Integral View of Core Competences and Core Processes in a Company

Content's

Abbreviations and Table of Figures

Abstract

1 Introduction

2 The core of a competence
2.1 Identification of strategic success factors
2.2 Business competence
2.3 The concept of core competencies

3 The core of a business process
3.1 Business process
3.2 Core business process
3.3 The concepts behind the core process

4 Translating the idea of core competencies into core processes
4.1 From strategy to operation
4.2 Organizational configuration to support core competence and core process
4.3 Managerial functions

5 Conclusion

Appendix

References

Word of honor

Abbreviations and Table of Figures

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Table of Figures

Figure 1: Core Competence Tree after Hamel and Prahalad Appendix

Figure2: Porter’s generic Value Chain Appendix

Figure 3: Core Process and traditional value chain Appendix

Figure 4: Strategic Fit Appendix

Figure 5: Balanced Scorecard after Kaplan and Norton Appendix

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.

1 Introduction

Successful companies rely on three types of competencies: superior technological know-how, 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, companies 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 through which it provides value-products and services to customers, value being the primary definer of a core activity.

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 Resource-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.

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: The level of end products which is overlaid by the second level, the core products and the third - basic competition level, the core competencies. The core products represent crucial parts of the end product. “They are the physical embodiment of core competencies.” (Hamel/Prahalad, 1990). To make this clearer an example would be the motor of a laser printer as the core product of the end product ‘laser printer’. The competitive ability regarding the core products is particularly important although it is not necessarily perceived by the end user. So for example Canon takes up a market share of 85 per cent as printer engine manufacturer and is supplier for other printer seller such as HP. However HP is seen as the dominant company on the laser printer market. The layer of core competencies reflects the abilities which are necessary to maintain an adequate competitive position for the core products. (Bea/Haas, 2001). Therefore, coming back to our example of printer manufacturers, HP spends millions of Dollars for development of new print heads, ink technology and print media, to increase competitive advantage by providing its customer higher print quality at lower cost.

The idea of core competencies not only helps focusing on the company’s essential activities but – the other way round – helps to identify those activities not belonging into the core business area. (Ephorie, 2004, online).

As a result it is unjustifiable that peripheral activities waste valuable resources.

In 1996 Hamel and Prahalad expanded their view and dealt in greater depth with the concept of core competencies. They state a core competence represents the totality of learning across individual skill sets and individual organizational units. Therefore, a core competence in its entirety is unlikely to be located in a single individual or small team. Hence it may not be easy to define the dividing line between a particular skill and the core competence to which it contributes.

Moreover, they add a rider to the three tests to identify a core competence, mentioned before: although a capability must be competitively unique to qualify as a core competence this does not mean that it must be uniquely held. But it needs to be substantially superior to competitors. (Harvey, 2004, online).

In practice, there are many possible types of core competencies, such as exceptional quality control, more know-how in low cost-manufacturing, unique ability to pick out good retail locations or expertise to integrate multiple technologies to create families of new products. (Core Competence and Strategic Intent, 2004, online).

3 The core of a business process

3.1 Business process

Stöckert and Stahlknecht describe a business process as a sequence of business related activities that strive for a certain result. According to Hammer an activity is defined as an operating unit, which is carried out by one person, who however does not generate value for a customer with this single performance. The entire business processes of a company together realize the business activity and put forth a benefit, say a product or service which is valuable for the customer.

The purpose of business processes is to offer each customer the right service in an efficient way, measurable in respect of costs, service and quality.

Business processes are aimed at running safely and therefore designed to achieve the same result with the same effort when repeated. Furthermore they should run profitable with preferable low costs, fast and efficient – not wasting too many resources.

A simple example for a business process is the order of books by a customer. In general, business processes are initiated by an internal or external customer and end with the take-over of the agreed issue by the customer. The proceeding might be as follows: Receipt of e-mail or fax with the order and forwarding to the ordering account à ordering data is keyed into computing system à verification of stock-keeping of ordered books à check-up of payment receipt à when the last too points are ok, the shipping department is briefed to deliver à the shipping dept. gets the book from stock, wraps it and mails it to the customer à lastly the shipping dept. marks the order as completed within the computing system.

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