prof.sushil\canada\session-v1 management policy and strategy session - v core competence and...

$: Prof.Sushil\Canada\Session-V1 MANAGEMENT POLICY AND STRATEGY SESSION - V Core Competence and Strategic Intent Prof. Sushil Department of Management Studies$
Prof.Sushil\Canada\Session-V 1

MANAGEMENT POLICY AND STRATEGY

SESSION - V

Core Competence and Strategic Intent

Prof. SushilDepartment of Management StudiesIndian Institute of Technology, Delhi

INDIAEmail: [email protected]


CORE COMPETENCE

• Core competence is a bundle of skills and technologies that enables a company to provide a particular benefit to customers’.

• For example, • A Sony – benefit is pocketability

– core competence is miniaturization• At Federal Express – benefit is on time delivery

– core competence is logistics management• At Motorola– benefit is untethered

communication– core competence is wireless communication.


TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTS

• Customer Value: Core competencies are the skills that enable a firm to deliver a fundamental customer benefit.

• Competitor Differentiation:A capability must also be competitively unique power trains is a core competence at Honda which has never been so at Ford/s.

Honda’s ability to produce some of the world’s best engines and power trains does provide customers with highly valued benefits of superior fuel economy, zippy acceleration, less noise and vibration.


TO BE CONSIDERED CORE COMPETENCE A SKILL MUST MEET THREE TESTS

Contd...

Extendibility: A core competitive is truly core when it focus the basis for

entry into new product markets.

SKF, the world’s leading manufacturer of roller bearing has competencies in antification, precision engineering and making perfectly spherical devices. In order to achieve extendibility, SKF must be capable of manufacturing the round, high precision recording heads that go inside a VCR, most of which are now manufactured by Japanese firms.


RISKS OF IGNORING CORE COMPETENCIES

• Opportunities for growth will be needlessly turned down.

• As a company divisionalies and fractures into ever smaller business units, competencies may become fragmented and weakened.

• The lack of core competence perspective can desensitize a company to its growing dependence on outside suppliers of core products.

• A company focused only on end products may fail to invest adequately in new core competencies that can propel growth in the future.


RISKS OF IGNORING CORE COMPETENCIESContd...

A company that fails to understand the core competence basis for competition in its industry may be surprised by new entrants who rely on competencies developed in other end markets.

Companies insensitive to the issue of core competence may unwittingly relinquish valuable skills when they divest an under-performing business.


CORE COMPETENCE PERSPECTIVE

• Identifying existing core competencies• Establishing a core competence

acquisition agenda• Building core competencies• Deploying core competencies• Protecting and defending core

competence leadership


ROYAL DUTCH/SHELL• Looked at every firm that had been around for

more than a century.• Found 40 firms from Europe, US and Japan some

having histories >200 years. The oldest was Stora of Sweden with a 700 years history.

• So what was common in the strategy of longest-enduring firms?

• Conservative in financing, leaving room to maneuver when the world changed in unpredictable ways.

• Top management active in society-inquisitive about the developments in a variety of fields.


ROYAL DUTCH/SHELLContd...

• A strong sense of identity and cohesion within the organisations. “Who are we?” - clear answer, even it company changed the core business.

• Stora - went from copper mining to chemicals to forestry to paper

• Great tolerance for experimentation at their margins - and tried neither to control more insist that all the probing be relevant to core business.


INTEGRAL VALUES

• As organizations cultivate the ability to change constantly how can the corporate ship be kept stable?– Through core values, which act as stabilizers when the sea

of change become turbulent.• Royal Dutch/Shell’s study of long lasting firms - All had a

strong sense of identity• James Collins and Jerry Porras study - “Built to Last”.

– Most respected high performing companies with another successful company in the same industry.

– Johnson and Johnson with Bristol-Myers Squibb – Merck with Pfizer– GE with Westing house– Sony with Kenwood– Procter and Gamble with Colgate– Hewlett-Packard with Texas Instruments– All the companies for at least 50 years in business


INTEGRAL VALUESContd….

– Focus of the research was not why the companies survived - but why the higher-performing company did better than its counterpart.

