Core Competence or Diversification?
- February 23, 2012
- Posted by: INSIGHTS
- Category: Inside India
I am not a student of either business administration or management, but today I came across a small article which argued that core competence of a company is what drives it towards profitability.
What is core competence then? This theory was first given by C.K Prahlad and Gary Hamel, in their article titled “The Core Competence of the Corporation” published in Harvard Business Review. Core competence is a set of skills, or production techniques, that are unique to a company. For example, Honda’s core competence is their engines, Canon’s is their sensors.
What made me think was many Indian company’s diverse nature – how they are making profits in spite of being in diverse businesses?
Tata is involved from manufacturing salt to high end SUVs, it is involved in production of Tea to exporting softwares to providing telecommunication services. Mahindra has diversified from tractor manufacturing to software business. Wipro manufactures soaps and computers.
Aditya Birla group has interests in cement, realty and telecommunications.
I think it is this diversification which is making them profitable as they are well placed to meet diverse domestic demand, because I believe their ‘core competence’ is their ‘brand’ names which are household names in India.
Honda can not launch mobile network here in India, because people are used to associate it with bikes. Whereas if Tata launches Nano or Laptop, people will still buy them – because for them Tata itself a brand, not a distinct product.
If Kingfisher had not diversified, it would have built a larger empire in liquor business – its core competence. Or is it because of diversification that it is able to still survive even after grounding (almost) of its airlines?
Godrej is going places after it diversified into many businesses. Recently I read it made huge profits in realty.
I think core competency applies to only such businesses which have for long concentrated on single range of products, and that too in developed countries.
Well, I am confused. If any management student is reading this, I welcome you to clear my doubt.