Building core competency for sustainable growth

Organizations with core competencies enjoy global leadership. It represents the corporate philosophy; all business strategies revolve around the core competency. Organizations which believe in spending generously on research and development and the ones which experiment and investigate the processes can develop core competency. Core competencies lead to the development of core products. Core products are not directly sold to end users; rather, they are used to build a larger number of end-user products. For example, let’s take the example of Honda’a expertise in engines. Honda was able to exploit this core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles.  

The term was popularized by Hamal and Prahalad, back in 1990 in the Harvard Business Review. Peter Drucker was one of the first to mention it in 1964 when he focused on 'strength analysis'. A core competency comprises a reliable process, synergy with customers & suppliers, a patent, an industrial design, know-how, unique product development, a brand, marketing strategy, business strategy etc.

Core competencies are a pack of skills and technologies that are very difficult or impossible to copy or match; skilled employees, tacit knowledge, organizational endowment, collective values, supreme technology, and organizational ethics culture are some features which add to the core competency of an organization. The primary reason for 3M's success is its people. 3M.has always motivated its employees to innovate, think different and progress in life. This company has been blessed with generations of imaginative, industrious employees in all parts of its enterprise, all around the world.

In the pharma business globally, Eli Lilly has been the first company who built its core competency with the oldest recombinant protein and production technology in the industry.

The Indian pharmaceutical industry has been busy building its core competencies with its well-educated scientists, a well-established computer industry and technological know-how for the manufacture of bulk drugs and formulations; thus making it a favourite source for outsourcing among American and European companies. Indian pharmaceutical companies have found areas to focus on and are flourishing as corporate entities in India and getting recognition worldwide. In fact, they have been building core competencies by taking following measures:

Co-ordinate diverse production skills and technologies - Indian pharmaceutical industry’s chemists have a strong showing in organic/ medicinal chemistry. There is a tremendous potential to produce bulk drugs and is proving to be a major asset in future drug discovery programmes.

Unique style of marketing:  Marketing is also changing rapidly; the strategies are adopted and styled like the FMCG sector. Indian pharmaceutical companies are making elaborate marketing efforts. Companies such as Sun Pharma, Nicholas Piramal, and Dr. Reddy’s Laboratories have opted for brand/company acquisition to increase therapeutic reach and market penetration. Their product portfolios are becoming stronger with the acquisitions and they are giving some of the  MNCs a tough time and run for their money. Dr. Reddy’s Laboratories and Ranbaxy—have sizeable drug discovery programmes. Dr. Reddy’s Laboratories has licensed pre-clinical to Phase III compounds to Nordisk and Novartis.

Cipla has penetrated in the foreign markets with different regulatory bodies have approval such as National Institute of Pharmacy, Hungary, Pharmaceutical Inspection Convention, Germany, Therapeutic Goods Administration, Australia, Food and Drug Administration, USA, World Health Organization. This is primarily because Cipla could provide the generic version of the AIDS triple cocktail to impoverished South African people at $350/patient/year or at a price that is one-thirtieth its cost in the United States.

Lupin Labs is acting as an innovation led transnational pharmaceutical company producing a wide range of medicines with branded formulations, affordable cost and quality.

Co-ordinate diverse production skills and technologies: Indian pharmaceutical industry’s chemists have a strong showing in organic/ medicinal chemistry. There is a tremendous potential to produce bulk drugs and is proving to be a major asset in future drug discovery programmes. Sun Pharma is popular all over the world as the manufacturer of speciality active pharmaceutical formulations and ingredients. This company is engaged in manufacturing of three different forms of medicines. They are injectables, oral and delivery based drugs. Lupin Labs is acting as an innovation led transnational pharmaceutical company producing a wide range of medicines with branded formulations, affordable cost and quality. In January 2006, Aurobindo reported that the U.S. FDA had granted tentative approval for its antiretroviral Nevirapine Oral Suspension 50 mg/5 ml, qualifying the product under President George W Bush's Emergency Plan for AIDS Relief (PEPFAR) program. Also in January, the World Health Organization announced the inclusion of Aurobindo's Nevirapine oral suspension 50mg/5ml and Stavudine for oral solution 1mg/ml in its Pre-qualification list - both are used as a part of first-time line treatment in paediatric AIDS.

