Growth must sustain profitability and profitability must sustain growth.
In today’s highly competitive and rapidly changing business & economic environment, core competence and capability principles have become mainstay concepts of corporate strategic thinking landscape. They lend themselves well to high-level strategic analysis, but their limited focus and static character do not inherently provide either an application roadmap to develop a competence/capability or, given the existence of a core competence, a framework to achieve active market superiority. The concept of corporate growth engine, a further development of core competence and capability, unifies and extends several existing strategy paradigms, and spans all three phases of the corporate strategy process – analysis, planning and execution. Its characteristics can be used by the management team with the desire to actively drive to sustainable strategic advantage as a blueprint for implementation. Some empirical evidence points at significant benefits for both well and poorly run corporations.
Driving profitable corporate growth presents challenges even during times of economic prosperity. This is especially true for companies that have experienced market success and are already sizable. The bigger the base of the sales, the harder it is to grow it meaningfully without deviating from the original value proposition. Yet, there are critical junctures in a company’s development in which senior management needs to look beyond past successes to chart new courses for continued increases in sales and earnings and drive profitability.
Every business whether small, medium or large consists of five vital components essential for its existence, survival and growth — market, products and services (technology), organization, people, and finance. There are couple components like Innovation, M&A which will propel an organization’s growth. Take away any one of these components and the company ceases to function, all the growth engines utilize the fuel and drive the organization to growth and profitability. Together the fuel and the power of the growth engines drive the company to growth and prosperity.
Let’s define each of these engines more closely.
This component includes the company’s relationship with existing and potential clients/customers, its knowledge of changing needs and opportunities in the market, the way it identifies and reaches to its clients/customers, the quality and speed of service it provides, marketing, advertising, and the selling and management skills its possesses.
PRODUCT AND SERVICES (Technology)
This component refers to the capacity of the company to deliver products and services. It includes the range and quality of products/services it markets, the technical knowledge and skill of engineering, sales and service staff, and the level of technology incorporated in its products/services and utilized to carry on business.
This is the component that holds everything together and forms it into a living whole. Organization consists of the structures, systems, policies, procedures and activities of a business, the manner in which it exercises authority, takes decisions, communicates, coordinates and integrates its activities.
This component covers the energies, abilities, skills, and attitudes of employees that can be harnessed for growth. People and companies grow together. Those companies that provide maximum opportunities for their people to grow find maximum opportunities for their own growth.
This component defines the way in which the company manages, monitors and utilizes capital resources for its growth. It includes the quality of systems and skills for accounting, budgeting and financial management, cash and credit management, control over purchasing and inventory, access to capital.
MERGERS & ACQUISITIONS
Mergers & Acquisitions are inorganic growth engines for any organization. The dominant rationale behind M&A activity clearly focuses on improving financial performance, increased market share thereby increasing the revenue, new geographical footprint and attain size factor. M&A activities are pretty much driven by key trends within the given industry such as changing technology, competition, change in consumer preference and behaviors, pressure to control operating costs.
Innovation is the scientific, technological, organizational, financial and business activities leading to the commercial introduction of a new (or improved) product or service or process. Organic growth of any organization is fuelled by Innovation, which makes it better even in the worst of economic downturns. To create organic growth, leaders need to understand how to create sustainable and resilient capabilities and culture, which in turn makes innovation a reality.
Major Drivers of innovation are
- An increasingly competitive global economic climate.
- Rapid advances in science and technology
- Environmental challenges and sustainability requirements
- Socio-demographic aspects.
- The regulatory environment, standards and Intellectual property rights (IPR)
- Values and public acceptance of new technology
- Market saturation in developed countries
- Continuous increase of customer demands
Balancing the growth engines
The performance of a company is determined by the extent to which it utilizes its potentials. A business achieves maximum performance when each of its five engines is fully developed, and when all five are developed in a balanced and harmonious manner. When the development of the components is uneven, the weaker components prevent full utilization of the capacities of the stronger ones.
Capabilities and Competences
Capability / Competency based strategies are based on the notion that internal resources and core competencies derived from distinctive capabilities provide the strategic platform that underlies an organization’s long-term profitability. Several levels can be established in defining the firm’s overall strategy platform (see figure).
How to develop a core-competence based strategy?
Successful businesses adopt a rigorous approach to identifying and defining their core competencies and then single-mindedly pursue them. A clearly defined vision & mission means a more cohesive corporate culture and fully aligned workforce.
So what is Core Competence? In simplest terms, core competence is a unique capability that affords some type of competitive advantage. It corresponds to a business process, and involves underlying skills, functions, systems and knowledge.
There should be a platform that integrates the areas of Strategy, Organization, Finance, Technology and Marketing to provide comprehensive views of:
- Creating and leading a growth-focused organization that focuses on both top and bottom lines.
- Developing key processes that balance the need to drive profits through operational excellence with the need to invest in innovations and risky acquisitions to create future growth platforms.
- Implementing a market-focused culture that uses customers as a key asset to drive profitability and provide corporate opportunities to develop margin sustaining client solutions
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.