What is Competence ?
The capability of utilizing the resources in a harmonized way for attaining definite objectives is known as competence. Moreover, competence is associated with the processes and relations existing between the resources of an organisation, usually rooted in the definite organizational units, namely marketing sales production logistics, etc. Competency is a firm's ability to perform an activity in a better way. Competencies are developed by farm over time with practice and learning new experiences. It is important to note here, that the good performance of the firm cannot be attributed mainly to the assets as anyone can copy or buy them but the real secret lies in the way the resources are organized in order to create business competence.
For example, until the person is allowed to utilize his knowledge for the betterment of the organizational performance, his knowledge will not prove to be useful for the organisation Though a basic level of competence is desirable in all spheres of activities and procedures of the organisation, very few can become the core competencies of the organisation.
Types of Competencies
There are two main types of competency model, are as follows :
- Core Competence
- Distinctive Competence
When an activity that has been executed efficiently becomes the central point for the strategy, profitability and competitiveness of the company then that particular competence is called core competence. When a specific ability is exclusively or largely owned by a company, then it is called distinctive competency.
Core Competencies
The core competences are the abilities which help the business to attain the competitive edge over the rival firms. Firms in today's market scenario compete with each other to possess a specific capability in the same way a company tries to acquire market position and power. Since it is not possible for the top management to oversee every business activity and their related competencies, the top management should therefore concentrate on the competencies which would provide a competitive edge to the organisation.
Effects of synergy are represented in terms of competencies. Core competencies should not be static in nature; rather they should be somewhat dynamic and adaptable according to the changing environment and growing opportunities of the business. These competencies develop and emerge with the passage of time. Therefore, competencies should be flexible so that they can be modified as per the changing circumstances.
The organisation should have some strong and highly competitive advantages which would help the business in sustaining its market position over a long period. These strong and highly competitive advantages are based on some basic assets of the organisation, in the absence of which, it would not be easy for the organisation to achieve success in the long-run. Thus, the organisation should have some substantial strength which cannot be easily copied by the competitors, and which could help in developing new and improved competitive advantages. Only the organizations having the core strength could sustain in the long run. This basic and exclusive strength can be regarded as the organization's core competence.
Definition of Core Competence
According to Coyne, Hall and Clifford :
"Core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world-class standard".
According to Prahlad and Hamel :
"Core competence is the collective learning in an organisation, especially how to coordinate diverse production skills and integrate multiple streams of technologies".
The organizations can have core competencies which would be difficult for the competitors to imitate, These competencies may exist in different spheres of business such as technology, production, engineering proficiency, etc. Usually the technological competence helps the organisation to win the heart of their customers by providing them a number of superior products and services. A single core competence of the organisation can help it to come up with many new products and new growth avenues.
Features of Core Competencies
Following are the characteristics of core competencies :
1) Pervasive in Nature :
Core competencies are pervasive in nature. Though the consumers may not necessarily visualize these principles, yet these are very much prevalent for the management. The consumers know very well that Tata technology embedded produces good quality steel, but the and skills in producing it is in the very foundation of the company. If the competencies are pervasive, then they can be regarded as the core competencies. But at times, it is quite difficult to identify the core competencies, especially for those organizations that are not defined. Core competencies are prevalent in all the strategies implemented by the organisation.
2) Core Competencies should ensure Accessibility to Different Markets :
With the changing market scenario, the organizations should offer value in several markets. This means that the organisation should not depend on a single market, but should expand its business in different markets as per changing market conditions. This can be successfully done with the help of core competencies
3) Competencies should be Valuable :
The core competencies should be valuable in nature. The competencies which are valuable, usually generate value for consumers as well as reap the benefits from existing opportunities environment and minimize the threats that may affect the business.
For example, the firms that have research and development as a core competence continuously try to identify changing consumer needs that may act as opportunities and minimize the threats of obsolescence.
4) Core Competencies should be Rare :
Another important feature of core competencies is that they should be rare. It implies that very few competitors acquire similar competencies for completing a particular task.
