core incompetence - indian management - may 2009

8/8/2019 Core Incompetence - Indian Management - May 2009

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SUBIR SEN

With nearly two decades of economicliberalisation, we look back at one major

thought-provoking business idea that

generated enormous interest in industry

and academic circles. For the first time, Indian

organisations were not only facing 360-degree

global competition, but were also listening to a

series of lectures from global management gurus.

One of the dominant and at times all-pervasive

was the theory of ‘core competence’. Throughout

the last two decades, the Indian press has

frequently carried out business news about

organisations either deciding to hive off or entersome new business, citing the instance of core

competence. While there is nothing wrong about

some organisation restructuring its business

portfolio, which is surely its management’s

prerogative, but the frequent citing of the reason

of core competence to enter or exit a particular

business is quite unsettling. In fact, the frequency

of the use of the term would make any serious

follower of the subject rather uncomfortable. The

ease with which the term core competence is usedhas given rise to the connotation that it is

perhaps synonymous with the experience of the

organisation in that particular business. If it was

so, why did the world have to wait till the 1990s

for Prahalad and Hamel to put forward their

theory on core competence?

If focusing on a business that you know the

best is what success is all about — it was iden-

tified long ago bymany, including Peters andWa-

78 I N D I A N M A N A G E M E N T — M A Y 2 0 1 0

How Indian organisations can leveragethis tool to make their presence felt in theglobal market

S T R A T E G Y

CORE

INCOMPETENCE:IGNORE AND PERISH

CORE

INCOMPETENCE:IGNORE AND PERISH



terman as “stick to the knitting”. Are we then in-competent to untangle themastery that surrounds

this strategy?

Not a buzzwordIs it then that the concept of core competence is

grosslymisplacedwithmost Indian organisations?

It is certainlynot conventionalwisdomto prejudge

all such citations as misplaced views of core com-

petence. But then whyelse, almostinvariably, most

Indian organisations refer to core competence ei-therin terms of products or activities.Products and

activities in certain cases may surely represent a

core competence, but why is it always the case in

India?Why dowe not get to hearat least a fewIn-

dian organisations talking about more subtlecom-

petencies like miniaturisation competence of Sony,

optics, imaging and microprocessor controls in the

case of Canon, or Honda’s core competence in en-

gines and power trains? In case of all such Indian

TO SUBSCRIBE TO INDIAN MANAGEMENT-SMS ‘IMM’ TO 57007TO SUBSCRIBE TO INDIAN MANAGEMENT-SMS ‘IMM’ TO 57007 7I N D I A N M A N A G E M E N T — M A Y 2 0 1 0

S T R A T E G Y

REUT

Core competence isabout collective

learning in an

organisation on

how to coordinate

diverse production

skills, and integrate

multiple streams

of technologies



82 I N D I A N M A N A G E M E N T — M A Y 2 0 1 0 I N D I A N M A N A G E M E N T — F E B R U A R Y 2 0 1 0

ject stands tall as one of the greatest instances of

an Indian organisation in the process of building

a core competence.Appalled at the safety hazards

of two-wheelers, and the pathetic condition of In-

dian roads, Ratan Tata became obsessed with the

creation of a four-wheeler which was affordable

to an average middleclass Indian,yet sturdy enoughto ensure his safety. After some initial hiccups, he

was convinced that if the above opportunity had

to be converted to a global business opportunity,

some path breaking innovations had to be done.

Hisobsession andpassionfor the project made him

move from thegroup’s headquarters to a relatively

unknown affiliate — Engineering Research Cen-

tre (ERC) in Pune for the next few years. Such was

the extent of his clarity of thought that he knew

he hadto break theexisting price barrier radically,

if he had to recreate a new segment altogether. He

then set about with a price targetof delivering a car at the unimag-

inable price of $2,500, something

which stalwarts in Detroit and

Japan thought was impossible.

Strategic architectureAt a time when Maruti-800 comes

at a price of about $4,000 and in-

ternational car majors are scram-

blingtobuildcarsunder$10,000,for

Tata this was no mean task. The

strategicarchitecturewasthe biggest

bottleneck in this breakthrough. The core team atTata Motors initially experimented with a lot of in-

novative ideas likereplacingsteelwithengineering

plastics or reducing metal gauge to break the price

barrier. But Tata realised they needed to come out

with something path breaking to achieve this Her-

culean task. He refused to take “no” for an answer.

That’s when ‘the Nano’ had struck him. The word

“nanotechnology”, first coined byRichardFeynman

in 1959, took almost four decades to have come to

use. Nanotechnology broadly refersto a field of ap-

pliedscienceand technology whose unifyingtheme

is the control of matter at the sub-atomic or mole-cular scale to the order of 10-9, and the fabrication

of devices with critical dimensions that lie within

that size range.It is a highly multi-disciplinary ap-

proach, drawing from diverse streams such as ap-

plied physics, materials science, interface and col-

loid science, device physics, robotics, chemical en-

gineering, mechanical and electrical engineering.

Though from the outside theTata Nano looks little

different from a typical four-wheeler; use of nano-

technology at multiple levels led to 34 patents be-

ing filed anddelivering a car an even unimaginable

price.Around 25,000 cars have already been rolled-

out, leaving speculators and critics awe struck.

