The ‘Core Competency’ theory approach: application in the case study of Wal-Mart
Wal-Mart, a global leader in the retail market arena, is a unique entity to pick in a discourse about Core Competencies as espoused by Prahalad and Hamel’s theory. Strategy formulation is a core ingredient in the success of a firm/ organization and Wal-Mart has proved to be a good example in its implementation. With the above, this entity provides a good example for discourse to find out if theory application is present or not, among other views.
In this paper, the unique market position and effects of a global retailing outlet, Wal-Mart (American), will be discussed. The company’s success has been widely acclaimed and at the same breadth criticized. Through this work, an introduction of the retailer will be given, along with the description of reasons for its selection as a preferred entity. Furthermore, there will be a comprehensive application of Prahalad and Hamel’s theory of ‘core competencies’ in the discussion of the retailing giant, this in addition to a clear conception of the aforementioned approach (inclusive of any other knowledge of relevance). Thereafter a critical assessment of ‘the inside-out approach’ will be provided in addition to a balanced critic of the ideal of strategy formulation.
Wal-Mart: marketing uniqueness
Wal-Mart Stores, Inc. is an American global retailing entity, whose global reach entails a myriad of huge interconnected warehousing and discount department outlets. Acclamations abound as to the great impact it has had, not only on the American economic arena, but also on the global arena at large. It is by far the leading private employer globally (estimates of over 2 million employees), the third largest conglomerate in the public sector, and the chief global retailer. Further adding to its uniqueness, is the fact that this entity is ‘family-owned’, the Walton family stake a claim of 48% of controlling shareholding.
Its headquarters are in Bentonville, Arkansas. It has been publicly traded in the NYSE (New York Stock Exchange) since 1972. Being the principal grocery retail store in the U.S., it generates quite an amount through grocery sales to the tune of over $100 billion. According to its 2009 report, total figures were close to $260 billion in sales in the U.S alone. Owning and thus operating the Sam’s Club retail depots is an added advantage, which has proved to be profitable over time.
Using Prahalad and Hamel’s theory of Core Competencies we can clearly state that Wal-Mart applied the core competencies. For instance, Wal-Mart has a skill set of new market creation. Wal-Mart is one of the few entities that have mastered the concept of new market creation, the subsequent quick and timely entry into these emergent markets and the dramatic shift of patterns as regarding consumer choices in such markets. Its management has taken on the critical step of creating an entity that is capable of not only infusing its array of products and services with irresistible aspects of functionality, but also in the creation of services and products needed by their customers as civilization progresses.
With over 8500 stores in 15 countries and 55 associated brand names, it has been able to not only propel, but also position itself as a global entity. From the initial start, the global retailer, as envisaged by its founder, Sam Walton, has concentrated on a core competency of – providing quality services and products, at the lowest prices possible, aimed at initiating greater sales volumes at the lowest margin of profit achievable. He was able to find and then build on a strong relationship with ‘low-cost’ suppliers, who were willing to supply at costs relatively lower than the rest of existent suppliers (Ingram, 2010, p. 55).
A Core competency is resultant from ‘the application of particular skill-sets or production systems that are aimed at delivering value to consumers and customers. Through the utility of such competencies, an organization, business entity or corporation is able to explore and gain access to a wide range of available markets. This becomes possible due to the work of top management and executive team of a business entity, along with a thorough planning schedule well in advance, for both opportunities and challenges that are likely to impact on the business’s future. Due to this planning, a business is able to retain its niche in the competitive business arena, through a variant of situations and environments (Prastacos, Soderquist & Vakola, 2005, p 67).
According to the management theory concept as proposed by Gary Hamel and C. K. Prahalad (1990), a core competency refers to ‘a business entity’s perception in regards to a unique factor that is envisioned as being fundamental to the business’s or its employees’ functionality. There are three key aspects of this theory; it is utilizable in a variety of markets and products sold; it essentially possesses the ability to provide key customer benefits (the product and service’s significance), and it is difficult to be imitated by a business entity’s competitors (Prahalad, 1990, p. 65). Wal-Mart has applied the concepts of the theory in the sense that it has established itself in a variety of markets selling its products to its customers at a subsidized fee. It has also strategically placed its stores in easily accessible places in cities and towns.
It may involve various aspects such as reliable procedures, valued customer and supplier relationships, technical knowledge, valued business culture, product improvement, effective market exposure, positive and rigorous employee commitment and also a HRM (Human Resource Management) best practice of conducts. For instance, Wal-Mart has a highly developed customer supplier relationship with a known business culture that customers identify with. The employees are committed to serving customers an all Wal-Mart stores. Thus, from the above, it is possible to say that core competencies refer to those specific strengths in possession of one business entity that are distinguishable from other rival competing entities and are the primary basis in the provision of added business value.
