Management Policy and Strategy Session - V Core Competence and Strategic Intent

MANAGEMENT POLICY AND
STRATEGY
SESSION - V
Core Competence and Strategic Intent
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
Prof.Sushil\Canada\Session-V 1
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.
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.
• 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.
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 COMPETENCIES
Contd...
 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/SHELL
Contd...
• 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 VALUES
Contd….
– 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-renewal
Wal-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 VALUES
Contd...
• 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.
Contd...
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.
Contd...
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
Cadillac
The 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 QUALITY
Contd…..
Motorola
Deduction 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.
Zytec
Zytec 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.”
Key Components of a Mission Statement
Specifies
Specifiesbasic
basicproduct
productor
orservice
service
Identifies
Identifiesprimary
primarymarket
markettotobe
beserved
served
Specifies
Specifiesprincipal
principaltechnology
technologyfor
forproduction
productionor
ordelivery
delivery
Reflects
Reflectscompany’s
company’sconcern
concernfor
forsurvival
survival
Reflects
Reflectscompany’s
company’sphilosophy
philosophy
Identifies
Identifiescompany’s
company’sself-concept
self-concept
Reflects
Reflectscompany’s
company’sconcern
concern for
forpublic
publicimageimage
Formulating a Mission: Indispensable
Components
Indicates basic product or service
AMAX’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 market

To anticipate and meet market needs of farmers, ranchers, and
rural communities within North America. (CENEX)
Indicates principal technology

Control 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.
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
The company will conduct its operation prudently, and will

provide the profits and growth which will assure
Hoover’s ultimate success.
Formulating a Mission: Company Philosophy
Reflects basic beliefs, values, aspirations, and

philosophical priorities to which strategic decision makers
are committed
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: Public Image
Reflects public’s expectations which makes achievement

of firm’s goals more likely
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: 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
Hoover Universal is a diversified, multi-industry

corporation with strong manufacturing
capabilities, entrepreneurial policies, and
individual business unit autonomy.
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 molybdenum,
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
Profitability
Profitability Employee
EmployeeDevelopment
Development
Productivity
Productivity Employee
EmployeeRelations
Relations
Technological
Technological
Competitive
CompetitivePosition
Position Leadership
Leadership
Public
PublicResponsibility
Responsibility
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
Qualities of Long-Term Objectives
Acceptable
Achievable Flexible
Criteria used
in preparing
Understandable objectives Measurable
Suitable Motivating
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
The Balanced Scorecard
Financial
Financial
“To
“Tosucceed
succeedfinancially,
financially,how
how
should
shouldwe
weappear
appeartotoour
our
shareholders?”
shareholders?”
Customer InternalBusiness
Internal Business
Customer Processes
“To Processes
“Toachieve
achieveour
our “Tosatisfy
“To satisfyour
our
vision,
vision,how
how Vision and Strategy
shareholdersand
shareholders and
should we appear
should we appear customers,what
what
to customers,
toour
our businessprocesses
business processes
customers?”
customers?” mustweweexcel
excelat?”
at?”
must
Learning
Learningand
andGrowth
Growth
“To
“Toachieve
achieveour
ourvision,
vision,how
howwill
will
we
wesustain
sustainour
ourability
abilityto
tochange
change
and
andimprove?”
improve?”
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….
Tech. + New Drug
Short Lead time
2-3 weeks Firm A Firm B
High Competition
Expensive SCM
Brand A Brand B
Doctors and
Immediate
Users
Distribution
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 HM
Telecom
• 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
• ProductionSail: 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

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MANAGEMENT POLICY AND

Core Competence and Strategic Intent

• Core competence is a bundle of skills and technologies that enables a

• Customer Value: Core competencies are the skills that enable a

 Extendibility: A core competitive is truly core

SKF, the world’s leading manufacturer of roller bearing has

 A company that fails to understand the core

 Companies insensitive to the issue of core

• Identifying existing core competencies

• A strong sense of identity and cohesion within the

• Organizational values feed into strategy development through the process of

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

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

• Everyone in the organization starts by creating own personal

 Focus Human Effort in a Common Direction

 Organization Not Pursuing Conflicting Purposes

 Establishes Broad Areas of Job Responsibilities

 Basis for Development of Organization Objectives

The fundamental purpose that sets a firm apart from

• “To improve the quality of home life by designing, building,

• “We will invest in an master the key technologies vital to

Specifies primary market

Indicates principal technology

The company will conduct its operation prudently, and will

Reflects basic beliefs, values, aspirations, and

We believe human development to be the worthiest of the

Reflects public’s expectations which makes achievement

Hoover Universal is a diversified, multi-industry

8. Concern for We are responsible to the communities in

• Target(s) Towards Which Organisation Directs Its Efforts

– Increase revenue range to $ 167- $176M or better in FY 90 (FY 90

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

• To achieve 20-25% return on equity

• To achieve 27% return on capital employed

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

• Business Cooperation: When bitter business rivals get

• Co-marketing arrangement: Possessive pharma companies

– Co-marketing --> Changing mindsets

• Sail+Tata Steel 50% Consumption Market

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

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