– Conclusion? - Leading firms had stronger and more enduring core values, The values didn’t appear just on a plague in the entrance hall but were what the organizations managed by.

Sony - To be a pioneer, not following others but doing what seems impossible

Motorola - Continuous self-renewalWal-Mart - Swimming upstream, against

conventional wisdom.


ENHANCING CORE VALUES

• A Relativistic strategy must reflect and reinforce core values, not try to change them

• Specific manifestations of the core values can and should be changed, but not the core values themselves.

• There is no such thing as corporate values - only the shared values of the individuals whom the corporation comprises

• Core values cannot be denied but transformed.Johnson & Johnson

Core value: The firm’s first responsibility is to all those who use its products.

• 1982 - Seven people in Chicago area took analgesic Tylenol and died within minutes. Somebody tempered and laced them with cyanide

• J&J immediately recalled every Tylenol capsule in US. Mounted an aggressive campaign to alert public.

• The estimated cost was $ 100 million


ENHANCING CORE VALUESContd...

• Organizational values feed into strategy development through the process of sharing, understanding and committing.

Tata• Late 1970s - Created a division• Management declared values to new workforce-Not just

maintaining high quality but providing work places where every individual would be treated with dignity and respect. No matter how serious the differences of opinion, they should be resolved by non violent, open and honest discussion.

• General Manager - Upbraided an employee - CEO• 1980s worker union - disrupted collective bargaining.• The values had stabalized Tata through the storm


GUIDED BY THE LIGHT - VISION

• Corporate vision provides the point of reference on the horizon, a becon of light.

• Components of vision– specify Aspiration, a unique long-term achievement that the organization

is striving for.– offer Inspiration, which acts as a supermagnet, pulling the organization

onward and upward through change.– Invite Perspiration, suggesting how the people in the organization can

bring that achievement closer everyday.

• Normally the focus is on the statement rather than on the vision.• The core values have to act as a foundation to every vision.Komatsu - Small is Beautiful• Japanese manufacture of earth-moving equipment• Main competitor was Caterpillar• Vision - “Encircle Caterpillar”


PRAGMATIC ROUTES TO A SHARED VISION

• TELLING: The CEO creates a vision and advises the organization to follow it.

• SELLING: The CEO believes in a vision and encourages the organization to follow it.

• TESTING: The CEO has some ideas about a vision and gets the organization’s reaction.

• CONSULTING: To put together a vision, the CEO gets creative input from the organization.

• CO-CREATING:Together, the CEO and the rest of the organization create a shared vision.


TIPS ON THE FIVE APPROACHES

Telling• Need during a crisis when top management pressured to

make dramatic change• Make it clear whether anything in the vision is negotiable.

Then let the organization fill in details.• If you provide all details, nothing left for others to contribute

Selling• Open channels of communication• Need to focus on what is important to people throughout

the organization• Need to show how it ties into what is important to you as

well.


TIPS ON THE FIVE APPROACHESContd...

Testing• Supply as much background material.• See which bits they support most, which least.• Do everything to improve quality of responses-ensuring anonymity

of feedback.• Don’t test only by questionnaires - face-to-face interviews

Consulting• If you know you don’t have all the answers yourself.• Set the ground rules for the visionary exercise, building the

safeguard against distortion.• Make sure someone collects anonymous written comments at the

end of each session.• If your organization is not prepared to coordinate the feedback of

flooded ideas testing is a better option.


TIPS ON THE FIVE APPROACHESContd...

Co-creating

• Everyone in the organization starts by creating own personal vision.

• Teams to articulate their sense of common purpose.

• Teams that are interdependent align visions.• The goal is alignment and compatibility not

uniformity• Combine to create a hierarchy to aligned visions.


VISIONS OF QUALITY

CadillacThe Mission of the Cadillac Motor Company is to engineer, produce, and market the world’s finest automobiles known for uncompromised levels of distinctiveness, comfort, convenience, and refined performance. Through its people, who are its strength, Cadillac will continuously improve the quality of its products and services to meet or exceed customer expectations and succeed as a profitable business.