Inclusive of shared learning in an organization, they also involve the effective coordination of varied skills of production and incorporated variants of production technologies utilized. Thus, they can be viewed as the involvement of personal communication and strong commitment to functionality across boundaries of the organization. Wal-Mart prides itself from a strong commitment to offering the very best, efficient and sufficient customer support and service. Wal-Mart stores have been developed in such a way that the customer does not worry about going to the market the next day and finding the store closed. Through continuous enhancement, there are crucial results in the development of a business or organization’s core competencies over time (Prahalad, 1990, p. 79).
Their significance is vital, especially when there is a need for the global success of an entity rather than the entity’s choice of vertical integration, such as Wal-Mart’s case. Therefore, business executives are required to develop critical viewpoints as to how individual core competencies can be utilized in order to catalyze future new business establishments. Wal-Mart has executives who are highly qualified and strategize on the success of the stores in different market situations. Key to the above is the development of independent viewpoints about prospective future opportunities and thus advance preparations in terms of the creation of capabilities prerequisite for their exploitation (Gallon, 1995, p 25).
The theory of core competencies has been used by Wal-Mart where it has used the utility of supercenters and stores. These stores, complemented by the integration of its ‘Neighborhood Market’ concept (another key core competency), enabled Wal-Mart to surpass all other retailers in the business of retail groceries and consumables. It is essential to emphasize its ownership of over 6,200 facilities globally; these include 3,800 stores in America only, with 2,800 elsewhere. It is the employer to more than 1.6 million workers, whom it refers to as ‘associates’ globally. Key to its success is the concept of strategic placement. This is best exemplified in America, where the amount of Wal-Mart stores is substantial, since these stores are rarely over 60 miles from the nearest social setting or community (Godfrey, 2012, p. 76).
Another application of the theory is in key core competency of retail giant’s efficiency in logistics. From ‘low-cost’ suppliers to its warehousing facilities and its strategically positioned stores and centers, the global retailer is thus able to not only efficiently, but also effectively utilize its business resources. Its idea of ‘find all, shop more’ has enabled it circumnavigate many letdowns that contemporary businesses fall prey to. Its principle of always planning has in effect produced a very welcome domino effect. Moreover, its variety of nearly all consumer products, offered at the cheapest price possible all under the same roof, contributes vastly to the company’s success (Porter, 2008, p. 98).
From the above, I can say that my view in the application of ‘the core competency theory’ has successfully been utilized in the case of the Wal-Mart. Thus, I am a proponent of the aforementioned application of theory. Limitations exist in the form of a lack of sufficient data/ information as pertaining to the Inside-affairs of the global entity, as information utilized is sourced from other sources and not specifically from the entity itself. Core business strategy and processes involved, is a treasured secret that is not often disclosed to the public. Recommendations, could involve actions such as further data collection and analysis; a personal visit to any of the entity’s various outlets, this with the aim of observing, enquiring, analyzing and final producing a more detailed report/ review (Johnson, 2009, p. 40).
According to the business book course MN7558 Strategy, Business Information and Analysis strategy entails ‘the scope and direction of a firm/ entity over the long-term, with the aim of achieving prevailing advantages in a dynamic environment through its maximization of both present competencies and resources, aimed at rewarding its stakeholder’s expectations’. With Wal-Mart as the largest global retailing entity, the above statement would only best espouse the utility of the aforementioned core competencies (University of Leicester, 2012, p 34).
Its continuous growth and profit-making streak, is proof of an existent success-story in its core strategy formulation and implementation team/ section. Despite the recent economic meltdown, the entity recorded superb profits, this being because of higher sales volumes. Strategy being long-term, is reflective of an entity’s objectives and goals, thus the retailer is proof of excellent strategy and management (Ingram, 2010, p. 87).
The ‘Core-competency’ approach; a positive outlook of Wal-Mart’s successful venture
The core-competency approach is rooted in the core analysis and outlook of an entity’s overall management and outlook/ forecast. As aforementioned, strategy (formulation and implementation), is a prerequisite to successful ventures. Long-term prospects entail the very backbone of strategy formulation, in terms of an entity’s objectives and goals. This is achievable through the process of ‘core-competency based’ strategy formulation. Prerequisites, such as capital/ resources in terms of labor-force, monies and logistical capacity, entail an entity’s strategic value (Suhomlinova & Higgins, 2011, p 56)
‘Direction/ course’ charting is the specific obligation of top management implemented by the subsequent facets of an entity. Key to success, are the two vital notions of ‘content of strategy (-ies) and the key process of strategy formulation/ making. Wal-Mart’s top management has maintained dynamism in its future prospects. Wal-Mart develops itself in foreign Markets as its business strategy expands showing that the leadership of Wal-Mart has a dynamic strategy that is varied from exploratory ventures, to settling on already existent business undertakings, the global retailer has portrayed an essence of brilliant strategy formulation and its implementation (Gulick, 2011, p. 54).
