What is core competency The core competency of the corporation Resources usage for sustained competitive advantage

1. Article Presentation: Set 2
Instructor: Dr. Gonca Günay & Dr. H. Pınar İmer
Prepared by: Murat Bigvava
Student № 20140901011
Kadir Has University
Social Sciences Institute / MBA Program
MBAD-504 Strategic Management

2. Article Presentation Content: Authors:
A. Core Competence: What does It Mean In Practice? Mansour Javidan
B. The Core Competence Of The Corporation C.K.Prahald and Gary Hamel
C. Firm Resources And Sustained Competitive Advantage Jay Barney
……………….. Conclusion of Each Article
……………….. Recommendations Of Each Article
……………….. Overall Conclusion of Article Set
……………….. Overall Recommendations Of Article Set

3. A. Core Competence: What does It Mean In Practice?
The Notion Of Increased attention of this article was caused by proposing mainly two contribution in
strategic management literature :
• New complementary approach to strategic planning
• Which provided tool for achieving better synergies in a multi-businesses corporations among its
various businesses units.
While much was investigated on what is core competency,
this article core competency is represented as a tool in
strategic management process and represents to
senior managers clear 8 steps on strategic advantage
to gain more core competency and capabilities.

4. Better Understanding by Comparison:
Traditional Approach
Usually, it starts from analysis of external
threats and opportunities
Analysis of: macro-environment,
stakeholders, industry, competitors and
trends
Then, company develops strategy with
existing resources and addresses threats and
opportunities.
Finally, sets up the implementation plan
through resource which are allocates and
company gradually moves through
according to the steps of plan.
New Approach
Prahald and Hamel, proposed the planners
not to start from outside-orientation search,
but inside. Meaning that, planners should
start from internal analysis and then examine
external environment.
Core Competence and Core Capabilities
needs to understand fully to successfully
exploit resources usage.
Basically, this study of thought called
“The Resource based View of the Firm”.
It advocates that firms own different types of
resources that need to be approached, as they
will result different strategies.

5. Such in-depth understanding can lead to a better match between external opportunities and internal
strengths because once the corporation knows its areas of strength, it can search the external
environment to identify possible ways of better exploiting those strengths.
Walt Disney’ s core competence in entertaining families has
directed it into a seemingly diverse set of businesses such as
amusement parks, hotels, video channels and movie studios.
Defining the Concept:
Core competence is a tool for investigating internal analysis.
Core Competency-” the collective learning in the organization, especially how to co-ordinate
diverse production skills and integrate multiple streams of technologies”.
As in case of Disney, many multi-business companies realize through integration process, the rise
of potential businesses, that called Strategic Business Unit (SBU).

6. Core Competency, Capabilities and Resources
Competencies
Core Competency
Resources
Capabilities
Increasing
Value Difficulty
The first step in eliciting a companies competencies is
universal understanding among all management levels, the
drivers-concepts: Core competence, Competencies,
Capabilities, Resources.
Figure 1. The competencies hierarchy
Resources- are the inputs of the organizations value chain. Resources categorized into 4 groups:
Physical(plant, equipment, location, assets); Human( manpower, management team, training process);
Organizational(culture, reputation); Some resources are Tangible(equipment) other Intangible(reputation).
Capabilities- refers to the companies ability to exploit its resources. They are Functionally based, as it represents the
process of transition from input to output.
Competencies- is a cross-functional integration and co-ordination of capabilities. It shows, integration between SBUs
functional capabilities.
Core Competence- Highest level of hierarchy, as a result of interaction between different SBUs competencies.

7. Core Competencies, Capabilities and Strategic Hierarchy
Strategic Hierarchy Competencies Hierarchy
Mission
Statement
Corporate
Strategy
Business
Strategy
Functional
Strategy
Competencies
Core Competency
Resources
Capabilities
Figure 2 shows how the hierarchy of competencies relates to
the hierarchy of strategies in a multi-business company.
In formulating business portfolio, senior managers should go
beyond identification the place where it want to be:
• They should conduct current and possible competencies.
• This will help them to asset the usage of resources more
effectively and efficiently.
• It will help to understand and stay stick with new
synergies that would be helpful, which also needs to be
filtered.

8. 8 steps:
1) To know how?
2) Is this know-how present in one function, one SBU, or across the corporation?
3) Are we any better than our competitors?
4) Does it matter?
5) How durable is our advantage?
6) What are the key changes taking place in the industry?
7) Given the key changes taking place in the industry
8) Where do we go from here?
By answering above questions, the 45 managers divided into 5-6 groups were asked to
participate in the study that would help in designing company's core competency's and
capabilities in systematic and methodical way.( US Natural Gas Pipeline Company,1995)