VISIONS OF QUALITYContd…..

MotorolaDeduction to quality is a way of life at our company, so much so that it goes far beyond rhetorical slogans. Our ongoing program of continued improvement reaches out for change, refinement, and even revolution in our pursuit of quality excellence.It is the objective of Motorola, Inc., to produce and provide products and services of the highest quality. In its activities, Motorola will pursue goals aimed at the achievement of quality excellence. These results will be derived from the dedicated efforts of each employee in conjunction with supportive participation from management at all levels of the corporation.

ZytecZytec is a company that competes on value; is market driven; provides superior quality and service; builds strong relationships with its customers; and provides technical excellence in its products.


WHY ORGANISATION MISSION

Focus Human Effort in a Common Direction

Organization Not Pursuing Conflicting Purposes

Establishes Broad Areas of Job Responsibilities

Basis for Development of Organization Objectives


What is a Company Mission?

The fundamental purpose that sets a

firm apart from other firms of its type

and identifies the scope of its

operations in product and market terms.


MISSION STATEMENT

MAYTAG

• “To improve the quality of home life by designing, building, marketing and servicing the best appliances in the world.”

GILLETTE

• “We will invest in an master the key technologies vital to category success.”


MISSION STATEMENTS

• Arvind Mills “To achieve global dominance in select business built around our core competencies through continuous

product and technical innovations and customer orientation with a focus on cost-effectiveness.”

• Godrej Soaps “We shall operate in existing and new businesses which profitably capitalize on the Godrej

brand and our corporate image of reliability and integrity. Our objective is to delight our customers, both in India and abroad. We shall achieve this objective through continuous improvement in quality, cost as well as customer service.”

• Wipro “Be among the 10 most admired Indian corporations. Corporation And by 2000, have international operations/exports

contribute more than 50% of corporation profit after tax.”


Specifies basic product or service Specifies basic product or service

Identifies primary market to be served Identifies primary market to be served

Specifies principal technology for production or delivery

Specifies principal technology for production or delivery

Reflects company’s concern for survival Reflects company’s concern for survival

Reflects company’s philosophyReflects company’s philosophy

Identifies company’s self-conceptIdentifies company’s self-concept

Reflects company’s concern for public image Reflects company’s concern for public image

Key Components of a Mission Statement


Formulating a Mission: Indispensable Components

Indicates basic product or serviceAMAX’s principal products are molybdenum, coal, iron ore, copper, lead, zinc, petroleum and natural gas, potash, phosphates, nicke, tungsten, silver,

gold, and magnesium.

Specifies primary marketTo anticipate and meet market needs of farmers,

ranchers, and rural communities within North America. (CENEX)

Indicates principal technologyControl Data is the business of applying

microelectronics and computer technology in two general areas: computer-related hardware and computing enhancing services, which include

computation, information, education, and finance.


The company will conduct its operation prudently, and will provide the profits and growth which will assure Hoover’s ultimate success.

Formulating a Mission: Economic Goals

• Reflect firm’s intention to secure survival through growth and profitability

– A firm unable to survive is incapable of satisfying any of its stakeholders

– Profitability is the clearest indication of a firm’s ability to satisfy principal claims of employees and stockholders

– Growth is tied to firm’s survival and profitability


We believe human development to be the worthiest of the goals of civilization and independence to be the superior condition for nurturing growth in the capabilities of people. (Sun Company)

Formulating a Mission: Company Philosophy

Reflects basic beliefs, values, aspirations, and philosophical priorities to which strategic decision makers are committed


We are sensitive to our image with our customers and the business community. Commitments to customers are considered sacred, and we are upset with ourselves when we do not meet our commitments. We strive to demonstrate to the business world on a continuing basis that we are credible in describing the state of the corporation, and that we are well organized and in complete control of all things that determine the numbers. (Intel Corporation)

Formulating a Mission: Public Image

Reflects public’s expectations which makes achievement of firm’s goals more likely


Hoover Universal is a diversified, multi-industry corporation with strong

manufacturing capabilities, entrepreneurial policies, and

individual business unit autonomy.