5) Difficult to Imitate :
The core competencies should be difficult to imitate. Market competitors are always looking for ways to copy rates and valuable competencies of the leader firms.
For example, the core competencies of Apple are product innovation and superior quality that are very difficult to be imitated by the competitor firms.
6) Competencies must be Non-Substitutable :
If an organisation wants its core competencies to become competitive advantages, the competencies should be non-substitutable.
For example, for a customer care agency, a core competence may be to provide distinctive customer service. This core competence cannot be substituted with any benefit that makes it a non-substitutable competence.
Building Core Competence
There are two tools which help an organisation in identifying and building its core competencies. These tools are discussed below :
1) Sustainable Competitive Advantage :
Competitive advantage can provide success to the firm if it is sustainable in the long-run. The enduring competitive advantage is the one which the competitors cannot imitate. A sustainable competitive advantage is one that cannot be duplicated by the competition. In the absence of any competitive advantage, the target customers do not find any fair reason for trusting the services or goods provided by the company and hence the customers rely on the competitors.
For example, Woodland is a leading shoe brands which has sustainable advantage because of its focus on quality and durability. Some other examples of the leading brands with the sustainable competitive advantage are Titan (high-quality watches). Indigo airline (low price) and Vodafone (telecom services).
For a competitive advantage to be sustainable, it should qualify four basic criteria, i.e., valuable rare, difficult to imitate, and non-substitutable. In other words, the capabilities that meet all these criteria are the core competencies and hence are the sources of competitive advantages for the organizations. On the other hand, capabilities that do not meet these four criteria are not termed a core competencies.
2) Value Chain Analysis :
Value chain analysis (VCA) is a strategic tool which aids in the analysis of internal activities of the organisation. The VCA is carried out to identify the significant activities of the firm and the activities that can be improved so that more can be provided. Thus a close examination of the company's activities provides a clear picture about its strengths and weaknesses. It highlights the area(s) which should be emphasized upon to create a competitive advantage.
For example, in case a company is competing through the cost advantage, it would try to carry-out the internal activities at a lower price than its competitors. The company would be able to generate profits, if it is able to provide the goods at a lower price than the market or is able to produce better quality products.
According to Michael Porter, the activities of a business can be divided into following two categories :
i) Primary Activities :
Primary activities are the ones which directly help in creating and delivering the products. For example, component assembly.
ii) Secondary Activities :
Secondary activities are those which though are not directly concerned with the production process, but can help in improving the effectiveness or efficiency of the production system. For example, human resource management.
Distinctive Competencies/Competitiveness
A distinctive competence can be regarded as the exclusive gathering of the capabilities and rigidity acquired by an organisation over the years, which represents unique characteristic of the organisation. These competencies are developed by continuously accepting the commitments while adjusting the organizational policies as per the internal and external demands. These adjustments affect the organizations capability to formulate and implement preferred policies that too at a broad level. A distinctive competence cannot be regarded merely as a technique for achieving success, but also as a base for achieving company goodwill, staff loyalty, value. and reason for existence.
Distinctive competence can be defined as a competitive ability of a company to accomplish itself as an assorted entity among the competitors. Having a distinctive competence signifies that the organisation possesses superior and rare resources as compared to the competitors. At times, the firm may outperform in an activity which could become core competence. But only if the firm has the ability to perform a particular activity far better than the rivals in the industry, then only that ability can be termed as a distinctive competence. Therefore, it can be concluded that a distinctive competence represents a competitively superior source of strength.
For example, unlike Hyundai, Maruti Suzuki, Mahindra, Nissan, Chrysler, etc., Toyota has a distinctive competency in lean manufacturing. Competence, core competence, and distinctive competence are quite different from one another. Competencies are the factors that are necessary for the survival in market, as its absence can prove to be a major drawback for a firm. On the other side, core competencies are those abilities that add power to the strategy of the company as well as improve the market position and profitability of the firm. But, apart from all these, the concept of distinctive competence says that it is the ability that allows an organisation to represent unique, strong, and competitive advantage over the rival firms.
