Strategy Based on Core Competence and Flexibility : Learning Issues for Four Indian Organizations

Kak, Anjana

Abstract

In order to remain competitive in global markets, an organization needs to concentrate on a set of core competencies so as to generate a sustainable competitive advantage. A study of four Indian organizations has been conducted to analyze the practice of strategy formulation and implementation based on core competencies. The cases have been developed for each organization to find out the strategic issues in much greater depth. The study is based on Flexible Systems Methodology and was conducted through interviews. The synthesis of the learning reveals that there is a need for proper understanding of core competence and flexible approach of organizations to make the concept more effective.

Keywords : core competence, flexibility, learning issues, sustainable competitive advantage

Introduction

The study has been conducted to analyze the corporate practices concerning the use of core competence in strategy formulation and implementation. In this paper, the case studies of four Indian organizations have been developed. The case study approach allows linking theory and practice by analyzing the strategic issues of select organizations in much greater depth. A case study can never capture fully the richness and complexity of real life management situations, but it has proven effective in the area of strategic management. It complements and enhances the information by focusing attention on what a firm has done or should do in a business situation. The successful organizations have been practicing the system flexibility in some way or the other in their management approach.

The study aims at exploring the concept of core competence for strategy formulation and implementation. The main objective was to get answers to the following questions:

i. What do organizations understand from core competence?

ii. Do the core competencies really provide a cutting edge for competing in the market?

iii. Is strategy formulation and implementation based on core competencies required for organizations?

During the course of the study, the following issues were addressed:

i. The mode of technology acquision best suited to the organizations with respect to the people involved, inherent strength, existing facilities etc.

ii. The managerial actions that can improve the odds of success with the technology development and link the development of technology to the company's competitive strategy.

iii. The degree of resistance and the need for executive level information for technology assimilation.

iv. The technology implementation process that translates a technique or a method into some form of utilization.

v. The relationship with the flexibility and core competence in strategy formulation and implementation with respect to individual flexibility and organizational flexibility.

vi. The financial performance of the organization linked with core competence.

Methodology

The methodology has been derived from Flexible Systems Methodology as proposed by Sushil (1994). The study has been planned through interviewing, observation and case method. The interviewing method consisted of an interview schedule (Appendix I) filled through personal interviews with senior management level in the select organizations. These personal interviews were conducted through prior appointments. The case method consisted of data relating to some phase of life history of the organizations under study. The complex situations and combinations of all the factors involved in the behavior were examined to determine the existing status and to identify the causal factors operating. The study mainly revolved around the following queries:

i. How are different companies formulating their strategies for core competencies?

ii. What are the problems faced by them?

iii. What are the various linkages?

iv. Are the companies able to define their core competence?

v. How is this concept helpful to them?

In this study, a convenient sample of four organizations have been taken.

A brief past history of the organizations was obtained and cases were prepared based on interviews and observations. The cases were analyzed applying the Situation-Actor-Process (SAP) framework to bring out the finer issues. The following four organizations have been taken for the purpose of the study:

* Max India Limited

* Indian Drugs and Pharmaceuticals Limited

* Hindustan Computers Limited (HCL)

* Godrej

The S-A-P analysis (Sushil, 1997) has been used to learn about the handling of the core competence function in the organizations constituting the sample for the study. The three basic components that define the dynamic interplay in flexible management paradigm are Situation, Actor and Process as shown in Figure 1. The boundaries between these three basic components are fuzzy. The actor forms the part of the situation as well as the process. Thus, it is difficult to say where the situation is ending and where the process is beginning. An actor using its internal and external flexibility for managing the situation evolves the process. The internal flexibility refers to the capabilities of the actor and making him open-minded; the actor could be an individual or a group of persons. The external flexibility provided by the situation, which enables a manager to exercise his freedom of choice. The internal and external flexibilities should resonate with each other.

The cases have been synthesized with respect to contexts, situational factors, roles played by various actors and core competence function. Interviews were being conducted in all the four selected organizations with the people in top management.

In each case, the context of the situation and the roles played by various people have been described. The process part deals with the strategies and practices being carried out by the organization. In order to get deep insight and for effective action, Figure 2 shows a SAP-LAP model of inquiry (Sushil, 2000) has been developed by identifying critical questions in each element of situation, actor, process, and learning.

Case Study of Max India Limited

MAX India began as a pioneering venture for the manufacture of sophisticated penicillin based drug intermediates and bulk drugs in India in the year 1985. Leading bio-chemical technology was obtained from Japan, and a highly motivated team set up its first plant near Chandigarh in North India. Max India has grown and diversified into a multi-business enterprise, rapidly building a formidable presence in four major areas: pharmaceuticals, specialty products, electronics and telecommunications. The historical development of the company is as under:

* 1985 Penicillin-based drugs

* 1989 Electronics

* 1989 Biaxially Oriented Polypropylene (BOPP) films

* 1990 Pharmaceutical formulations

* 1992 Wireless telecom services

* 1993 Non-penicillin bulk drugs

* 1994 Leather foils

The challenge of successfully managing dissimilar businesses has been met by decentralization into focused profit centers in each business area. Each profit center is fully equipped and manned to handle its own manufacturing, marketing, distribution, and product development. Max India has been a recent entrant, and has captured a share of the market by recognizing the importance of listening to the customers and then responding quickly to meet their needs. Customer care has become an acknowledged success factor for each business. Innovation and experimentation to create competitive edge are actively persued, not just in product and process development, but in all aspects of work life. The group as a lean corporate team coordinates a whole that manages strategy, performance and culture. The group's philosophy is summed up by the phrase Integrated Diversity. A deep commitment to a decentralized organizational structure brings decision making as close to customers as possible. The ability to listen to the customers, to innovate product, process and service in response, the ability to build strong international alliances, a commitment to quality, and managerial credibility based on high degree of knowledge and awareness, and an ethical approach, are the critical success factors that gave Max India Limited a competitive edge. The future strategy of the company is determined by the collective thinking of a group of managers gifted with imagination, courage, and intelligence. The internal culture respects individuals, enhances professional awareness and credibility, and emphasizes that total quality lead to continuous improvement in all aspects of company life.

