How Does The Development Of Core Competencies Provide Both Advantages And Disadvantages For An Organisation?

1651 words - 7 pages

“How does the development of core competencies provide both advantages and disadvantages for an organisation? What steps can managers take to prevent core competencies becoming core rigidities?”

In today’s world competition among firms becomes globalized and more intense. In order to become superiorly competitive, companies should enhance its competencies in a way that will allow them to achieve dominant position in a market. One way of accomplishing it is by development of core competencies. Competencies are considered core if they are skillfully performed and are principal to company’s strategy and its competiveness (Thompson et al, 2013). They are result of ‘collective learning’ ...view middle of the document...

As was noted by Keir Blake,according toProhalad and Hamel (1990)outsourcing contribute very little to the development of individuals' skills which in turn sustain the core competence. It was also pointed out by MarkCordesmeyer on Inditex case that the company develops core competence on achieving faster ‘time-to-market’ deliveries than its rivalsby keeping designers, factories and distribution centers co-located, in contrast to the competitors who outsource their production. Nonetheless, outsourcing is vital for cost reduction (pointed by Jo Wright) and allows companies to focus on their core capabilities (argued by Keir Blake). I agree with Cristina Rogers in terms of the importance of identifying which non-core activities can be outsourced so its outsourcing will not affect the future development of core capabilities. I believe that many Japanese companies exceled in their capability to outsource strategically by creating alliances. For example, Toyota built alliances with its suppliers in a way that flow in line with its core competencies. The company shares and accumulates knowledge with and from its suppliers (Jones, Womack and Roos, 1990) therefore, providing basis for collective learning and continuous improvement for the whole supply chain. Toyota is also a great example of company core competencies such as lean manufacturing and continuous improvement allow it to successfully enter luxury cars market under Lexus brand (Thompson et al, 2013)
On the other hand, once being organization’s strengths core competencies can become its weaknesses (core rigidities). I strongly agree with Sian Robinson’s point that the core competency and the core rigidity is the same thing, the difference is whether competency provides competitive advantage or not. The paradox of core competencies described by Leonard-Barton(1992) is that they simultaneously enhance and inhibit development. Sian Robinson explained it through juxtaposition of advantages and disadvantages described by the author. There is another downside that may appear during the development of core competencies. By being too focused on the core competencies company may has them being ‘Institutionalized’, which in turn may lead to ‘incumbent inertia’, or in other words, failure to respond to external changes and thus possibility to lose sustainable competitive advantage(Hagedoorn andDuysters, 2002),(Leonard-Barton, 1992), (Lieberman and Montgomery, 1988). For instance, mentioned by some participants in the discussion, Nokia lost its leadership in production of mobile phones as they were unable to adapt to the new era of phones pioneered by Iphone.
There has been general consensus throughout the discussion that applying dynamic capabilities approach can prevent core competencies becoming core rigidities. The idea of dynamic capabilities lies in a necessity of a company to create, extend and modify its resource base, whether it would be minor continuous improvements; creation of new...

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