 Out of the four strategic models that we plan to discuss the first two of them that we covered in the previous sessions namely the answer of product grid matrix and portals the three generic strategies model the examples that I gave more or less were about organizations which had a strategy to make sure that the end product or the end service that they were offering was successful in terms of the value that it was delivering or in terms of the cost at which they were delivering the product or service or the focused market to which they were delivering that particular product or service was successful in essence these strategies were more aligned towards a single business which had in itself a single product or a service. Now I am just trying to slowly deviate from that business model for which those two strategies were aligned to a new thinking paradigm which introduces the third strategic model namely the core competency which is different from the first two models because it tries to provide a bigger picture a bigger picture that views strategy from a bird's eye view which does not limit the strategy just to be applicable for a single product or a single service but more towards an enabling mechanism which touches various products and various services and it is the ability of organizations to put in place such an enabling mechanism which has the abilities to result in a core product or a core service which finds its place embedded in an end product or an end service which may or may not be delivered by the same organization I will try to explain this further as we go but this is the essence that forms the fundamental basis behind the core competency strategy the core competence of the corporation as written in an article by a great management thought leader CK Prahlad and Gary Hamill in 1990 and this form the basis of the spirit of core competency it tries to identify this synergy that might emerge out of collective learning and coordination of various sets of skills behind a firm's product or service lines and when we are able to do that the core competencies then emerge as the sources of competitive advantage which can create a multiplier effect which multiplies the internal resources and as a result of this multiplier effect the firm can by itself introduce a series of new products or services or will be able to embed its product or services in an array of a range of products and services that are offered by other firms or other organizations but it is this particular firms product or service or the core competence the core competency in a firm that resulted in producing core products or core services which are embedded which are core to a different firms end product or end service that makes the key difference that is the central focus for a core competency so core competency is not about just a product or a service it is about how organizations can develop competencies within themselves that leads to development of various core products and by core products there is a difference between core product and end product that we need to understand core products are not directly sold to end users rather they form the essence of the end product or they are used to build a larger number of end user products for example if you take the semiconductor industry or more specifically the integrated circuits the IC industry. Now for TI that core competency is to as much as possible miniaturize and produce ICs with various functionalities and it is these ICs that get into various other end products in a PC or in consumer electronics or in photography or in videography in various such array of end products the core competence of TI or any leading IC manufacturing organization the core competency of such organization is their ability to make sure that it is their ICs with multiple functionalities and it is the capability of the organization to produce such core products which form the heart of the end product whose application is very diverse then we are talking about core competency. Now it is a corporation whose business units can tap into these few core products and their ability to develop a larger number of end user products themselves or make sure that these core products form the crux for end user products from other organizations and this forms the basis of core competency because it is the core product or a core technology or a core process remember it is not just about a product core competencies can also come out of a core process or a core service attitude or at times even the behavior of people within an organization can be a source of core competence so human resource skills within an organization can be a core competence which results in the formation of core services which ends which terminates into different end services delivered by different organizations and this is true if you can if you if you if you think about consulting companies so a very good mixture and aggregation of skills and competencies that can deliver a set of core products and core services which business units of a given corporation can use to build few end products and end services or the corporation by itself can ensure that these core products and core services are embedded as an integral part of an end product or end service delivered by different organizations so it is not just about a product or a service that we are talking about it is about developing core competencies within a corporation and if I give you this figure you will develop a better understanding of what I am trying to explain an organization a corporation can develop different competencies competency 1 2 3 4 as much as possible as much as it can and that each competence is able to deliver a core product or a core service and if we are talking about a corporate entity or a conglomerate that each business units of the conglomerate is able to tap on to these core products or core services and by themselves are able to deliver end products or end service or these core products or core services form an integral input into a business which can be outside the corporation and using these integral core products and services the organization by itself or a different organization is able to produce an array of end products or services but what is key in the core competency is that the root of the competitive advantage that firms get by delivering these end products or end services do not lie in the end product per se it rather lies in the competency to develop a core product whose value proposition is not restricted within a single product but is able to create a multiplier effect and hence finds this value proposition multiplied in an array of products now that that root of the competitive advantage that comes from the competence that organizations are able to build internally so it is more internal competence which forms the root of this competitive advantage and this is the essence of core competence now it is for organizations to leverage these core competency skills because you find that there is tremendous opportunity and these opportunities the intersection of various such market opportunities with various core competencies that an organization can build you can imagine that it is a matrix where you have different market opportunities and different core competencies and the intersection of these market opportunities and the core competence that forms the basis for launching new businesses and it is our ability to combine these different core competencies in different ways and match them with an emerging market opportunity results in launching an array of businesses or an array of business products and services now if we are not able to identify these core competencies and it is just that large corporations identify business units as individual business units then large corporations just remain as an aggregate of discrete business units and you never know that these discrete business units have individual core competencies and that corporations have missed trying to synergize and leverage these core competencies within individual businesses