I am not a student of either business administration or management, but today I came across a small article which argued that core competence of a company is what drives it towards profitability.
What is core competence then? This theory was first given by C.K Prahlad and Gary Hamel, in their article titled “The Core Competence of the Corporation” published in Harvard Business Review. Core competence is a set of skills, or production techniques, that are unique to a company. For example, Honda’s core competence is their engines, Canon’s is their sensors.
What made me think was many Indian company’s diverse nature – how they are making profits in spite of being in diverse businesses?
Tata is involved from manufacturing salt to high end SUVs, it is involved in production of Tea to exporting softwares to providing telecommunication services. Mahindra has diversified from tractor manufacturing to software business. Wipro manufactures soaps and computers.
Aditya Birla group has interests in cement, realty and telecommunications.
I think it is this diversification which is making them profitable as they are well placed to meet diverse domestic demand, because I believe their ‘core competence’ is their ‘brand’ names which are household names in India.
Honda can not launch mobile network here in India, because people are used to associate it with bikes. Whereas if Tata launches Nano or Laptop, people will still buy them – because for them Tata itself a brand, not a distinct product.
If Kingfisher had not diversified, it would have built a larger empire in liquor business – its core competence. Or is it because of diversification that it is able to still survive even after grounding (almost) of its airlines?
Godrej is going places after it diversified into many businesses. Recently I read it made huge profits in realty.
I think core competency applies to only such businesses which have for long concentrated on single range of products, and that too in developed countries.
Well, I am confused. If any management student is reading this, I welcome you to clear my doubt.
Hi Vinay,
Let me try to write my understanding of core competency. (I do not claim I’m Mgmt student, hence I might be wrong
)
Core competency is something which is unique about that company ex;employees, production practices, technology etc.
Tata, Birla or Godrej’s are conglomerates having several companies under their one parent company. Each of these companies is unique in the way they work and each of these will have their own core competency. Ex: Tata Tea might claim they pick best of Assam tea plantations, TCs might claim they have world class technical professionals, Tata Capial might say they have tailor made financial instruments and so on. Having Tata brand will give them some boost, but still each Tata company has to work on their core competency and have competetive advantage over their rivals.
Today Honda might be just into bikes, but tomorrow they might start Honda Technologies and claim some competency. As you are aware Hero has broke up its ties with Honda and our general perception is they are into only bikes, but Hero has its own BPO company by name Hero BPO and claims ‘Our innovative teams, enterprising solutions, collaborative approach and long-term partnerships; is one which defferentiates them
Thanks,
Mallikarjun
Mallikarjun,
Thanks for the above info, I was not aware about some of the things you said above.
But, I still don’t understand what is the core competency of TATA or Birla – may be it is trust between them and customers.
I didn’t know HERO were into BPO too!!
Thanks for the comment
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Thanks Vinay, its my pleasure to read your blog which gives immense insight to current events…
I can safely say that core competency of TATA and Birla is their Diversification
Yes, HERO has its own BPO in Gurgaon SEZ (www.herobpo.com/)!!!
Thanks,
Mallikarjun
Thank u Mallikarjun