The Max group is proud of its 1600 strong, highly skilled workforce, well-qualified engineers, research scientists and professional managers drawn from the very best institutions of the country. With its headquarters in Delhi, factories near Chandigarh, Delhi, Ahmedabad and near Mysore, and sales and marketing offices in every major city, the group had a nation wide presence.

The growth of the group turnover over the last six years is shown in Table 1. All the businesses of Max India develop a cash flow from the second year of the operations with a target ROI of at least 15%. Twenty Five per cent of annual sales come from the products and the services that are less than three years old.

SAP Analysis

Prevailing Situation

Opportunities

* The per capita 'consumption' of medicines is on an increase and given the Indian scenario where it is already touching 100 crore, with an average increase of 10% in population annually, another 10 crore will need medication for the coming year.

* The slogan of the government, "Health For All By 2000" is responsible for making Medicare in general and medicines in particular at an increased consumption rate per capita. Earlier the per capita consumption was much higher in urban and suburban areas, now rural areas are coming under the cover at a much faster pace.

Threats

* There is presence of global pharmaceutical giants in domestic market backed up by their hi-tech and proprietary research products. Thus, there is an increased market competition.

Change Agents

* The changing environment in the business atmosphere of the country, particularly the liberalization, is opening up the overseas market for high quality pharmaceuticals, thus ensuring growth through exports.

Main Actors' Capabilities

Core Competence

* The widely differing businesses are linked by a simple logic: core technological competence, confidence in people, and the strong binding force of a shared culture. The group has got competencies in quality and teamwork, which has enabled it to leverage real internal strengths to address the external opportunities constantly emerging in a bubbling global market place.

Diversification and Global Tie-ups

* Max India Limited is a diversified, multi-business enterprise in the areas of pharmaceuticals, specialty products, electronics, and telecommunications. Responding to a rapidly changing business and socioeconomic environment, the company has been preparing to take advantage of the new industrial era. It has been able to export its products to the most demanding international customers and competed with the world's toughest suppliers.

* Max India has always been integrated with the global market place. From the very beginning, the group has successfully forged strong ties of friendship and mutual support with the world's best sources of technology in Japan, Italy, Germany, and the USA.

* The major key alliances of the group are as under:

Max GB is a 50-50 joint venture launched in February 1993 between Max India and Gist Brocades International BV of the Netherlands, the undisputed world leader in the field of penicillin.

Hutchison Max Telecom was born after the value added telecom services were thrown open to the private sector in early 1992. The joint venture commenced cellular phone services in Bombay in September 1995. It also started its paging services for seven cities namely, Bangalore, Hyderabad, Pune, Baroda, Ahmedabad, Ludhiana, and Chandigarh.

Cosmat Max is an alliance between Max India and Cosmat International Ventures, USA. As the information is rapidly becoming the most critical resource of any business today, the satellite communications will be the key to instant and reliable connectivity over any distance. Cosmat Max started the VSAT network commercial operations in 1995. With its unique customer oriented approach, Cosmat Max aims to become a leading satellite communications service provider in the country.

In-House R&D

* Max India has got full faith in its in-house R&D. The research and development laboratories of Max GB are recognized by the Department of Science and Technology of the current Government of India for their work on process optimization, using advanced immobilized enzyme technology. Max GB's R&D laboratories are working closely with Gist Brocades for the development of new industrial enzymes.

* Believing strongly in self-reliance, Max Pharma has set up a well-equipped product development department, manned by highly qualified scientists. A wide range of products in several therapeutic groups: anti-infective, cardio-vasculars, gastro-intestinals, non-steroidal antiinflammatory, anti-histaminic, nutricuts etc. have been developed in-house.

* At Maxxon's (Max Specialty Products) the in-house product development team has several firsts to its credit, e.g. an essential requirement for packaging of foods such as potato chips and biscuits, a sophisticated nonreflective matt film for print lamination, a film suitable for direct vacuum metalization etc.

Processes

Strategic Processes

* The processes are to be evolved by the management by using flexibility for managing the situation. The strategic processes are determined by the collective thinking of a group of managers.

* A decentralized management structure, essential for quick, focused decision-making, and appropriate systems carefully designed to support and optimize autonomous working are in place, supported by modern information technology and communication tools.

Processes Dominating Towards Core Competence

The processes dominating towards core competence that enable the company to achieve its objectives and execute its strategies are:

* Imparting training to the people.

* Increasing the communication level between the management and workers.

* Making people feel more responsible towards their work. Change Agents

* Max India Limited is a company of young professionals, unafraid of change, who feel responsible for the work they are entrusted to perform, each ensuring that his work carries his personal stamp of quality.

* The speed of response, open and honest communication, and a positive determined attitude are evident all over the group. The universal values inspire a humane and vibrant work environment where all strive constantly to improve the level of customer care.

