Sunday, June 28, 2009
One of the most misunderstood management concepts is that of core competency. The following three features define a core competency:
- It is a source of competitive advantage
- It cannot be easily replicated by competitors
- It is applicable across a wide range of fields
The concept of core competency does not tell companies not t diversify. Instead, it gives companies a framework to aid in rational diversification. Several companies have used this concept to diversify meaningfully. Honda defined its core competency as its ability to make great engines and it has used this rationale to get into new businesses like generator sets, lawn mowers, outboard motors, etc. ITC has defined its core competency as its distribution reach and has used it to expand into other FMCGs like mints, salty snacks, biscuits, etc. 3M has defined its ability to innovate as its core competency and its product range is consequently mindboggling.
Several other companies have also expanded successfully by using other rationale to map out their growth. Reliance has used the concept of backward and forward integration. Telco has expanded their passenger car business to offset the cyclical risk they face in their business of commercial vehicles.
It is important to note that not all businesses need to have a core competency. It is not strange for a successful company to have no core competencies. Similarly, a given company may have more than one core competency.
‘Core competency’ does not say that you should stick to your original business and not expand. Instead the message is to find out:
- What is it that you do better than others that makes you successful in what you do
- In which other sector will it also help you to be successful
Now you have a valid reason to expand.
So Coco Cola is not an example of a company that is sticking to its core competency. At best it is an example of a company that either failed to identify its core competency or one that is cautious in its expansion plans.
Marketing myopia occurs when the marketers start concentrating on the product they are selling and forget about the customer needs they are serving. According to Levitt, sustained business growth depends on how broadly you define your business and how carefully you gauge your customer’s needs.
For example, all sellers of magnetic tapes were in trouble when music CDs came about and were able to serve the customer’s need for listening to music in the privacy of their homes in a better manner (Earlier, magnetic tapes had similarly displaced vinyl records). The firms which were better able to meet the challenge posed by CDs were those that made the transition early. Similarly, the new challenge for the same industry is from MP3 players and new digital music storage devices.
So, the prescription is that the company should define its business and their competition according to the customer needs it serves and not according to the product they currently sell. For example, Mercedes sells cars but the needs they cater to are varied, like mobility, comfort while travelling, convenience and status. So, the competition for Mercedes is not only from other carmakers but also from sellers of luxury goods like Rolex and Louis Vuitton.
Another important learning from this concept is that if you are unsuccessful in marketing your product then it means that in the perception of your customer, you are not able to serve her needs well. So, to ensure marketing success you have to tighten your product to ensure that you are able to better serve your customers’ needs than your competition. For, example when Lucky Goldstar’s first came to the Indian market, their consumer durables were unable to gain any significant market share. After revamping product features, introducing new models and upgrading its distribution system, LG (formerly Lucky Goldstar) became a market leader in several product categories.
Sometimes, companies have to take very drastic action. When Bajaj made the transition from scooters to motorcycles, it was still the number one seller of scooters in India but it recognized the changing customer preferences. The scooter manufacturers who failed to see the writing on the wall are still suffering.
Finally, it must be stressed that the concept of Marketing Myopia does not encourage diversification. It talks of shifting one’s focus from product to customer needs. That may or may not result in diversification.