9. Defining Each Question-step:
1) To know how?- managers must identify what ever it is that their company performs very well. They
need to identify as many subcategorizes as possible for each skill set.
2) Is this know-how present in one function, one SBU, or across the corporation?- the purpose of this
question is to decide whether what the company does well is a Capability(functionally based),
Competency(SBU based), or a Core Competency(cross-SBU).
3) Are we any better than our competitors?- this question enables managers to discuss the corporations
capabilities and competencies in twofold context: First, to initiate the process of linking competencies to
competitive advantage. Second, is to prevent too much introspection by forcing decision makers to
consider the external environment.
4) Does it matter?- at this point its critical to distinguish two concepts: competitive advantage and core
competency that are closely related but not same, because a succefull competitive advantage is built on the
firms core competencies and competitive advantages.
5) How durable is our advantage?- in the stage of relative attractive position in the market, the higher
pressure on competitors, its time to remind managers that very few advantages last for a long time. The
aim is to prepare company for eventual challenge in the environment.
6) What are the key changes taking place in the industry?- the purpose of this question to ensure that
managers do not become too introspective, in a way that they need external analysis as well.
7) Given the key changes taking place in the industry- ensure a strategic and dynamic discussion of
competencies and capabilities, that help to allocate resources according to environment changes.
8) Where do we go from here?- at this stage, managers need to fully connect the competency exercise with
strategic planning process, specifically within time frame and resource used.

10. Conclusion: Recommendations:
The fundament base of this article is on systematic
and methodical analysis of its resources,
capabilities, and competencies.
Thereby, to help managers provide clear operational
definition of the important concepts.
Several steps need to be considered for companies:
• General consensus on meaning of these concepts.
• The process should be an integral part of the
company's strategic planning process, to match
external opportunities with internal resources.
• All line managers should be integrated in
enhancing in quality improvement of the
organization communication and collective
learning that will facilitate execution of strategic
plans.
The process outlined here is designed to help
companies optimally develop and exploit their
competencies and capabilities, but this process
requires meaningful organizational culture that
fosters the value of the organization. A culture that
brainstorms the decision making process, evaluate
learning outcomes and breaks internal boundaries
among the silos which exist in any firms structure.
Three criteria's in collaboration of among different
groups needs to be attached:
• A partnering mind-set
• A partnering skill-set
• A supportive organizational context
To sum up, an organization strives to implement
the hierarchy of competences is well advised to
ensure that the appropriate collaborative mind-set,
skill-set and organizational context are in place.

11. B. The Core Competence Of The Corporation
This article issues the time period within few decades earlier, when
managers were lacking to identify and cultivate and exploit the core
competency that made growth possible.
Once, the diversified corporation could simply point its business
units at particular end product markets and admonish them to
become world leaders. But with market boundaries changing ever
more quickly, targets are elusive and capture is at best temporary.
A few companies have proven themselves adept at inventing new
markets, quickly entering emerging markets, and dramatically
shifting patterns of customer choice in established markets. The
critical task for management is to create an organization capable of
infusing products with irresistible functionality or, better yet,
creating products that customers need but have not yet even
imagined.
From, 1970 to 1990 the Western perspective of building strong
products were in decline comparing with Japanese solutions that
were oriented more deeply and established more broadly, through
out enhanced organizational scale.

12. The problem in many Western companies is
not that their senior executives are any less
capable than those in Japan nor that Japanese
companies possess greater technical
capabilities. Instead, it is their adherence to a
concept of the corporation that unnecessarily
limits the ability of individual businesses to
fully exploit the deep reservoir of
technological capability that many American
and European companies possess.
The diversified corporation is a large tree. The
trunk and major limbs are core products, the
smaller branches are business units; the
leaves, flowers, and fruit are end products.
The root system that provides nourishment,
sustenance, and stability is the core
competence. You can miss the strength of
competitors by looking only at their end
products, in the same way you miss the
strength of a tree if you look only at its leaves.
(See the chart ‘‘Competencies: The Roots of
Competitiveness.’’)

13. Conclusion &
Recommendation:

14. C. Firm Resources And Sustained Competitive Advantage
Recent work has tended to focus primarily on analyzing a firm’s opportunities and threats in its
competitive environment.
Environmental model of competitive advantage put little emphasis on the impact of idiosyncratic firm
attributes on a firm’s competitive position.
• Assumption 1. firms within an industry(or a strategic group) are identical in terms of strategically
relevant resources and strategies
• Assumption 2. If resource heterogeneity develop in an industry or group, this heterogeneity will
be very short lived since resources are highly mobile (i.e. competitive factor market)
Resource-based view
• Assumption 1. Firms within an industry (or group) may be heterogeneous with respect to the
strategic resources
• Assumption 2.These resources may not be perfectly mobile across firms

15. This model is used to help organizations attain competitive advantage through internal analysis and
external analysis. Similar to SWOT analysis internal factors (the organization’s strengths and
weaknesses) and external factors (the organization’s opportunities and threats) affect competitive
advantage. After perform analysis in each of these areas, internal analysis and external analysis leads
to a corresponding analysis.
Understanding the bias:
Since 1960’s, a single organizing framework has been
used to structure much of strategic management research.
• Isolating a firm’s opportunities and threats(Porter
1980, 1985)
• Describing firm’s strengths and
weaknesses(Penrose 1959, and so on)
• Analyzing how theses are matched to choose
strategies

