Core Competencies, Strategy, and Organizational Change

Core Competencies and Functional-Level Strategies

Core competencies are those capabilities that are critical to a business achieving a competitive advantage in the marketplace. Typically, core competencies can be identified by certain common characteristics: they offer a benefit to the customer, are difficult to imitate, uniquely identify the organization, and are easily leveraged to create many products or operate in many markets (Kern, 2010). The organization that is best able to use its resources to create value is in an ideal position to outperform the competition, thus creating advantage (Jones, 2010). Core competencies tend to change in response to changes in the environment. They are flexible, evolve over time, and enable the company to enter apparently different markets with a clear and distinctive brand proposition. Examples of core competencies include manufacturing, research and development, new technology, and organizational design and change. They should be difficult for competitors to imitate — truly unique in nature (Kern, 2010).

Functional-level strategy relates to a single functional operation and all its related activities. Decisions at this level within the organization are often described as tactical (Jones, 2010). Functional strategy deals with relatively restricted plans that provide objectives for a specific function. It also involves the allocation of resources among different operations within that functional area and coordination between them (Kern, 2010). Below the functional-level strategy, there may be operations-level strategies, as each function may be divided into several sub-functions. For example, marketing strategy — a functional strategy — can be subdivided into promotion, sales, and distribution, all of which contribute to the broader functional strategy. Human resources, research and development, and information technology are all examples of functional-level areas.

Corporate-Level Strategy and Expansion into New Domains

Corporate-level strategy uses the core competencies attained at the business level to protect and grow an existing domain and expand into new ones (Jones, 2010). Expanding makes sense when resources are available and additional value creation cannot occur within the present core domain (Carlopio, 2011). Organizations must be re-evaluated as firms grow and change strategies. In new domains, more complex structures may be necessary so that the value-creation skills present in the divisions and at corporate headquarters combine to improve the competitive position of all divisions (Jones, 2010). Corporate strategists apply the various combined resources of an organization in creative ways to maximize value, rather than relying on each division to operate in isolation.

There are three main types of corporate-level strategies: vertical integration (ownership of suppliers and distributors), related diversification (entry into relevant new domains), and unrelated diversification (entry into unrelated new domains). An organization needs to create a culture that reinforces and builds on the strategy it pursues (Carlopio, 2011). As the corporate direction and strategy change, so too must the organizational culture. To distinguish between a value-creation opportunity and a value-losing one, managers must evaluate the costs and benefits associated with entering a new domain (Jones, 2010). Interorganizational strategies increase value by allowing an organization to avoid the bureaucratic costs often associated with managing a new operation in a new domain. For example, as divisions increase in number within an organization, so too do the costs associated with managing interdivisional activities. Strategic alliances and joint ventures can help create cooperation between divisions or organizations while controlling overall costs.

Organizational Change: Forces and Resistance

Significant organizational change occurs as an organization shifts through various life cycles — such as changing its overall strategy for success, dissolving a division of the business, or transforming its corporate culture and operational practices (Carnall, 1995). Organizational change is usually undertaken to improve the performance and competitive standing of a company (Jones, 2010).

Six main categories of theories of change assist in understanding, describing, and developing insights about the change process: (1) evolutionary, (2) teleological, (3) life cycle, (4) dialectical, (5) social cognition, and (6) cultural. Each model has a distinct set of assumptions about why change occurs, how the process unfolds, when change occurs, how long it takes, and the outcomes of change. The main assumption underlying evolutionary theories is that change is a response to external circumstances, situational variables, and the environment faced by each organization (Morgan, 1986). Teleological theories, or planned change models, assume that organizations are purposeful and adaptive. Change occurs because leaders, change agents, and others see the necessity for it. The process of change is rational, and individual managers are instrumental to the process (Carnall, 1995).

Life-cycle models evolved from studies of child development and focus on stages of growth, organizational maturity, and organizational decline (Levy and Merry, 1986). Change is conceptualized as a natural part of human or organizational development. Dialectical models — also referred to as political models — classify change as the result of clashing ideologies or belief systems (Morgan, 1986). The change processes associated with this model are considered to involve bargaining, consciousness-raising, persuasion, influence, power, and social movements (Bolman and Deal, 1991).

Social-cognition models describe change as tied to learning and mental processes. Change occurs because individuals see a need to grow and alter their behavior. In cultural models, change occurs naturally in response to alterations in the human environment; cultures are always changing (Morgan, 1986). The change process in cultural models tends to be long-term and slow, and involves altering values, beliefs, myths, and rituals (Schein, 1985).

Resistance to organizational change includes power and conflict, differences in functional orientation (tunnel vision), mechanistic structure (heavy expectation and adherence to norms), and organizational culture in general (status quo). Groups or individuals may also be stumbling blocks to progress. Groupthink, or general uncertainty and insecurity about new structures, processes, or value statements, may come into play (Jones, 2010). Managers should analyze how proposed changes will affect people, functions, and divisions inside the organization.