In addition, ‘competitive advantage’ is shown in Wal-Mart’s different undertakings through a strong and respected organizational culture that is rooted in ‘customer satisfaction, at the low price strategy. Through this, Wal-Mart as an entity has been able to successfully fulfill its stakeholders/ interest parties’ various expectations, its variant of associates, stakeholders and partners notwithstanding. Interdisciplinary strategy formulation and implementation across all arenas, pertains to the same use of ‘vocabulary, concerns and present tensions’.
In the contemporary arena, a convergence of ideals or patterns is espoused not only in the economic sector, but also in the political, educational, religious, military, judicial and cultural arenas. Wal-Mart has espoused a combination of the aforementioned variant patterns in the successful venture it has. Wal-Mart operates in environments with different political, religious, military, cultural and judicial spheres but manages to give the customers the services and products that they require (Bani-Hani & AL-Hawary, 2009, p 97).
Accordingly, Henry Mintzberg, refines the above perspectives of ‘Strategy: its formulation and implementation’, as being among the 5Ps. Strategy as a Plan being espoused vividly by Wal-Mart’s organizational culture that is rooted in ‘consciously intended, made-in-advance strategy processes’. Secondly is ‘strategy as a ploy’ throughout its history, the retailer has been a great ploy-maker; often short-term, which include, its utility of both offensive and defensive maneuvers, in addition to reactionary decisions and tactical plays. Thirdly, is strategy as position; is best espoused by its long and tedious strive, this to become a ‘one-stop store’. Its family-oriented organizational culture provides it with the undisputable position of family care provider and entertainer (Kak, 2004, p 10).
Fourth is its utility of ‘strategy as pattern’ through its generational organizational culture. The pattern of all of its variants of composite entities is similar to a place/ venue where one (customer) can come to shop, at the same time enjoy a family-friendly host of services and products; all these under one roof as espoused by the variant of centers and outlets under its name. The fifth is its utility of ‘strategy as perspective’ that best espoused by Wal-Mart’s unwavering organizational culture and business perspective. It entails its core belief in its uniqueness as a global retailer, its attitude/ character as the ‘best stop for family needs’ and its greatly valued organizational culture (Godfrey, 2012, p. 17).
The ‘inside-out approach’: a critical evaluation of its utility in strategy formulation
Strategy planning entails a number of assumptions; these as process based on rational; through which, the CEO/ COO (representative of top management) is the chief strategy architect; with the rest of the entity’s various personnel/ staff composing the implementation phase/facet of the entity. These three, as identified by Mintzberg, are the basic facets as to the running and management of an entity. The presence of a ‘hierarchy of plans’ ensures that each super-ordinate (higher) activity/ course of action is appropriately supplied with inputs from its subordinate composite facets.
Wal-Mart, has over the years utilized the following techniques of strategy formulation: - enterprise-level management through its ‘Board of Director’s strategy formulation. Not only is its purpose in society engrained in its organizational culture, but also its ownership structure and manner of governance. In conjunction to the above, is ‘corporate-level strategy involved with identifying the kind of viable business options exploitable. Are its enterprise-level strategies being fulfilled, is the core question in this level of strategy formulation (Godfrey, 2012, p. 76).
Not only are socio-cultural factors considered, but also political as espoused in Wal-Mart’s variant of associates, labor-force, customers/ clients and regional outlets. It has been keen to perceive and thus respond appropriately, in dealing with industry-level issues. On the business-level strategy, the retailer has been able to ensure that its various entities individually apportion their available resources in their quest for fulfilling each customer/ consumer’s needs
Through provision of unique services and products in the field of home/ family consumer-ship, enables this entity ‘cut a niche’ for itself, at fulfilling its various customers’ needs/ desires. Hand in hand with the above is functional-level strategy, which entails the day-to-day running of each of its individual composite entities. These are distinctively developed, as entailed in its marketing and accounting facets, in addition to its logistics, technology and human resource fields (Vargo S., 2004, p. 17).
Accordingly, Leavy & McKiernan (2009), proposed that strategy formulated on related diversification, is of more importance (this being measureable in terms of shareholder returns/ benefits), than strategy of unrelated diversification. This entails branching out into arenas, industry or market where an entity already possesses knowledge, capability or experience through the advantage of existent competencies to increase success rates at the same time reducing expenditures/ costs in the dynamic contemporary arena.