* The integrated diversity of the group helps in growth through diversification.

Learning Issues

The data collected has been analyzed and interpreted in the light of flexibility. The core competence happens to be one of the qualitative aspects of the business environment; therefore, a qualitative analysis is being carried out using different heads as the basis of analysis.

Understanding of Core Competence

The core competence at Max India Limited is an integrated teamwork so as to have quality product and good manufacturing practices (GMP). The concept of core competence as such has not been formally introduced in the company. There is no special emphasis on core competence at present but if some formal system is available to management which exposes this concept with formal methodologies it would certainly like to have such teams in the organization for constant training programs followed by implementation programs thereafter. The inhibitor of core competence creator is the comprehensive level of executing team.

Use of Core Competence in Technology Acquisition, Assimilation and Implementation

The top management has successfully forged strong ties of friendship and mutual support with the world's best sources of technology in Japan, Italy, Germany, and USA. The organizational core competencies do play a positive role for the better performance during the technology acquisition process. During this process everybody from top management to shop floor worker is involved. There exists a spirit of cooperation leading to prosperity and profitability of the organization. The company is using its existing technology educatively and proactively. It has not always been a market leader but has got its major business from "Mee Too Products". The foreign collaborated products are well accepted in the market, thus sale is increased. The organizational core competencies improve the chances of success of technology through transparency of its use. It also helps in overcoming inertia and encouraging the innovations. The technology assimilation process is associated with some resistance and barriers, but it is overcome through consistent discussions and extensive training. Finally, the technology implementation is measured and depicted by net planned results. The knowledge and behavior plays a vital role in the implementation process but knowledge without spirit of cooperation is of no use.

Essence of Core Competence in Strategy Formulation and Implementation

It has carved out a shape of the market by recognizing the importance of listening to the customer and then responding quickly to meet his needs. Customer care has been an acknowledged success factor for each business. The core competencies provide a cutting edge for competing in the market through the edge of quality and listening to the customer. People are at the heart of the organization, the group is humane, caring and endeavors to treat its employees with respect and attention. A decentralized management structure and organization development is becoming increasingly important in the present climate of liberalization and tough competition. As a result of decentralization, quick decision-making with the aid of modern information technology and communication tools emerges in the organization to support the autonomous working. Collective thinking of a growing group of managers increasingly determines the strategy formulation and implementation. The strategy formulation is flexible; there is no drawn line as it can be changed as per the needs of the company.

Role of Flexibility in Strategy Formulation & Implementation

The existing system is flexible as it absorbs new technologies and offers no resistance. While comparing the amount of organizational flexibility as an individual or as a system, it is more flexible as a system but within a given framework only. The procedure of job rotation makes it flexible as a system. Whenever there is a need of individual involvement beyond working hours, people over work due to existing team spirit, reflecting the individual flexibility.

Case Study of Indian Drugs and Pharmaceuticals Limited

The Indian Drugs and Pharmaceuticals Limited (IDPL) was incorporated in the year 1961 and its possession was given in 1966 onwards. Before 1992, the board of directors included persons from industry, drug control department, and bankers. The IDPL is a fully government owned organization. The aim of the government to launch this company was to fulfil the social responsibility by providing drugs at lower costs for backward areas. Also it served the main purpose of providing infrastructure for other upcoming companies in the field of pharmaceuticals as before IDPL the drug industry as such had no existence in the country. It has got its plants in Rishikesh, Hyderabad, and Gurgaon for antibiotics, synthetic drugs and formulations. The company has almost a monopoly in the production of bulk drugs that goes as a basic material into production of pharmaceuticals. The technology was initially got from Russia but it proved to be the least cost effective. The cost was not the criterion for IDPL at that time, the only concept was to get the idea of drugs to India.

During 1975-79 the company had a good growth. It doubled the capacity in less than ten years after its incorporation, and modified the technology to the Italian one. Despite the good production capacity, it has not been able to market its products fast. Also most of the products are under Drug Price Control Order (DPCO), i.e. products for which the government has to fix the rates. The company has a competence in quality and production of bulk drugs but due to infiltration from other countries it is available at much lower rates, thus giving a set back to IDPL.

Since the company is government owned, there exists a bureaucratic culture and respective managers are not authorized to take decisions of their own. The time taken for all the procedures is too long and in the mean time the market goes off. Till 1992 government was bearing the losses made by the company, but in 1992 it was declared a sick company and was taken over by Bureau of Industrial and Financial Reconstruction (BIFR). In order to make the unit viable, employees were asked to opt for premature retirement and are offered a golden handshake. The employee strength has reduced from 13,000 to 8,400 and trials are on to get the number further down to 5,300.

SAP Analysis

Situation

Opportunities

* The whole pharmaceutical and a part of chemical industry are dependent on certain bulk products provided by IDPL. No Company wants to produce it because of hazards, large number of processes involved, high cost and infrastructure factors. The products of the company, hence, find a ready market with the pharma and chemical industry; this way the Company enjoys the monopoly.

* Being a government owned company, its credibility is unquestionable in the industry as a whole.

* The company has made inroads into the deep rural markets of the country. Since the rural population is almost 2/3rd of national population, the product circulates into a much wider and deeper market. Those rural markets recognize the company as mass friendly and socially duty bound to the rural masses, they have much faith in the company than the existing competitors.

* Licensing and other procedural formalities in respect to new product and product formulations is easier and less time consuming because it gets top priority in the bureaucratic process.