According to some recent reports, the Nano

project cannot besaid to benot facing a crisis.How-

ever, the current problems need not be considereda major setback for the projectas they are far more

in the nature of teething troubles visible in simi-

lar projects.

The critical testAuthors have applied three critical tests to iden-

tifycore competence in an organisation.First,core

competenceprovides potential accessto a wide va-

riety of markets. Competence in nano technology,

for example, mayenableTata Motorsto participate

in such diverse businesses as — artificial intelli-

gence and robotics, semi-conduc-tors and optoelectronic devices,

power transmission, etc. What

seems very interesting at this point

is that though these businesses

seem disparate in nature, at the

roots of an organisation, they are

highly coherent and consistent.Sec-

ond, corecompetenceshould make

significant contribution to theper-

ceived customer benefits of theend

product.Imagine thepride on a po-

tential 400-million middle-class

market that never imagined that they would beableto upgrade from two-wheeler to a four-wheeler.

Finally, core competence should be difficult for

others to imitate, and hence sustainable. A lot of

expressions of initial interest were raised by in-

dustry majors such as — Bajaj, Suzuki, Hyundai

and Renault after the press conference by Tata in

2008.However, a lot of the heat was already ebbed

out; perhaps untangling the causal ambiguity

proved to be an onerous task,as it involved a com-

plex harmonisation of diverse stream of technolo-

gies and production skills.

The entire scenario has taken a slightly differ-ent twist recently with some authors challenging

the efficacy of focus in the emerging market. They

have further argued that conglomeration is the

route to success for organisations operating in

emergingmarkets,andnot theonethroughcore com-

petence. They believe that as emerging markets

open up to global competition, organisations op-

erating in suchmarketsareincreasinglypressurised

to conform to theWestern practicesof scaling back

S T R A T E G Y

BUILDING CORECOMPETENCE

REVOLVES AROUNDOBSESSION, CLARITY

OF THOUGHTAND AN

ORGANISATION’SSTRATEGIC

ARCHITECTURE



scopeof theirbusiness activities.Their contending

logic is that conglomerate is the dinosaur of or-

ganisationaldesign, to unwieldy andslow to adapt

in today’s fast-changing business environment.

They observe that organisations in emerging mar-

kets face a different context altogether that is in-

stitutional voids: Buyersand sellers suffer fromse-

vere dearth of information, scarcity of technically

trained people, inefficient judicial systems, unre-

liable financial reporting mechanism, corruption

in bureaucracy, etc. In this context, organisations

are well suited to adopt the conglomeration route.

Organisations infact addvaluebyimitatingthefunc-

tions of several institutions that are taken for

granted in advanced economies by adopting this

route.Therefore,organisationsin emergingmarkets

need not ape strategies adopted by their Western

counterpartswithoutunderstanding itsbroad con-

textual setting and implications.However, our own

research indicates that factors that result in these

institutional voids are slowly atrophying in India

(by conservativeestimates which aredown to aboutone-third in thelast two decades).For instance,the

formationof CreditInformationBureauof India has

largely removed information bottlenecks that ex-

isted between the borrower’s credit information

and lending institutions.

Further, growing mobile and internet penetra-

tion, literacy rates, trained engineers and man-

agement graduates, newspaper circulations and

trading volumes in National Stock Exchange have

resulted in closing of these voids. With these in-

stitutional voids slowly atrophying,the value these

conglomerates addby having their presence in dis-parate businesses may be also saturating.

Therefore,an organisationin emerging markets

too cannot afford to ignore — core competence. If

they do, that will be at their own peril. IM

ABOUT THE AUTHOR

The author is a full-time faculty member of the ICFAI

Business School, Kolkata. He can be reached at

[email protected]

S T R A T E G Y

84 I N D I A N M A N A G E M E N T -- M A Y 2 0 1 0

Ratan Tata realised

the group needed

to come out with

something

path-breaking,

and the result was

the Tata Nano

Prahalad, C. K. and Hamel,G. (1990), “The CoreCompetence of theCorporation”,Harvard BusinessReview, 68(3): 79-93.

Peters,T andWaterman, R. (1982), “InSearchof Excellence: Lessons fromAmerica’sBest-RunCompanies”,Harper & Row.

Wernerfelt, B. (1984), “A Resource-BasedView of theFirm”, StrategicManagement Journal, 5: 171-180.

http://www.zyvex.com/nanotech/feynman.html/ dated30.03.10 (12:40 hours)

http://www.vicky.in/straightfrmtheheart/tata-motors-investigating-nano-fire-incident/ dated 30.03.10(12:40 hours)

Khanna,T. andPalepu, K. (1997), “WhyFocusedStrategiesmay bewrong for EmergingMarkets,”Harvard BusinessReview, 75(4): 45-50.

Sen,S. (2007), “EmergingMarkets,Market ImperfectionandBusinessGroups”,Conference PresentationatOperationalResearchas Competitive Edge, organizedbyOperations ResearchSociety of India(ORSI) andIIT- Kharagpur.

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core incompetence - indian management - may 2009

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