Strategy for Organizational Success and Profitability by Hamel and Prahalad - Article Example

? Hamel and Prahalad’s concept of Core Competence The concept of Core Competence, as examined by both C. K Prahalad and Gary Hamel is of critical in the wellbeing of any business enterprise or corporation. According to them, the most powerful way to exceed in competition with other businesses on a global scale is still not yet grasped by many companies/ businesses (Kahawatte, 2010, 4). During the 1980’s, the top executives were judged on their abilities in the restructuring, decentralization and streamlining of their corporations. In the 1990’s, the approach taken was different since they were judged squarely on their abilities to identifying, cultivating and also in the exploitation of the core competencies that in the long run were to enable and sustain growth of the business (Kahawatte, 2010, 5). Formerly, the diversification of the corporation would simply direct its business units towards particular end product markets and order them to become leading outlets of the business, but with the ever changing market boundaries, the targets proved to be to elusive with their sustained ‘capture’ limited. Only a few companies have been able to adapt to the ever changing dynamics and thus have been able to capture the existing markets through their inventing of new markets, their quick entry into new emerging markets and, more dramatically, in their shift in patterns on the selection of customers in the already established markets. Therefore, the critical task that various corporate management face, is the creation of an organization that is capable of infusing their different products and services with efficient and effective functional ability or improving their profiles with the creation of product and services that their customers need but have not yet envisioned (Grant, 2005, 182). Such a task is difficult since it ultimately requires the radical restructuring the management of these companies. This in essence means that the top management of various corporations or companies must accept and assume their role and responsibility in the decline of their companies’ competitiveness. The theory and practice of the ‘Western’ type of management is blamed on the creation of a ‘dragging effect’ on the forward movement of companies. It is thus imperative that the principles of management be changed /reformed (Grant, 2005, 182). Core competency can be described as ‘a specific factor that, through the business’ point of view, is centrally responsible for the way the business and by extension its employees perform their duties. Through its utilization, it can fulfill the following aspects: - it cannot be imitated easily by business competitors, it can be used to put leverage on a wide range of products and markets and its core importance is that it must contribute to the benefits experienced by the consumers. Therefore, it can take a myriad of forms including customer services, technical/subject matter knowledge and effective and efficient management of the business. It may include product enhancement, good marketing skills, efficient Human Resource Management among others (Nitschke, 2011, 23). They enable better coordination of the diverse production skills through the integration of different technologies, good communication, good interpersonal skills and an involved and deeply committed work attitude. Consequently, a core competence is achieved through the application of a specific and unique set of skills and or production techniques that will, in the end, deliver the expected value to the customer. This in turn, enables the discovery and exploitation of newer varieties of markets. As illustrated by Professor Prahalad and Hamel, core competencies usually lead to the creation or the core products of a business and in themselves can add many more products for their end users. These core competencies are enhanced through continued improvements by the companies over a period of time. This build up of the core competencies enables a business to succeed in an emerging market either locally, regionally or globally. It is thus vital to identify these core competencies since it is usually difficult to keep them in the event of the enactment of cost cutting measures and in the implementation of price wars. The management of a business should realize that stakeholders to the core competencies of a business are an asset that can be uses efficiently and effectively in order to integrate and build up on the already existing competencies. This competency building can be termed as the outcome of strategic input that needs to be enforced by the businesses top management so as to be able to reap the full benefits (Nitschke, 2011, 23). Both Prahalad and Hamel give examples on how top management and executives can develop more on ‘industry foresight’, that are essential for the proactive adaptation of the businesses to industry changes, on discovery of new ways of resource control that in turn will enable the company attain its set goals despite any out coming constraints (Klug, 2006, 19). The executives should strive to enhance an environment where the core competencies can be structured for future use. This enables the business to create new products and services. They developed the term Core Competencies which means collective learning and coordination of skills that help as a strategy in producing quality services and products. The concept is based on the idea that core competencies and organizational resources are derived from unique capabilities that guide an organization towards long-term advantages and profitability. The core competencies are critical o a business or organization because they are reflected in its long-term objectives (Klug, 2006, 20). The central idea of Prahalad and Hamel core competency is that over time companies recognize key areas of expertise that are helpful in the growth of the company. For them, the recognition of these core competencies was enough to propel a company to success. However, this view promotes an introspective approach to organizational strategy because it assumes other important factors. For an organization to be successful it should observe and come up with other essential factors that can aid it towards success (Mitsuishi, Ueda, & Kimura, 2008, 142). For example, a company should have goals, objectives and targets. These are factors that should be formulated when a business company or an organization enters in to the market or starts doing business. Goals, objectives and targets reflect the mission and the reason for the establishment