Formulating a Mission: Self-Concept

• Characteristics– Based on management’s perception of how others

will respond to company– Directs behavior of people employed by company– Determined partly by response of others to company– Incorporated in mission statements communicated to

people inside and outside company


Trends in Mission Components

• New issues increasingly becoming integral parts of mission statements

– Sensitivity to consumer wants

• “The customer is our top priority!”

• Emphasis on extensive product safety programs

– Concern for quality

• “Quality is job one!”

• Emphasis on quality in manufacturing

• New philosophy - quality is the norm


IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF

EXCERPTS FROM ACTUAL CORPORATE MISSION STATEMENTS

1. Customer-market We believe our first responsibility is to the doctors, nurses, and patients, to mothers and all others who use our products and services, (Johnson & Johnson) To anticipate and meet market needs of farmers, ranchers, and rural

communities within North America. (CENEX)

2. Product-service AMAX’s principal products are molyb-denum, coal, iron ore, copper, lead, zinc, petroleum and natural gas, potash, phosphates, nickel, tungsten, silver, gold, and magnesium. (AMAX).

3. Geographic We are dedicated to the total success of domain Corning Glass Works as a worldwide

competitor. (Corning Glass).


IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF EXCERPTS

FROM ACTUAL CORPORATE MISSION STATEMENTS

Contd….4. Technology Control Data is the business of applying microelectronics microelectronics and computer technology in two general areas: computer-

related hardware and computing-enhancing services, which include computation, information, education, and finance, (Control Data)

5. Concern for In this respect, the company will conduct its Survival operation prudently, and will provide the profits

and growth which will assure Hoover’s ultimate success. (Hoover Universal)

6. Philosophy We are committed to improve health care throughout the world. (Baxter Travenol) We

believe human development to be the worthiest of the goals of civilization and independence to be the superior condition for nurturing growth in the capabilities of people. (Sun Company)


IDENTIFYING MISSION STATEMENT COMPONENTS: A COMPILATION OF EXCERPTS FROM ACTUAL

CORPORATE MISSION STATEMENTS

Contd….7. Self-concept Hoover Universal is a diversified, multi-

industry corporation with strong manufacturing capabilities, entrepreneurial policies, and individual business unit autonomy. (Hoover Universal)

8. Concern for We are responsible to the communities in Society which we live image and work and to the

world community as well (Johnson & Johnson) Also, we must be responsive to the broader

concerns of the public, including especially the general desire for improvement in the quality of life, equal opportunity for all, and the constructive use of natural resources. (Sun Company)


ORGANIZATIONAL OBJECTIVES

• Target(s) Towards Which Organisation Directs Its Efforts

• Importance Guide in Decision Making Guide For Increasing Organisation Efficiency Guide For Performance Appraisal

• Types Short Run Long Run

• Hierarchy


CACI’S LONG-TERM OBJECTIVES, 1990-1997

• REVENUE

– Increase revenue range to $ 167- $176M or better in FY 90 (FY 90 bookings at $ 170M).

– FY 91: Revenue in the $193-$202M range; bookings at $195-$205M range.

– Increase company revenue 15-20 per cent per year steadily over next decade.

– Consistently increase revenues to $ 500 M per annum by 1997 or earlier. Steady manageable and consistent profitable growth.


CACI’S LONG-TERM OBJECTIVES, 1990-1997

• PROFITABILITY– Achieve four per cent NAT or better as an annual corporate

target for return on revenues, moving to five per cent CAT by mid-90s.

– Individual departments and divisions must target NAT percentage profits at 50-100 per cent above company levels (i.e., 6-8 per cent moving to 7.5 - 10 per cent)

• SHAREHOLDERS’ VALUE– Increase stock price (market value) to $ 20 per share or

better by 1997 (current share basis).


Types of Long-Term Objectives

Public Responsibility

Public Responsibility

ProfitabilityProfitability

ProductivityProductivity

Competitive Position

Competitive Position

Employee Development

Employee Development

Employee Relations

Employee Relations

Technological Leadership

Technological Leadership


OBJECTIVES - 3M

• To achieve 10% annual growth in earnings per share.