Globally leading organizations are realizing that one components of core competency is people. A study was conducted on 358 managers across the Johnson & Johnson Consumer & Personal Care Group (JJC&PC Group) globally to assess if there are specific leadership competencies that distinguish high performers from average performers. The company did not stop only at conducting a study. Educational and developmental programmes were developed and launched across the Consumer & Personal Care Groups globally, to familiarize employees with the concepts of emotional, social and relational competency and to share results of the leadership study. These sessions also served as the launch for the newly enhanced leadership models and many other organizations are ready to replicate them.

In determining core competencies, Indian pharmaceutical companies need to address the underlying skill, ability, knowledge, experience, technology or process that enables them to provide its unique set of products or services. Next is the need to determine how to use the company’s core competencies to develop strategic responsiveness to gain competitive advantage. High-performing companies develop new core competencies and expand their existing ones to enter new and future markets. At this level of functioning, the needs and wants of customers are recognized in new and future markets and the competencies necessary to meet those needs and wants are developed.

Some of the reasons why the Indian pharma sector has chances of building its core competencies are as follows:

• Low-cost skill base
• Current Good Manufacturing Practice (cGMP) and U.S.FDA compliance levels
• High visibility in generics
• High-quality, compliant manufacturing
• Strong financial position with ability to scale-up
• Manufacturing capacity
• Access to new technologies
• Cost - efficiency and track record
• Industry position
• Recognition of product patent

Companies with core competencies identify their key business processes, manage them centrally and invest in them heavily, looking for a long-term payback.

Core competencies take a long time to build and practice. Organizations which continue the practice with perseverance by adding accuracy and particular sets of skills succeed in building core competency. New sets of skills and newly acquired knowledge should be steadily spread in the organization to facilitate the processes.  

Competitive advantage is a business strategy where companies find ways to differentiate themselves from their competitors to attract more business. Service-based industries, such as hospitality, banks, health care use competitive advantage strategies to gain an elevated position in the field. Usually competitive advantage is sought out of one or more functional advantages. Competitive advantages give a company an edge over its rivals and a capability to produce greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more complex it is for competitors to counteract the advantage.There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers. Today India can boast of comparatively young, English speaking low cost labour as one of her competitive advantage. This factor has given boost to outsourcing business in India. Companies can exploit the low-priced labour and infrastructure facilities available; this in turn has cut down on man power costs; reduce operational costs and capital expenditure.

The sources of competitive advantage have their limited life. Therefore, businesses are engaged in a never ending search to find new angles to beat their competitors. It’s all about finding some way of differentiating products and services from the competitor’s offerings. The whole purpose of business strategy is to find new sources of competitive advantage. Wal-Mart’s success lies in their cost cutting. Wal-Mart’s most operational processes are carried out in China due to low labour costs.

Warren Buffet the most successful investor of all times gave importance to businesses with durable competitive advantage.

He always relied on an extensive research-and-analysis team that went through reams of data to guide their investment decisions. Buffet always believed in  basic facts such as the  global economy is complex and volatile, the economy and the stock market do not move in sync, the market discount mechanism moves instantly to incorporate news into the share price and last but not the least the returns of long-term equities cannot be matched anywhere else.

By "competitive advantage" Buffet meant a unique product or service that a business either makes or provides. That competitive advantage lies not in the people who create the business. Rather it is innate in the product or service itself. The employees can walk away from the business but they cannot take the business's "competitive advantage" with them. Buffet further insisted that all businesses that have a durable competitive advantage share the following characteristics in common:

• They have been in business for years
• They have made the same product or given the same service for years
• They will more than likely continue to make the same product into the future
• They spend money on R& D
• They have no need to retool their production plant to make new products
• Their unique product or service has a long life span in the marketplace
• They serve a repetitive need
• Their product or service is fairly simple

Buffet believed that durable competitive advantage companies can pass on their saving to their shareholders, and their investors in turn can easily predict their earning potential! How true.

To sum it up Hamel and Pralhad emphasized on core competency and competitive advantage so that a significant contribution is made to the perceived customer benefits of the end products. The globalization process has shaken up organizations with the wisdom of building both core competency and competitive advantage.