Threats

* The company's future is perceived as not very promising by its employees. So they are shifting their loyalties, changing their jobs for better prospects and security. IDPL incidentally is a company that has one of the best manpower in the industry.

* The company is unable to introduce the latest pharmaceutical innovations, which pushes it deeper and deeper into problems. Even the latest management techniques are either unintroduced or unimplemented, which reduces the overall performance of the organization.

* The managers and workers have no motivation, being a government owned company there is no accountability.

* The bureaucratic interference delays the decisions which otherwise require immediate attention. Also flexibility being very poor, there is no flow of information between various levels of management.

Main Actors' Capabilities

Core Competence

The company has a highly qualified management staff with good technocrats and high quality manpower. It is capable of producing a good portion of raw materials from the basic stage that is used subsequently in their own formulations and the outside companies. IDPL has a product range best suited to the rural areas with respect to formulation and pricing. It has got competence in quality and production of bulk drugs used in further formulations.

Diversification and Global Tie-ups

The company got technological tie-ups with Russia at the time of its incorporation. As there was no infrastructure available for drug industry during early 1960's, there was no alternative other than the acceptance of Russian technology that proved to be least cost effective later on. Some thirty years back technology was got from Russia which after ten years was being modified by Italian technology in order to increase its production capacity.

Processes

The strategic processes and related decisions are limited to Board of Directors. There exists a traditional organizational structure with a chairman at the top. The managers of the organization have no authority to take decisions of their own as a rigid system is prevailing there. There is no process as such dominating towards core competence. The government can act as a major change agent, as it is solely responsible for decision-making regarding the organizational strategic processes.

Learning Issues

Understanding of Core Competence

The term core competence has not been ceremonized in IDPL but rest of the exercise is being done in the organization. The main purpose for company was existence to create infrastructure for other upcoming companies in the field of pharmaceutical, thus fulfilling the social responsibility. It has got competence in quality and production of bulk drugs that comprise 35 processes. The organizational core competencies provide a cutting edge in the market by the continuous effort of maintaining quality and providing the basic bulk drugs to other companies for which there is hardly any competitor. Despite the fact that IDPL has a monopoly in the production of bulk drugs, the company is not doing well. The main reason being that these bulk drugs are infiltrated in the country at much cheaper rates, thus giving setback to IDPL.

Use of Core Competence in Technology Acquisition, Assimilation and Implementation

The success of technology in achieving the targets is credited to the technical skills of engineers and technocrats. The resistance during the technology assimilation is overcome by educating all the levels in the organization about technology's strategic contribution and imparting training to the people involved. The success of the technology implementation is defined by the standard technology conversion coefficients, i.e. if raw material consumption goes up, the cost of production increases and thus the technology is least cost effective. IDPL uses its existing technology offensively as well as defensively, i.e. for some brands they are the leaders while for some brands they are the followers. There is a need for technology tie-ups with more advanced pharma companies, which may be of Indian or foreign origin depending upon the availability. At the time of technology acquisition from Russia, it had no other choice, as none of the companies was willing to give their technology.

Essence of Core Competence in Strategy Formulation and Implementation

As far as the strategy formulation is concerned, the top management gets feelers from the market, sense the existing demand at that particular time, and then frames their policies accordingly. For instance, in 1994 plague erupted in epidemic proportions and gripped many parts of India and claimed hundreds of lives. IDPL manufactured Tetracycline in huge quantity and offered it to the market at genuine rates. Thus the company's competence in the production of bulk drugs that goes as raw material in the manufacturing of Tetracycline, could help the companies to fulfill its social responsibility of making the life saving drugs available in the market.

Role of Flexibility in Strategy Formulation & Implementation

The flexibility of the system is very poor. Since the government owns the company, there exists a bureaucratic culture and rigid rules. The lack of flexibility is also depicted in its pricing policies, i.e., it produces mostly the DPCO products for which government fixes the price. When the cost of production increases, the selling price does not increase proportionately; thus the profitability is reduced. So far as strategy formulation and implementation is concerned, the system being rigid, only the board of directors are involved in policy making without lending an ear to other levels of management. The interference of government is responsible for making the company sick because of two reasons:

i. The people who are innovative are not in a position to maneuver the resources to include the new products.

ii. The latest marketing techniques cannot be implemented which include delegating powers down the line. Lack of aggressive marketing is one of the major factors to turn the unit sick.

Case Study of HCL

The company started from scratch when the information technology hardly existed in India. In 1975, HCL began its journey from manufacturing programmable calculators. It entered as a small business in computers 'made in India' in 1977. The milestones in growth stages of the company are as under:

HCL is an organization that is boldly stepping out into the world, based on impeccable knowledge skills. The real strength of the group lies in the entrepreneurial spirit of the employees, which enables them to handle rapid changes in environments and technologies. The HCL team has the courage to gamble on the growth of IT industry and has the foresight to anticipate the road ahead.

HCL signifies teamwork. People take pride in their work which has helped build the organization. There is a total strength of 9000 employees and the split of the functions performed by human resources is as under (Annual Report, HCL1997):

The strength lies in the entrepreneurial spirit of the employees that enable them to handle rapid changes in the environment and the technologies. Thus, a lot of big goals start looking smaller and difficulties appear a lot less insurmountable.

