Mason and Bain and the Resource-based view after Penrose. (Bea/Haas, 2001).

Whereas the Market-based view regards the company from the Outside-in-perspective and attributes the company’s success in dependence with its attraction in its industrial sector (Porter, 1998), the Resource-based view puts the Inside-out perspective to the fore and also deals with the so-called New Economy. According to the Resource-based view competitive advantages, say conditions that enable the company to operate in a more efficient way than its competitors and thus result in accruing benefits (Investorwords, 2004, online), are not only to be found externally but also within internal resources of a company, such as human capital. The steady success of a firm, corresponding to this view, depends on the quality of the company’s resources. Bea and Haas (2001) define these resources as strategic potentials which demonstrate storage of specific strengths that enable the company to position herself in a changing environment and thus secure long-term success. They distinguish between two varieties of the R esource-based view: the Knowledge-based view and the Concept of Core Competencies. The center stage of the latter takes not only one single resource but the aggregation of several resources to specific skills or core competencies.

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Integral view of core competencies and core processes in a company

2.2 Business competence

It is the competencies that distinguish companies and make them more or less successful within their environment. Having the right, suitable competencies protects the company from external selection, meaning it has a much greater chance of surviving. Organizational competencies have been developed through evolution and learning. A company holds a bundle of competencies, such as certain technologies, sound managerial techniques, efficient structure, information systems, policies or control systems. These competencies are embodied in the members of the organization. Variations – alternations - result from the organizational members’ new ideas. If a member of the organization leaves, he or she takes away competencies of the organization. The other way round a new member brings in his or her own abilities and competencies. (Bea/Göbel, 2002).

2.3 The concept of core competencies

Hamel and Prahalad first presented the idea of core competencies in 1990. They argued core competencies were the collective knowledge of an organization, especially concerning the coordination of diverse manufacturing techniques and the integration of multiple streams of technology. Core competencies imply communication, engagement and the willingness to overcome organizational barriers. They do not wear away. In contrast to by and by diminishing material assets core competencies accumulate with exertion. (Ephorie, 2004, online). The more a competence is used, the more refined and valuable it becomes. For example, Federal Express’s benefit is on time delivery and its core competence is logistics management. (Harvey, Professional Management Review, 2004, online). In order to identify a core competence Hamel and Prahalad suggested examining the following points which should at least apply:

• Offer of potential access to a variety of markets

• Significant contribution to the perceived customer benefit of the end product

• Very difficult or inimitable for competitors They saw the company as a tree, whose roots were created by the core competencies. Core products of the organization grew out of these roots that again carried different business units. Out of these business units the end products emerged (See Fig. 1). Bea and Haas subdivide the competition into three layers to clarify the meaning of the concept:

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