• To achieve 20-25% return on equity

• To achieve 27% return on capital employed


Criteria used in

preparing objectives

FlexibleAchievable

Understandable

Measurable

Acceptable

Suitable Motivating

Qualities of Long-Term Objectives


What is the Balanced Scorecard?

• Set of measures directly linked to a company’s strategy

• Includes four measures to evaluate a company’s performance

– Financial performance

– Customer knowledge

– Internal business processes

– Learning and growth


Financial“To succeed

financially, how should we appear to our shareholders?”

Financial“To succeed

financially, how should we appear to our shareholders?”

Learning and Growth“To achieve our vision, how will we sustain our ability to change and

improve?”

Learning and Growth“To achieve our vision, how will we sustain our ability to change and

improve?”

Customer

“To achieve our vision, how should we appear

to our customers?”

Customer

“To achieve our vision, how should we appear

to our customers?”

Internal Business Processes“To satisfy

our shareholders

and customers,

what business processes must we

excel at?”

Internal Business Processes“To satisfy

our shareholders

and customers,

what business processes must we

excel at?”

The Balanced Scorecard

Vision and Strategy


INDIAN INC. LEARNS COOPERATION

• Business Cooperation: When bitter business rivals get together to cooperate instead of competing

• Reason: Indian environment no longer supports survival of the fittest, even the biggest corporate giant to either gang up or give up.

• Modes• Common or garden variety of contract

manufacturing Ex: HM making engines for Ford or BMWs.



Contd….

• Co-marketing arrangement: Possessive pharma companies are willing to share their new drugs with rivals.

• Cross Branching: In cement sector allied companies plans to manufacture rival bands to take advantage to geography or technology(as rival steel companies for e-com)

• Joint Venture: Sony Ericsson JV for mobile phones to take on the might of market leader Nokia Wockhardt and Ranbaxy have come together to take on the American market.



Contd….

Analysis of Industries • Pharma

– Co-marketing --> Changing mindsets– Came in India last year when three majors GSK,

Ranbaxy and Cipla hands together for Ciprofloxacin by Ranbaxy



Contd….Pharma• It involves companies selling the same drug

under different brand names, unlike US where two or more firms sell the same brand. Leads to:– Economies of Scale to one firm– Ready make product to other firm– Similar cost to both the firms– No hassles from Government for the second firm

• Ex: Ranbaxy Co-market Cipla + GSK + Zydus Cadia

• Cipla alliance GSK + Nicholas Piramal• Nicholas Piramal + Avintis



Contd….

Firm A Firm B

Brand A Brand B

Immediate Distribution

Doctors andUsers

Tech. + New DrugShort Lead time

2-3 weeks High CompetitionExpensive SCM



Contd….Cement• Fragmented industry --> Consolidation --> Cross

Branding --> Slash in transport cost• Commodity Business --> Brand Building (Better

logistics management)Cross Branding • Rolling out cement from the other’s facility to

improve logistic management• Ex. Gujarat Ambuja + ACC and Grasim + L&T• Controlling 50% of the total capacity



Contd….Auto• Primarily Ford gets engine from South Africa,

Now from HMTelecom• Sony Ericsson JV• Ericsson: No. one Global player in Tele Infra and

owns fundamental tech• Sony: No. one Global player in Audio and Video• Strengths in product planning, design user

interface and other



Contd….Steel

• Sail+Tata Steel 50% Consumption Market• Selling Combined selling through

www.metaljunction.com• Production Sail: Not right slabs to roll

Tata Steel: Not right size• Technology working together to increase

the efficiency of Blast furnace



Contd….Problems

• Difficult to CB unless financial stake involved or weak and a strong player

• Not possible b/w two equally large entities• In CB both will gain on cost front• Cement being a branded quantity, it may beat

one brand by CB • One can gain more as compared to other party

prof.sushil\canada\session-v1 management policy and strategy session - v core competence and...

Documents

core competence basis

pocketability core competence

issue of core competence

core competitive

new core competencies

existing core competencies

time delivery core competence

company divisionalies