The company has reported excellent performance and has successfully achieved tenfold turnover every six years, i.e. Rs. 10 million in 1976, 100 million in 1982, 1000 million in 1988 and 10,000 million in 1994 (Annual Report, HCL 1995). And after this, the company is trying to explode a Rs. 1000 group into a Rs. 10,000 crore in 72 months. The HCL corporation has grown to achieve a revenue of Rs. 2404 crores from IT business during the year 1997-98, which shows a growth of 43% over last year. The IT Software and Services revenue has touched Rs. 1500 crores, i.e. 62% of total IT revenue. The hardware and hardware linked software / services have achieved a revenue of Rs. 900 crores which contributes 38% of total IT revenue.

SAP Analysis

Situation

The existing situation for HCL is viewed as under:

* Following global technology standards as the norm for Indian IT industry.

* Viewing technology advancement as an enabler, therefore, an opportunity creator for the user and the industry.

* Creation of an organization for developing and upscaling Indian IT skills / knowledge for application in India and worldwide.

* Constantly adapting to the ever-changing demands of technology.

* A plan called Enterprise 2000 which aims to move the organization seamlessly into the next century through an integrated offering of the right consultancy, training, technology and ability to constantly generating entrepreneurial zeal.

Main Actors' Capabilities

Core Competence

The company has a competence in creation of technology and delivering the same to the customers effectively through strong distribution channels. It is almost into every area of technology, from office automation to systems integration. The customer service is at the top priority for HCL group. It puts itself in the shoes of the customers to see what are their needs and how they can be dealt with. It is possibly the biggest differentiator by which they turn out to be profitable.

Diversification and Global Tie-ups

The company has diversified into many sectors from computer systems and software development to manufacturing medical diagnostic equipment to office automation equipment such as typewriters and faxes. Apart from that, its National Institute for Information Technology division has emerged as an important player in the training and software consultancy market. The company is also exporting educational software packages to many countries in the South East Asian region.

In the early 90's when the Indian economy was thrown open, the corporation moved quickly to tackle the threat from global computer giants. It forged a joint venture with US giant, Hewlett Packard, and today it is the largest manufacturer of PCs, computer systems and integrated products in the Indian market. Apart from HCL-HP (the alliance that discontinued later on), the company has entered into alliances with other foreign companies. Amongst them are,

HCL-Perrot to undertake information technology projects for business establishments, running their application needs and also maintaining them. It will mainly cater to companies in Asia.

HCL-James Martin, a joint venture between HCL and US based James Martin was launched to deal with the year 2000 problem. The company has unveiled a solution package to deal with the representation of dates after 2000.

HCL-General Instruments, a joint venture agreement between HCL Corporation and General Instrument Corporation, USA., a brand leader in broad band communication equipment. The alliance aims at changing the technology of broadcasting by enabling broad band communication through cable TV.

HCL-Deluxe, a joint venture between HCL Corporation, India and Deluxe Corporation USA. It is the first information technology joint venture exclusively targeting the financial services industry in India, e.g. banking, insurance, capital markets, and non-banking financial companies.

HCL-Picker Ltd., a joint venture with Picker International USA. It is committed to improving standards of health care with state of art diagnostic imaging systems.

The other key alliances are with CSK, Microsoft, AT&T, CISCO, NEC, NTT Data and NETG.

HCL group of companies along with entities and specializations are as:

i. NIIT Ltd.

* Computer education

* Training

* Instructional software

* Software services

* IS consulting

ii. HCL Comnet Systems & Services Ltd.

* Telecom services

* Networking

iii. HCL Ltd.

* Office automation

* Telecom equipment

iv. Network Ltd.

* Office automation

* Medical electronics

v. HCL Picker Ltd.

* Diagnostic imaging

vi. HCL Consulting Ltd.

* Software development

* IS consulting

vii. HCL Frontline Ltd.

* Channel creation

* SOHO penetration

Distribution Channels

HCL is a Rs. 15000 million industry leader with offices at 27 locations in 16 countries, mainly the USA, Europe, Japan and the Pacific Rim. As customer benefit is the main essence, the company has a very effective delivery system for the customers.

Over one million hardware items installed and supported.

The concept of HCL is to create demand where none exists. The company has a rich in-house R&D and is engaged in continuous efforts in cost reduction, standards compliance and reliability improvements in the full range of PC products. The specific areas in which R&D is carried out by the company is the design and development of Home PC models supporting multimedia, sound, video and telephone answering facilities. In the area of software, it has provided support for the industry standard unixware operating system on Meteor/ Busybee.

Processes

The strategic processes are determined by the chairman and his team of managers to make seemingly impossible goals almost routine in the organization. The HCL group is the mother of the entrepreneurial corporation in the country by enormously increasing the employment, primarily and secondary through the growth of the IT industry.

The various strategic processes that are being observed in HCL are:

* Spinning each company to spin off other companies

* Leaving the running of the business entirely to CEOs

* Spotting the entrepreneurial talent and getting it to head new ventures

* Setting superstretched targets and gives CEOs freedom to decide strategy

All the strategic processes are based on knowledge and focuses on customer solutions through human value addition. Since the company has core competence in technology creation and distribution, it is able to decide what the customer needs are and how those needs can be satisfied by producing and delivering the desired products/services effectively.

Learning Issues

Understanding of Core Competence

HCL introduced the concept of core competence in the year 1994-95 so as to be the leader in the near future. Its core competence lies in the creation of technology and delivering the same to the customer effectively. It has a customer support in 200 locations, and marketing network is also available at all the places. The company has a formal strategic initiative group headed by the chairman. The various directors of the company have their respective teams and report directly to the chairman. The main purpose of the group is to find ways to create ideas. The following issues are also taken care of:

* How to acquire competency that is needed but is not existing?