Elements of Distinctive Competence
Following are the five elements which mutually create a distinctive competence :
1) Knowledge and Requisite Technology :
The chain expertise decides the production and distribution of goods, i.e., proficiency in supply of raw materials, transformation of raw material into finished products, distribution of the final good, and finally the waste disposal. The organisation can acquire expertise in the combination of some of the areas such as research and development, design, distribution, production, retailing, after-sale services, waste management, etc.
2) Acquisition and Generation of Resources :
The organisation can obtain supplementary resources by the means of its value chain linkages, i.e., by going beyond its boundaries. Collaboration with third parties helps in expansion of its resources. An organisation should focus on maintaining healthy and strong relations with the external parties that go beyond economic and financial gains.
3) Dealing with New and Unanticipated Problems :
Capabilities are deeply rooted in the everyday activities of the organisation. But over dependence on the routine activities can lead to rigidity in business operations. This means the organisation might focus on carrying-out routine activities even though there is a need to formulate some new policies. The exploration for handling the unanticipated problems is also based on the routine activities.
4) Looking Toward the Future :
An organisation makes several adjustments according to the changes in the external environment. Every action that an organisation takes depends upon the ever changing environmental conditions. It is thus imperative that an organisation must plan for the future to ensure maximum utilization of the resources to achieve new objectives.
5) Positioning and Repositioning :
Managerial skills have to be positioned and re-positioned to ensure the definite success of a company. In order to attain success, it is of utmost importance. to have awareness about the competitive relations, concepts of inter-firm competition, and emerging trends in the social, technical, legal, economic, and political fields. For the purpose of positioning and repositioning, the company should be adaptable to the demands of the ever changing business scenario.
Methods of Building Distinctive Competence
Various factors influence the degree of distinctive competence possessed by the company. The distinctive competence is fundamentally developed for the purpose of outperforming the rivals in a specific area of operation. As different fields require different Critical Success Factors (CSFs), there are various methods that can be used for establishing distinctive competencies. Success or failure of a business activity depends on the CSFs. Some of the guidelines for building distinctive competence are :
1) Better Resource Allocation :
The foremost approach for the development of distinctive competence is the efficient allocation of limited resources for strengthening the specific areas of the business. In case the organisation has adopted approach similar to its competitors, it will not be able to acquire any competitive advantage. Hence, the focus should be on the areas with critical success factors so that the organisation is able to acquire a strategic advantage. Optimum use of the available resources could help the organisation to win the competition by focusing on the critical success factors, even if it has fewer resources in comparison to its competitors.
2) Establishing Relative Superiority :
Though the competition is not on the bases of critical success factors, yet the organizations can achieve competitive advantage by differentiating itself from its competitors. Here, the firm has two options. Firstly, the firm can focus on the sales territories, technology, etc., of the offering. which can in turn help in the promotion of the products, and secondly, it can focus on other differences in the composition of the resources and assets as it would help in bringing down the production cost.
3) Product Innovation :
Introducing innovation in products can help in establishing distinctive competence, which may result in producing some or all of the new product features. These new features would help in ensuring customers' satisfaction and market segmentation on the bases of new product features, new channels for distribution, etc.
This would help the organisation in catering to the needs of the customers that are not fully exploited by the rivals. Even the small-scale organizations that have adopted the approach of innovation, have created a distinctive competence through which they have empowered themselves to beat the large multinational and global companies.
4) Creating New Success Factors :
Distinctive competence can be built by innovating new critical success factors and eliminating the old and existing success factors which again depends upon the intensity of competition and maturity of the industry. In this situation, focusing on success factors of the competitors will not bring success, as the competitors have invested their efforts in those variables. Hence for achieving the success, new CSFs must be identified. This is evident in success quotient of the Reliance Industries Limited in the area of textile industry.