Page 265 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes Depending upon the relative strength of the five forces, the key strategic issues facing the
business units will differ from one industry to another.

Note Understanding the nature of each force helps the firm to formulate effective
strategies. As for example, the relative bargaining power of several buyers, groups with
facilitate selection of target buyers.

14.4.2 Core Competencies

Industry structure analysis must be supplemented by an equally explicit core competency focus.
Organisations need to be reviewed as a bundle of a few core competencies, each supported by
several individual skills.
Core competencies are created by superior integration of technological, physical and human
resources. They represent distinctive skills as well as intangible, invisible, intellectual assets
and cultural capabilities. Cultural capabilities refer to the ability to manage change, the ability
to learn and team working.

Example: Microsoft’s only factory asset is its human imagination. The company has
excelled in inventing new ways of using information technology for a wide variety of end users.
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: Core competencies should tie together
the portfolio of end products and help a firm excel in dominating its industry.

Example: Proctor & 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, and Pampers).
2. Export or leverage core competencies to the value chain of other existing businesses: The
same set of core competencies can be exploited in multiple businesses by exporting core
competencies to the value chain of the existing businesses.

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, motor cycles, snowmobiles, lawnmowers, snow blowers,

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