* How other companies are acquiring competencies, those competencies may be competitors in one field and partners in other?

The top executives in HCL are of the opinion that competence is developed mainly for the customer as it yields a significant cost advantage in the delivery of a particular customer benefit. The main inhibitor of the core competence development is the human nature, i.e. when a particular product is doing very well, people might think that there is no need to go in for creation of new products as nobody wants to disturb the running schedule. But one has to be ready to kill the product at any time to meet the customer needs. There should be a continuous effort for innovation so as to replace the existing products by the new ones successfully. Further, it takes a lot of time to develop a competence and HCL has full support of top management in doing so.

Use of Core Competence in Technology Acquisition, Assimilation and Implementation

The sources of technology comprise of in-house R&D, technology acquisition that refers to take over of some company and joint ventures. The success of technology is very much linked to the organizational core competencies. The word technology consists of two extreme ends, i.e. creation of technology and its distribution to customers effectively. Since HCL has competence in both the areas, so the success of technology is obviously dependent on it. People are needed to manage technology; thus hard as well as soft issues are responsible for its success. The existing technology at HCL is used offensively as it has got market leadership in each business, and is among 30 top businesses in India. It has got a good understanding of its clients' need and understand the customer a lot better than anybody else which is possibly the biggest differentiator.

The organizational core competencies play a positive role in technology acquisition process; the acquisition in HCL is referred to as take over of a company completely. So, the first and the foremost step is to identify the source of technology acquisition for which feedback is obtained from the customers. It puts itself in the shoes of the customers to see their issues, their problems and how it is going to deal with them. It gives a differentiating edge to be competitive to serve its customers better that is done again by using core competencies.

The resistance and barriers during the technology assimilation process is sorted out at the departmental level. There is no separate unit to solve such problems but each manager takes its care by educating the people involved about the new technology so as to get it assimilated. The assimilated technology needs to be implemented and success of its implementation is defined by the effective delivery to the customers.

Essence of Core Competence in Strategy Formulation and Implementation

The organizational core competencies provide a cutting edge in the market by providing the variety of products and services effectively. The company draws people from here and there within the organization, form a group and then work out a product that gives customer his perceived value. It possesses a technology bandwidth comparable to global giants with the overall focus on customer solutions through human value additions.

The strategy formulation and implementation is linked with knowledge and organizational core competencies. For instance, there is a tie up between HCL and some other foreign company, the strategy is formulated in such a way that the particular company will have access to all HCL channels provided HCL also gets access to their channels. HCL believes in innovation and keeping on changing the products as per the demands of customers. Since the company has core competence in both technology creation and distribution, the strategy formulation based on knowledge enables the company to decide what the customer needs, and how that particular product can be produced and delivered to customers effectively. The chain starts from the technology creation and ends at the use of technology through the effective delivery.

Use of Flexibility in Strategy Formulation and Implementation

HCL defines the flexibility of its system on the dimensions of freedom given to entrepreneurial skills and managers to take decisions of their own. The foresight enables to anticipate change and flexibility helps to thrive on it. HCL group is the mother of the entrepreneurial corporation in this country. The chairman spot the entrepreneurs and they are given the chance developing of new ventures. When a manager readily accepts higher responsibilities, he is taken on as one of the executive assistants to work with chairman on business development plans. This gives the chairman the chance to check the prospects' competence firsthand. Those who pass, get equity owning charge of the businesses they helped develop. The real strength of the group lies in the entrepreneurial spirit of the employees, which enables them to handle rapid changes in the environments and technologies. HCL is a corporation that grows rapidly by creating out growths that are replicas of the parent. Those outgrowths then similarly replicate themselves; the process carries on ad infinitum.

The use of flexibility in strategy formulation and implementation in HCL is highly positive. There exists a strategic initiative group that encourages the innovative ideas from anyone within the organization. The manager of each unit is free to take decisions on any front. There are no strict rules and rigidity, and that is the main reason behind its tremendous growth.

Case Study of Gorej

A.B. Godrej founded the Godrej company in 1897. From 1897 to 1998, more than hundred years of journey has been an eventful one for Godrej. In 1987, it was the vision of a self-reliant India that prompted A.B. Godrej to give up law and make a career in the business of lock making. From lock making, Godrej moved to safes and security equipment and later soaps. In these hundred years Godrej has become a big group which has ventured into many businesses. It has earned a name for itself for the quality of its products. The various growth stages of the company are as under:

In Godrej, it is believed to become a pioneer not to be first but to recognize a real and long term need and to work towards its fulfillment with determination. Godrej have pioneered several new product categories. In many of these categories, the Godrej brands have established themselves as the classics. All the lines of diversification have been based on the ideas developed in-house.

Godrej have been always selecting and building up their dealers with care and with a view to long term relationships. It has succeeded in setting up a network that is perhaps one of the largest and far reaching in the country. This includes dealers for both the consumer line of goods and the durables. The dealers of Godrej have a definite culture: a character based on technical competence, service orientation and a sense of accountability to the customer. This has been achieved through constant training programs, orientation and continuing communication with them. The company has its head office in Bombay and regional offices in all the four regions; the perspective regions have a number of branch offices. The existing system at Godrej is flexible, as it believes in the concept that the need to submission to change is the only hope for one's survival. The various branch offices work as independent profit centers.

