Describe the four criteria for an organisation’s core competence. Explain how core competencies can be identified and leveraged to develop strategies, Give example(s) to support your argument.
This essay starts by briefly describing how the term core competencies was established before looking at why it is necessary to identify core competencies within an organisation. The four criteria used to identify core competencies is discussed with an analysis of each followed by an overview of strategy. This provides the pretext to discuss the role of correctly identifying core competencies and why leveraging them in strategy development is important.
Formulating strategies is a cyclical process in which an internal analysis of an organisation plays a crucial part (Introduction: What is strategy? 2006:1). This analytical process involves taking a theoretical approach known as a resource-based view (Unit 3: 5) in which an organisation objectively looks at all its resources and capabilities to see how best they can give an organisation competitive advantage. Grant has established that an organisation’s resources can be tangible, intangible or human and that these can be matched to its capabilities to eventually provide competitive advantage (Grant, 2008: 131). This process of exploiting the unique combination of resources and capabilities has given rise to the term of core competencies which have been defined by Prahalad and Hamel (1990: 78-90) as the ability of an organisation to coordinate all its technologies and production skills in order to deliver its strategy. Identifying core competencies Core competencies are the building blocks on which organisations are able to strategise so it is vital to identify them correctly using four specific criteria (Segal-Horn, 2009: 169): 1) Does it provide significant value? 2) Does it allow to increase or dominate market share? 3) Is it difficult for competitors to imitate? 4) Does it provide competitive advantage? It is important to understand that these are not mutually exclusive categories therefore it is essential to meet all criteria in order to establish a core competency. Usually it is not possible for an organisation to have more than a handful of core competencies (Segal-Horn, 2008: 170). Value in this scenario is in terms of ‘perceived’ benefit to the end user of the product or service (Segal-Horn, 2009: 169). For instance, Vodafone became a leader in the world of mobile communications in the late nineties by providing value-adding services such as short message services and voicemail (Unit 1: 10) to their existing portfolio. The concept of value is equally applicable in not-for-profit organisations such as Crisis, a charity for single homeless individuals. One of its core competencies is achieved through its long establishment of over 40 years and its ability to provide services at a national level and this level of dedication is seen as a valuable asset. Organisations which have value-creating resources are at an advantage to those who do not, for example Vodafone who made heavy investments in their research and development to stay ahead of their competitors (Unit 1:9).
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