now the purpose of core competency exercise for larger corporations is to see how core competency is within individual businesses can be glued together so that the large corporation can be viewed as a portfolio of core competencies rather than individual discrete business units so if we need to develop a core competency it stems out from the integration of such unique skills or unique processes which can be from technology so the essence is to integrate as much as possible the multiple technologies are the coordination of diverse production skills in delivering certain set of competencies which form the basis of developing a core product or a core skill or a core service and it is worth an effort to do this exercise if and only if developing such core products or services provides access to a variety of markets outside and that it can contribute significantly to the end product because there is no point in developing a core competency and then the core competency is not very significant value addition when it embeds into the end product and thirdly it must be very difficult for competitors to imitate and it is by and large the experience has been that organizations that have developed this core competency framework have been successfully able to insulate itself from competition because the essence of building a core competency grid lies in the strength of organizations to ensure that it is very difficult for competition to imitate this core competency grid so these are the three if I can say these are the three prerequisites to build a core competency framework for an organization to just reiterate the key core competencies are those that enables the creation of new products and services and that it is able to make a significant value addition to the end user a significant contribution that is perceived by the end user to be of great value addition in essence it tries to identify and ask the question why is that the end user is willing to pay more or less for a particular product or service then the regular question what is the value for which the customer is paying and thirdly as I said before it is the uniqueness in building this core competency and that the uniqueness is so competitive that it should be very difficult for competitors to imitate now at times developing core competency need not be necessarily be expensive either it can be done through alliances or licensing licensing agreements which are low cost or an internal organizational restructuring whereby as I said before instead of viewing a corporation as discrete business entities if we are able to view a corporation and try to share a lot of competencies from different business units this can result in an effective utilization of those competencies and there is no additional cost to it we are not taking over we are not acquiring a new organization to develop core competencies it is just an internal restructure capable of sharing some of the competencies which otherwise we did not see because we did not view this through a core competency lens then we can build core competencies develop core competencies at no additional cost and at times organizations mistake core competency as just you know spending more on R and D to develop core competency or just integrate vertically or sharing cost across business units these are not tools to develop core competency at times organization mistake these as just tools for developing core competency and they end up doing these things actually a core competency is lost if we are integrating vertically or outsourcing them to a third party for example Chrysler versus Honda Honda has its own set of has its own competence to develop engines as against Chrysler which actually outsource this so when you give up this opportunity to establish competency by outsourcing it then you also give up the ability that can evolve within a business existing business to build a core product which can integrate into a multiple line of end products a classic example is when in the 1970s with the conventional CRT televisions a lot of losing popularity a lot of American television makers when came out of that business and now on hindsight they realize with the booming plasma and LCD television market had they stayed into that business develop a core competency in television making they would have come successful same as the case with Motorola they did not build a competency in the storage the DRAM business and said that beyond 256 kb they do not have the ability and did not want to enter into the higher end of this business and today on hindsight the very thought of or in fact they did it they gave up the opportunity to establish a core competency in this business and hence when the business evolved over a period of time today on hindsight they feel that they have missed though being experts themselves when they started off but they missed building these competencies so if you look at the chain of activities it is core competency is to develop and build a particular capability a particular functionality which results in a set of core products or one core product or a core service and the reason that it is core is because that it shapes the evolution of an end product and if we are able to build a number of such core products and able to shape the evolution of a number of such end products then the multiplier effect the success of building a core competency within an organization is multiplied and I will give you more examples for you to understand this it is the ability for core competencies to manifest themselves into one or more core products or services and that manifestation forms a very good link between the competencies and the end product and these core products the reason that they are core product is because they are the ones that actually create the value in the end product for example if you take for example 3M the core competency of 3M is its adhesives and coatings and then you find that it has been used as post-its as trans-dermal patches or in optical films now you find that they are in different product ranges in different business altogether but the core competency of 3M is in developing these adhesives and substrates the next example is Walt Disney the core competency of Walt Disney is to provide entertainment and it could be through direct motion pictures it could be through animatronics it could be through storytelling it could be through even theme parks but the manifestation of the core competency in this case being entertainment and if it is able to put in place a good mechanism that coordinates various skills in providing this entertainment as the core product which manifests itself in different end product namely movies or cartoons or good books then we are talking about core competency or black and decker the core competencies in developing small electric motas which we find being used in a number of applications or cannons laser printer systems or NECs semiconductors this is a classic example that Prahlad and Hamel uses in actually coining this term core competency how NEC versus the GTE how the transformation took place that it was able to build a competency in semiconductor and then revolutionized the consumer electronics market the telecom market the PC manufacturing industry not losing its core competency that it was a semiconductor manufacturing company or Honda whose core competency was to develop just gasoline power engines and powertrains and now you can understand that what I am trying to say is that the core competency means that organizations will tend to develop using a set of skills a set of processes a set of technologies to develop a product or a service so well that it is a core product or service which manifests itself and it is that core product or service that forms the key to add value in the end product or service and if we are able to develop a core product on service in such a way that the manifestation is so diverse then we have a successful core competency strategy in place and that is why you find that Honda's core competency if it is an engines then you find