The major Godrej group companies are under the flagship of Godrej & Boyce. The human resources have been given due importance in the organization since long. The creator of the Godrej group, Pirojsha Burjorjee Godrej, made it possible to pay as much attention to the design of the residential quarters as to the manufacturing plant. There is a total strength of 10,300 employees. The organizational potential is far more than the arithmetic sum of the people in the organization. The continued effectiveness and efficiency of Godrej is to a great extent dependent on the ability of its employees to produce with high levels of efficiency. The growth of the group turnover over the last five years is shown in Table 6.

SAP Analysis

Situation

* Indian market is coming up at a very faster rate. The white goods that were considered a luxury few years before are now accepted an inevitable requirement, e.g. refrigerators, washing machines etc. Since the company is one of the leaders in this product category its future is very promising.

* Being a multi-product company, if there is depression in one product line, it can be compensated by the profits made by another product.

* The company has resulted in many triumphant successes in the shape of new products, cost reductions, better designs and formulations.

* The company has already introduced imported technologies in some of their product line, it is open minded and prepared to introduce improvised technologies in other sectors also.

Main Actor's Capabilities

Core Competence

The product differentiation is critical to the consumer durables industry, so the access to the technology is of paramount importance. The core competence of the company lies in engineering, and marketing and distribution. With a core competence, which relies only on corporate identity and reach, Godrej is vulnerable. In consumer durables, the group derives its strength from brand-pull and distribution muscle.

Diversification and Global Tie-ups

The company is highly diversified in nature, and the motive of diversification was infact a necessary expression of a broader perspective. Godrej has evolved many lines of business, taking timely clues from the changing needs of the customers. With the growth of commercial activity, the company saw the need for a wide variety of products, e.g. locks, office equipment, typewriters, electronic business equipment, refrigerators, manufacturing of welded steel tubes, furniture, architectural fabrications, manufacturing of machine tools, manufacturing of fork lift trucks, manufacturing of oil based chemicals, Godrej soaps, beauty care products, manufacturing of spray-dried synthetic detergent powder, animal feeds, agro products, edible oils, oil seeds and oil cakes. It is a matter of pride for Godrej that all its lines of diversification have been based on ideas developed in-house.

Products of Godrej have become adventurous globetrotters and are exported to a number of highly competitive markets abroad. Together they earn more than Rs. 200 million in foreign exchange from Japan, UK, Germany, Poland, Hungry, Switzerland, Denmark, Hongkong, Thailand, Africa and the Gulf countries. The company forged joint ventures with five transnational companies in the last five years: the personal-care products major Procter and Gamble (P&G) of the US, the diversified giant General Electric of the US, the Pilsbury division of the foods major Grandmet, the consumer products major Sara Lee, and the photo services major Photo Me. The other major alliances include Godrej KIS, Fishers, and Geometric software services. So far as the geography of the company is concerned, besides Indian base, it has Godrej Malaysia and Godrej Singapore also.

In-House R&D

The company has its own strong research and development base. It has committed large investments for installing sophisticated manufacturing facilities and developing a team of technically competent personnel in R&D and manufacturing. This solid R&D base enables Godrej to offer products incorporating state of the art innovations. R&D is the crucible of the future for Godrej, where today's dreams are melted down and shaped into tomorrow's realities.

Processes

The dedicated professionals in the company determine the strategic processes. The corporate identity is responsible for whatever it does to add value to the customer. The group has a highly motivated manpower and enlightened management that make it possible to have a high quality service support resulting in consumer faith.

The various strategic processes dominating towards the core competence for the corporate performance are as under:

* Conscious training programs to sharpen the talent of people

* Good communication

* Continuous effort on R&D, a great deal of resources is set aside for this activity.

* Effective advertisement on electronic print media which ensures high product recall value.

Learning Issues

Understanding of Core Competence

The core competence of the organization lies in engineering, marketing and distribution. All the phases of its diversification find its roots in the ideas developed in-house, rich R&D base and a strong network in the country that includes dealers for both the consumer line of goods and the durables. In order to grow its core competencies, the company is always engaged in the conscious training programs, orientation and continuous communication with the Godrej dealers. Many of these dealers have been associated with Godrej for over four decades, an association that is highly cherished. Godrej has developed a team of professionals for designing a wide range of products. It has committed large investments for developing a team of technically competent personnel in R&D, manufacturing, marketing, and distribution.

The main inhibitor of the core competence creation is the patience as it takes a few years to develop core competence in a particular area. The company believes in innovations and there is a continuous conscious culture of research and development. The future plans for core competence is to strengthen more the distribution network and marketing activity.

Use of Core Competence in Technology Acquisition, Assimilation and Implementation

The core competence of the organization plays a vital role in the technology accession process. The company having strong network particularly for consumer lines of goods and durables, can easily access the needs of customers accordingly they have an access to the new technology by means of acquiring it from somewhere. The source of its technology is both indigenous and imported. The technology is used offensively for some products and defensively for some. The chances of technology success may be defined by achieving a great market share, which is due to the diversified field and string network capabilities. The success of technology is also attributed to the culture of encouraging innovations in the organization.

The barriers and resistance are always there during the technology assimilation process. It is overcome by sitting in a group, discussing about their inhibitions and educating them about the new technology and its contribution. Whenever there is change in any set environment, there is always a resistance to change. So, this barrier is always overcome by consistently educating them about the technology. The technology implementation success can be viewed from the end results. Unless the people have knowledge about the new technology, it cannot do well. In addition to knowledge, performance is also required to have the satisfactory end results.