of the company. They sate what the organization should achieve in a certain period of time or at the end of the whole process or period. Prahalad and Hamel ignore this fact and go directly to core competencies. Core competencies, as they state are recognized after the business entity or organization has been in the market for a certain period of time. This means that the goals and objectives as well as the target specifications of the company of business organization are of limited value to Prahalad and Hamel. Prahalad and Hamel recognize the presence of goals and objectives of the company but give much recognition to core competencies. For them the goals and objectives of the company should reflect the core competencies and not vise versa (Mitsuishi, Ueda, & Kimura, 2008, 143). Prahalad and Hamel look at a business organisation only as a profitable entity. Business organizations exist in the market no only as profitable entities but also as value addition and customer satisfying entities. Prahalad and Hamel recognize that as long as a business entity makes profits in a short-term and long term basis, then the company is successful (Poser, 2003, 14). In real market situations, there are companies that make short-term profits and have the capacity to make long term profits. However, they have poor business setting s and strategies despite the fact that they use core competency as a strategy. For example, there are companies which change their business functions to suit the market trends. They stop selling products and services and start selling other services and products that are fashionable. These companies cannot be identified because of their core business asset but because of their trends. Although this might be profitable, the companies are at risk of losing long-term customers in their rush of picking new customers (Poser, 2003, 15). In addition, Prahalad and Hamel give importance to existing organizations as opposed to starting organizations. For instance, at the bottom of their pyramid they give importance to basic resources that an organization has acquired over a certain period of time (Schmidt & B, 2010). They categorize these resources as technical factors competitive factors, financial factors and managerial factors. For them, a new organization cannot have these because it has not operated in the market for a period of time to be able to have these basic resources. This is dangerous because concentrating on already existing businesses and leaving out new business organizations presents a single-sided view of the business world and presents ideas not useful to all business organizations. In fact, they define competencies in terms of durability, lack of transparency and immobility. They state that it is a unique combination of all these resources and experiences of a particular firm (Schmidt & B, 2010, 145). Prahalad and Hamel also present an important but dangerous aspect of the core competency strategy. They state that a business organization must be unique in that it should not reflect the business ideas of other companies in the market. They state that a company must have something that is of a unique value to customers if it has to make good profits. The question that arises from this aspect involves where the uniqueness can be derived and sustained (Mitsuishi, Ueda, & Kimura, 2008). In their article, they argue that the core competencies are the most essential aspects of uniqueness. This observation is true, however, core competencies do not always lead to uniqueness in terms of the product or service that a firm or organization presents to customers. Sometimes the quality of the product or service overrules the organization providing the services or products. For example, one company may have the best employees who deliver in a timely manner and are friendly to customers. On the other hand, there may be a company that has few employees who cannot handle the needs of customers in a timely manner. However, the second firm may have the best products than any other firm. Obviously, customers will choose the second firm, despite its weakness. This means that the availability of all core competencies or the lack of some of the core competencies cannot drive a business organization to low profit-making status (Nitschke, 2011, 24). Prahalad and Hamel focused much on the production and delivery of products as opposed to employee satisfaction. Employees are an essential aspect of an organization. For an organization to be successful, it has to ensure that it values its employees and provides them with necessities that help them provide better services. In the pursuit of profitability and success, organizations can fail to address this fact as it concentrates on core competencies about the uniqueness of its products and future gains. Therefore, this might be a risk for the organizations that take core competency as their strategy. In addition, in the current period of market flooding and fluctuation of commodity prices because of production costs, it is difficult for organizations to use core competencies as strategies because predicting of the market and market trends is impossible (Grant, 2005, 12). In conclusion, Prahalad and Hamel in their article, The Core Competence of the Corporation, came up with a good strategy for organizational success and profitability. It helps companies be unique and develop unique products that attract customers. However, certain aspects, such as organizational objectives and goals, market flooding and fluctuation of prices make this strategy weak with respect to its ability to attract profitability for companies. References Grant, R. M., 2005. Contemporary strategy analysis. New York: Wiley-Blackwell. Kahawatte, U., 2010. Ryanair’s Strategy from a Perspective of Core Competencies. New Jersey: GRIN Verlag. Klug, M., 2006. Market Entry Strategies in Eastern Europe in the Context of the European Union: An Empirical Research Into German Firms Entering the Polish Market. London: DUV. Mitsuishi, M., Ueda, K., & Kimura, F., 2008. Manufacturing systems and technologies for the new frontier: the 41st CIRP Conference on Manufacturing Systems, May 26-28, 2008, Tokyo, Japan. New York: Springer. Nitschke, C., 2011. Outsourcing Vs. Insourcing in the Automotive Industry - The Role and Concepts of Suppliers. New York: GRIN Verlag. Poser, T. B., 2003. The impact of corporate venture capital: potentials of competitive advantages for the investing company. London: DUV. Schmidt, B. B., & B, S. B., 2010. The Dynamics of Mamp;A Strategy: Mastering the Outbound Mamp;A Wave of Chinese Banks. New York: Peter Lang. Read More