16. Defining key concept
Firm resources
• All assets, capabilities, organizational processes, firm
attributes, information knowledge, etc. controlled by a
firm that enable firm to conceive of or implement
strategies that improve its efficiency and effectiveness.
• Physical capital asset: technology, plant & equipment,
geographic location, access to raw material
• Human capital resources: training, experience, judgment,
intelligence, relationships, insight of individual
manager and workers
• Organizational capital resources: formal reporting
structure, formal and informal planning, controlling,
coordinating systems, as well as informal relations
among groups within a firm and between a firm and
those in its environment

17. Defining the concepts:
Competitive advantage
• Implementing a value creating strategy not simultaneously being implemented by any current or
potential competitors.
Sustained competitive advantage (SCA)
• In addition to above, when these other firms are unable to duplicate the benefits of this strategy.
• ‘Sustained’ does not refer to the period of calendar time, but what depends on the possibility of
competitive duplication.
• Theoretically, equilibrium definition (but empirically, long period of time)
• ‘Sustained” does not imply that it will “last forever.”
• “Schumpeterian shocks”, or structural revolutions in an industry redefine which of a firm’s attribute
are resources and which are not.

18. Competition with Homogeneous and Perfectly Mobile Resources
Firms cannot expect to obtain SCAs when strategic resources are evenly distributed across all competing
firms (homogeneous) and highly mobile.
It is not possible for any one firm to obtain a competitive advantage from first moving(first-mover
advantage) by definition
• The existence of first-mover means heterogeneous resources
It is not possible for any one firm to obtain a competitive advantage from Entry/Mobility barriers by
definition
• The existence of entry/mobile barriers means heterogeneous and immobile resources
Thus, in order to understand sources of SCA, it is necessary assumption that firms resources may be
heterogeneous and immobile.

19. Firm Resources and Sustained Competitive Advantage
In order for firm resources to hold the potential of
SCAs, a firm resource must have four attributes:
Valuable: Enable a firm to conceive of or
implement strategies that improve its efficiency
and effectiveness
Rare: Even if it is valuable, if it is possessed by
many firms, then each of these firms exploit that
resource in the same way, implementing same
strategy.
However, valuable but common resources help
ensure a firm’s survival.
Imperfectly Imitable: makes ‘sustained’
competitive resources: Unique historical condition,
Causal ambiguity, Social complexity: interpersonal
relations among managers in a firm, a firm’s
culture, a firm’s reputation among suppliers and
customers Substitutability: makes ‘sustained’
competitive recourses. Two forms: Similar or Very
different

20. Applying the Framework
Formal strategic planning is not likely to be a source of
SCAs by itself (since valuable but not rare and not
imitable)
• Informal strategy making process could be a source
of SCAs (valuable, rare, socially complex so
imperfectly imitable) if formal planning is not
substitute for informal strategy making.
Information Processing Systems may hold the potential
of SCAs (Relatively few firms creating close manager-
computer interface and Socially complex system)
• In spite of close substitute (a close knit, highly
experienced top management team) if that
substitute is rare and socially complex.
Positive Reputations may hold the potential of SCAs
(rare, depends on historical event, informal social
relations)
• If guarantee and long-term contract is not a
substitute for them

21. Conclusion:
In environmental model of competitive advantages, Social Welfare concerns
were abandoned in favor of the creation of imperfectly competitive industries.
• RBV suggest that strategic management research is consistent with
traditional social welfare concerns since a firm with resource advantages is
behaving in an efficient and effective manner.
• Efficiency rents VS monopoly rents
Unlike economic models of organizational phenomena, RBV suggest that
Organization Theory and Behavior may be a rich source of findings and
theories concerning SCAs
RBV emphasizes the importance of Firm Resource Endowments in creating
SCAs.
• Since implicit assumption in RBV is that managers are limited in their
ability to manipulate all the attributes and characteristics of their firms

22. Overall Conclusion of Article Set
Mission
Statement
Corporate
Strategy
Business
Strategy
Functional
Strategy
Competencies
Core
Competency
Resources
Capabilities
What is the Total Outcome of Co-Related Articles?

23. Core Competency
in relation of
Sustained
competitive
advantage
Outcome
differentiated by
Competitive
advantage
characteristics
Competencies
Strategically
use of
Resources and
Capabilities
The positioning as a strong,
favorable and unique sustained
competitive advantage company,
needs to profile these issues:
• A partnering mind-set
• A partnering skill-set
• A supportive organizational
context
• The process should be an
integral part of the company's
strategic planning process, to
match external opportunities
with internal resources
• The on-going process of
learning the from down till up
and vise-versa to conduct the
collection of collaborated
knowledge to build present and
future outstanding performance
in actual and potential areas that
would apply cohesion process of
birth new outcomes.

24. Thank You !
Any Questions?