that it is its engines are in automobiles in motorcycles in lawnmowers in generators and whatnot so because of this diversity in manifestation then how do we measure whether the success of core competency because the core product or the service gets hidden in the end product or the service and it is this end product or service that gets sold that gets easily measured in this case actually the firm sell their core products to other firms and using them as the basis for end user products now traditional measures of brand market share is it enough to evaluate the success of core competency not enough because brand market share is usually a qualitative indicator and today we need to evaluate from a quantitative point of view so it is easy to develop a core product share as an appropriate quantitative metric because at times you never know that there are some organizations which have a very low brand share but a high core product share I do not know how many of you know this organization international flavors and fragrances now their core competency is to produce flavors and fragrances and it is these flavors and fragrances that actually forms the core of the end product or service in this case you find them in various dairy products various cakes and confectionaries in the in some of the beauty care products in some perfumes so but nobody knows that this has come from international flavors and fragrances it used to be called Bushbok and Allen so if we are going to measure core competency from brand market share despite the fact IFF being the single largest supplier of this core product to a variety of end product use confectionaries beauty products cakes dairy products but nobody knows this but if we are able to capture the content of the core product in the end product and see how much of this manifestation has been how much can we quantify this manifestation and this we call it as core product share and if the core product share is very high then it is reasonably safe to conclude that the core competency of a firm is this and that it has and the extent to which it has manifested measures the extent to which it has leveraged its core competency skills and once a firm has a successful core product it has to necessarily expand the extent to which this core product is being used so that it gains itself a cost advantage through economies of scale and also economies of scope because it can be used in different end products and services. So what do firms actually do by way of a core competency strategy it tries to reorganize a corporation into a portfolio of such core competencies rather than a portfolio of individual business units as I said before and that the role of business unit managers is to be to develop such company wide core competencies than to just focus on getting immediate end products that reaches the market rapidly and it is the role of a business manager again to ensure that these core competencies are shared across businesses just as every business has a cash allocation budget it is not enough just you are allocating cash for a particular business but if you are able to even allocate and distribute and share core competencies across businesses then you are trying to develop a core competency strategy and more importantly it has to be driven from the top management the reason that it is important is it can be captured from this figure that core competency serves as an important source for competitive advantage because here we are trying to identify different competencies within a firm and using these competencies we are able to provide a core product or a core service which does not end up as an end product but forms an integral part of an end product within a business of a corporation or an end product to another business and the extent to which that these core products and services are able to manifest themselves in different product ranges determines the extent to which we have leveraged the organization has leveraged core competency as an effective strategy so this imagery powerfully drives the message that the roots of competitive advantage can definitely come from building and number of core competencies within an organization which produces a set of core products and services which can be used by various business units and various organizations in delivering their end products and services so this is the essence of core competency of the fourth strategic model that I want to share with you is the blue ocean strategy we finish the answer of we finish the porters three generic strategies and Hamil and Prahlad's core competency the fourth one is about the blue ocean strategy now the blue ocean strategy is again based on a longitudinal a very long study that was done by two insiad business school professors they studied over 30 industries the behavior of over 30 industries over 100 years and studied various strategic moves that these 30 industries did in the last 100 years they studied almost 150 such over 150 such strategic moves and they found that there was a peculiarity the way in which some organizations competed in the market space traditionally we have always believed that companies have engaged in a head-to-head competition to gain competitive advantage and that they do this to gain market share and companies have competed against each other to get that unique value proposition they have competed and struggled to build a differentiation in the product and service that they are delivering but all of them invariably these head-on competition results in these professors own words a bloody red ocean because this competition is within a very defined market space and rivals fighting head-on against each other and the success of one is a failure of the other and you find that there is a shrinking profit pool and over a long period of time these professors asked a questions themselves whether such competition within this red ocean as they call it what is the likelihood that this is going to be sustainable and whether this is going to create profitable growth in the future definitely if there is competition within a very defined market space within restricted boundaries one company grows the other does not and such head-on competitions whether will it give a sustainable profitable growth in the future is a question that these professors wanted to answer and natural instinct is to say no it does not it does not it is very unlikely that this head-on competition within a defined market space is going to give a sustained profitable growth then is there an alternative this alternative forms the blue ocean strategy which is again the result of the behavior of over 30 industries and after analyzing the moves the strategic moves that these industries made Chan Kim Professor Chan Kim and Professor Mabon from the INSEAD Business School coined this new paradigm shift called the blue ocean strategy the fundamental to this blue ocean strategy is to think beyond the existing market space is to think beyond just the conventional competitive rivalry competition between X and Y to think beyond the existing industry in which companies corporate compete is there an alternate emerging industry is there an alternate emerging market space is there a way in which competition need not necessarily be with competitors are we trying to then say that this blue ocean strategy is about creating a new market space creating a new industry creating competition in which or creating a business in which competition is irrelevant actually yes blue ocean strategy is about trying to create a new industry space a new market space trying to make competition itself irrelevant and what it actually means how different organizations took strategic decisions that actually form the cornerstone of this blue ocean strategy and I will try to explain this with some examples for you to better understand and this I will do it in my next class but before I conclude this class again going back to core competency it is better I think it would be good for you to refresh by watching this small video on core competency thank you.