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Cost Management-final                                                                                                       17

A core competence is identified by the following tests:

Can it be leveraged? — does it provide potential access to a wide variety of markets?

Does it enhance customer value? — does it make a significant contribution to the perceived customer benefits of the end product?

Can it be imitated? — does it reduce the threat of imitation by competitors?

Applying the value chain approach to core competencies for competitive advantage includes the following steps :

1.   Validate core competencies in current businesses;


Export or leverage core competencies to the value chains of other existing businesses;


Use core competencies to reconfigure the value chains of existing businesses; and


Use core competencies to create new value chains.

1. Validate core competencies in current businesses : Core competencies should tie together the portfolio of end products and help a firm excel in dominating its industry. For example. Corning Glass's core competence is its ability to melt specialty glass. Pyrex, television bulbs, headlamps and optical wave guides are just a few of the products of this successful producer. Procter & Gamble's R&D expertise and marketing/distribution skills provide a significant competitive advantage in a wide range of mass consumer products (e.g., Ivory, Tide, Folgers, Crisco, Pampers).

Core competencies need to be continually validated. In the early 1970s, Timex held half of market for watches with its core competence in low-cost management of precision manufacturing. By the mid-1970, the watch industry moved to digital technology, making Timex's core competence irrelevant.

2. Export or leverage competencies to the value chains of other existing businesses: The same set of core competencies can be exploited in multiple businesses by exporting core competencies to the value chains of other existing businesses.

For example, one of Honda's core competencies is designing and producing small engines. By exporting this core competence to a wide variety of business lines, the company seeks to have six Hondas in every garage : autos, motorcycles, snowmobiles, lawnmowers, snow chain saws and power tools. Other Honda core competencies are dealership management and shorter product development cycles.

Marriott Corp. has core competencies in food service and hospitality skills, standardised hotel operating procedures, and a shared procurement and distribution system. Besides employing these core competencies in hotels, the company uses them in its other businesses, including institutional food service, consumer food and restaurants, cruise ships and theme parks.

AT&T extended its core competence as an efficient processor of customer accounts by altering the credit card business. Kimberly Clark's entry into disposable diapers extended its lore competence in the design of paper products.

3. Use core competencies to reconfigure the value chains of existing businesses : While firms may manage their existing value chains better than their competitors, sophisticated firms work harder on using their core competencies to reconfigure the value chain to improve payoffs. Otherwise, competitors may exploit opportunities. For example, Japanese watchmakers side-stepped traditional distribution channels in favour of mass merchandisers such as department store chains. By efficiently consolidating freight, Emery Freight dominated the air freight industry and was consistently a leader in profitability in U. S. industry. Federal Express reconfigured the air freight business by focusing on the overnight delivery of small packages.

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