Strategic Analysis - Organisation

The Value Chain Analysis of Michael Porter provides some valuable perspectives. I don’t intend going into any depth here. I simply want to focus on what I feel is the key aspect of VCA - the need for support functions to develop plans that integrate with and support the plans of the primary activities.

Thus, the HR plan should only have meaning in the context of how it supports operations, sales and marketing, in-bound logistics etc. The same with technology. Each of these functions must ask - how do I impact margin through my services to the primary functions?

An activity that I have found valuable in my strategy training courses is to ask participants to imagine that they are the HR director, for instance, and to present how they will support the other functions in their business.

Core Competencies

Hamel & Prahalad say:

“It is important that top managers view the firm as a portfolio of competencies, for they must ask, “Given our particular portfolio of competencies, what opportunities are we uniquely positioned to exploit? A core competence represents the sum of learning across individual skill sets and individual organizational units. Thus, a core competence is very unlikely to reside in its entirety in a single individual or small team.”

They expand:

“A core competence is not an “asset” in the accounting sense of the word. Core competencies don’t show upon the balance sheet. A factory, distribution channel, brand, or patent cannot be a core competence - these are things rather than skills. However, an aptitude to manage that factory (e.g., Toyota’s lean manufacturing), channel (e.g., Wal-Mart’s logistics), brand (e.g., Coca-Cola’s advertising), or intellectual property (e.g., Motorola’s ability to protect and exploit its patent portfolio) may constitute a core competence.”

The idea is that the organisation should be developing competencies that they can later exploit in, as yet unknown, markets. An example is Amazon. Amazon’s core competencies were in logistics, CRM and managing data. The start point was books. But these core competencies are not limited to books - they can be leveraged into almost any market. Amazon is what is known as a capability predator. What’s important is not the product but the competencies.

It seems obvious now. But there is a sense of putting the cart before the horse. Normally one looks for the opportunity then builds the capability. Here, the suggestion is that you build the capability then seek the opportunity.

A core competence must pass three tests:

• considered important by the target market (eg a clean showroom for Honda is a nice-to-have, but an efficient engine is a must-have)
• competitively differentiated - unique or highly unusual
• extendable - can be leveraged into new markets and products

The core competency approach is a valuable additional insight into how a firm may compete in the future and it encourages a longer-term perspective. It also encourages investment because the stark realities of a failure to invest become very clear. Hamel and Prahalad reserve particular scorn for what they term "denominator" managers; those managers who can cut costs but never increase revenues, who focus on efficiency not innovation and who slowly strangle a company through a focus on short-term ROI.

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