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Core Competency

One of the topics often discussed in Indian MBA classrooms is core competency; probably because the theory was given by CK Prahlad; the Business guru of Indian origin. But is core competency model really true? Let’s take a few successful firms.

Wipro was primarily a FMCG products company till 1980, when it diversified into technology. Today Wipro is one of the 3 technology giants of India with Infosys and TCS. Its revenues are fully dependent on its Technology arm. The extent of restructuring is so high that Wipro's website has no mention of its FMCG business any more
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Another giant, ITC was incorporated in 1910 primarily as a cigarettes company. But soon it started diversifying. Its Packaging & Printing Business Division was set up in 1925. In 1975 the Company launched its Hotels business, and entered the Paperboards business in 1979. In 1990 ITC set up the International Business Division (IBD) for export of Agri-commodities. In 2000, ITC's Packaging & Printing business launched a line of high quality greeting cards under the brand name 'Expressions'. ITC also entered Lifestyle Retailing business in 2000 and spun off its information technology business into a wholly owned subsidiary, ITC Infotech India Limited.
ITC made its entry into the branded & packaged Foods business in August 2001. It today exists in Confectionery, Staples and Snack Foods segments. In 2002, it entered in the Safety Matches segments and finally into the marketing of Agarbattis (incense sticks) in 2003.
In effect, today ITC exists in Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-Exports and Lifestyle Retailing
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In 1890 when Edison invented the electric lamp the problem he faced was to provide electric supply for his lamps. So he set up GE to produce and distribute power. They never thought that their core competency is lighting and not power generation and distribution.
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Many such examples can be given where the core competency was flouted openly. But then the question arises as to why the theory was given in the first place. The answer lies in its application. If you have ever observed, when large corporations consolidate themselves they often exit unprofitable businesses quoting core competency as their prime excuse. This in India has been done by Tata, Birla, and even a few PSUs.
In contrast when a sector of business is in its infancy a lot of support systems are required to support the core technology/sector. So Apple computers had to develop its own OS when it started selling PCs and Microsoft had to come up with its own Office Suit when it started selling Windows. Similarly a new factory in a remote area needs to set up hospitals and schools around its township.
When the sector or area (new township etc) grows, many players come up which start providing these support services. Since they are solely engaged in providing the support they are more competent. This is where the core-competency model comes up. At this point that the older players must decide to exit support or continue with it. In any case such support wings should at least be spun-off as separate organisations so that they do not become parasites to the core functions (as has happened to many PSUs).
But whenever a new enterprise starts up, it should never get misguided by the concept of core-competency. Who knows what is being considered a support function might turn out to be the money spinner in the long run?
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