Essence of Core Competence in Strategy Formulation and Implementation

Godrej has pioneered several product categories and in many of these categories, Godrej brands have established themselves as classics. The core competence provides a cutting edge for the company to compete in the market through a range of products, listening to the customers to recognize a real and long term need, and to work towards its fulfillment with determination and not a little flair.

Since the company has got competence in marketing and distribution for both consumer lines of goods and durables, it is able to detect the market demands more accurately. Also the company being diverse in nature can offer variety of quality products as per the customer needs. For instance, the Godrej soaps story starts with an innovation: why cannot we make soaps totally out of vegetable oil instead of animal tallow? The importance of that question was realized because of understanding the sensitivity of the Indian people. The strategy was formulated and implemented on this basis. The result of this experiment was a breakthrough; India's first wholly vegetable soap has become success in India and abroad. Such strategy formulations, which are linked with company's core competencies, have resulted in many jubilant successes.

Role of Flexibility in Strategy Formulation and Implementation

The existing system flexibility of the company adheres to the need to submission to change, as it is the only hope for ones survival. Since the company is diverse in nature, the flexibility in strategy formulation and implementation is apparent. For example, if Godrej Refrigeration division decides a marketing strategy to offer seasonal discount, it is not mandatory that their locks division or detergent division will offer the same kind of discount strategy. Godrej being a diversified organization has branch offices throughout the country, which work as independent profit centers. They take the decisions of their concerned territory directly without making the formal communication with the corporate office. The managers of various branches are given freedom to be decisive as ultimate decisions are taken best according to the situation that occur periodically. The company provides enough of free ropes to the persons who are at the back of in-house R&D development. They are given freedom to monitor their resources to develop a product, which is best suited to the customer in such a way that the innovated product commands a cutting edge in the market. Thus, the flexibility can be linked with the strategy formulation and implementation of monitoring of resources for the innovative product development.

Synthesis of Learning Issues

The major core competence issue that has been addressed in this study include those pertaining to the understanding of core competence function and its introduction in the respective organizations, core competence and technology management, and the essence of core competence and flexibility in strategy formulation and implementation. A number of these learning issues are listed below:

Understanding of Core Competence

* The core competence has not been fully practiced in most of the organizations.

* For the core competence perspective to take root in an organization, the entire management team should cooperate and participate.

* The top management has to have a lot of patience while developing core competencies as it involves great cost and time.

* Using core competencies an organization can grow faster than it is possible by conventional means through a centralized organization.

* As core competence is the collective learning in the organization, the people at senior management level have a very crucial role to play in identifying and building the competencies of their respective organizations.

* Those organizations that have not fully introduced the concept of core competence need to implement it for better corporate performance.

Core Competence and Technology Management

* Core competence of an organization plays an important role for the better performance during the technology acquisition, assimilation and implementation process.

* Core competence improves the chances of success of technology.

* The patterns of diversification and strategic alliances should be guided by core competence of the organization.

* Core competence is responsible for generating a sustainable competitive advantage by providing perceived value to the customer.

Core Competence, and Strategy Formulation & Implementation

* The core competencies are the well spring of new business development and should constitute the focus for strategy at corporate level.

* Collective thinking of the top management increasingly determines the strategy formulation and implementation.

* Some of the core competencies provide the gateways to the future opportunities, the top management must take the responsibility for building and nurturing it.

* With the help of core competence the organizations can achieve objectives and execute strategies effectively.

Flexibility in Strategy Formulation & Implementation

* The flexibility makes use of core competence effective to a large extent.

* The level of flexibility should be improved for better performance.

* The organizational structure should be changed to make the flow of information easy.

Comparison of Learning Issues of Various Organizations

It is clear from the preceding discussion that core competence being a new concept has been introduced in the real sense by HCL only. Despite the fact that other companies have not ceremonized the term, rest of the exercise is being done there also. Besides other features, HCL has a unique characteristic of growing in-house entrepreneurs for growing far faster. Except IDPL, other three organizations believe that the global alliances are mandatory in order to provide differentiating products and services to their customers. Godrej and HCL have a strong distribution network available throughout the country, which is not so strong in Max India Ltd. and least in IDPL. In IDPL the system is very rigid as the board of directors is sole authority in formulating the strategy. Due to government interference and bureaucratic culture, the flow of information is very low, thus flexibility is poor. The use of flexibility in strategy formulation is visible in other three organizations. The flexibility in Godrej can be linked with the monitoring of resources for the innovative product development. In HCL, there are no strict rules and regulations, which is the main factor behind its tremendous growth. Max India Ltd. opines that their systematic flexibility is responsible for absorbing new technologies and formulating strategies based on customer needs.

Conclusion

Four cases have been discussed in the Indian context and synthesis of learning issues is presented. There is a need for proper understanding of core competencies and flexible approach of the organization in order to make the concept more effective. In a nutshell, it can be concluded that a key factor in competing for the future is to develop the competencies that helps in achieving sustainable competitive advantage. The core competence and flexibility provide gateways for new business development and should constitute the focus for strategy formulation and implementation.

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Anjana Kak

Regional Engineering College

Srinagar (India)

Sushil

Department of Management Studies

Indian Institute of Terchnology Delhi

Hauz Khas, New Delhi 110016 (India)

Copyright Global Institute of Flexible Systems Management (GIFT) Apr-Sep 2002
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