Wal-Mart, through the variant of core competencies utilized, has over the years been able to lead to is successful ventures; these in an arena/ market that it has over the years dominated. Considerable application is therefore utilized in defining the overall wholesome entity by the name ‘Wal-Mart’ through theories such as ‘Parenting theory’. This is espoused by the presence of the entity’s corporate center, as represented by its HQ in Arkansas, USA. From this focal point, global business procedures are determined through value adding activities/ ventures that contribute to the easy, effective and efficient management of the global retailer (Gulick, 2011, p. 76).
Not only is the entity’s future course/ path/ direction set, through enterprise-level strategy processes at the corporate center, but also advisory role, policy issues and overall protection and security of the global retailer’s various outlets. Central services including capital and resource procurement, in addition to logistical issues, are fundamentally pertinent to a business’ success, and Wal-Mart as an entity has been able to capitalize on these capabilities.
In the contemporary arena, based on its growth rate, Wal-Mart may be considered a ‘cash-cow’ as pertaining to most of its well-known and long-functioning composite entities. Its supercenters and outlets are long established entities, that prevailing in the contemporary ‘matured market’; bring good returns (+ve cash balances) with minimal reinvestment being necessary. Its maintenance of ‘low-prices to gain maximum profits available further solidify its success story. Initially a ‘star’, it generated great amounts of cash; these to be consumed back by associated costs because of new market ventures (Leavy, 2009, p. 32).
The inside-out approach, in strategy formulation and focus entails the integration of a sequence of activities, which result in standardized products/ services, with appealing features (to the consumer) at the lowest prices possible. This pertains to ‘cost-leadership strategy’. On the converse, is ‘the differentiation strategy’, which results in non-standardized products/ services, with features that are specifically appealing to those willing to pay extra/ premium prices.
On the issue of protection against the five forces ‘cost-leadership strategy’ entails the utility of experience in weakening existing rivals through greater sales volumes. The cost leader is the only entity that can effectively compete on price settings due to the inherent price-based advantage, while rivals resist the attempt. When new market entrants increase competition, price settings are utilized to force competition out. When substitutes pose threats, the rapid entry into substitute industries is enabled by the presence of accrued large reserves. On the alternative, price fluctuations (reductions) can be employed to bring back customers (Porter, 2008, p. 54).
Still on the same is the power of suppliers vis-à-vis global buyers. Suppliers are put in check through the absorption of price increases, as is bulk buying, which necessitates favorable business terms on the suppliers’ side. In case of price sensitivity, this on the part of buyers, their collective bargaining chip is limited.
On the converse, is the ‘differentiation strategy’; business rivals are mitigated through the possession of unique products or services, of which there are no existent equivalents. Through brand loyalty (achievable only through differentiation), new entrants are less effective, as this acts as a hurdle for their entry. New competition is thus required to develop unique aspect to attract their fair share of buyers. Substitutes and their threats are negated due to the existent customer/ brand loyalty because of loyal customers/ consumers (Grant, 1991, p 135).
Suppliers’ powers are negated, as increases in product/ service prices are absorbed through higher prices passed to willing customers whose powers, are in turn negated by their brand loyalty. As entailing value chains ‘cost-leadership strategy’ entails the out-sourcing of primary activities, whose focus in primarily intended to be on both in-bound and out-bound logistics. Outsourcing research, service costs and marketing angles of a business to lower-cost firms, reduces costs. Support activities, are thus focused on cost reduction (Porter, 2008, p. 78).
On the other hand, the ‘differentiation strategy’ approach maintains its attention on R & D, service and marketing that are crucial to the maintenance of consumer loyalty. Support activities such as HR require more investment options, as the employment of personnel with the right credentials often comes at a higher cost. Through the value-adding activity as espoused by technological advancements, loyalty is thus preserved, as espoused by being ahead of all competition through the keeping relevant of the differentiation basis.
In terms of trade-offs ‘cost leadership strategy’ entails the acceptance of low-levels of differentiations in relation to existent competitors, as differentiation is an expensive venture. Through caution, there is the adoption of ‘a follower strategy through the utility of available resources to acquire product patents or produce similar products (aided by reverse-engineering tools) at the lowest price alternative. Focus on other business segments should be ignored, their profitability potential notwithstanding. On the other hand, ‘the differentiation strategy’ entails a prioritization on key components, as trying to satisfy all consumer needs could potentially lead to reduced customer loyalty (numbers) and thus sales (Vargo S., 2004, p. 34).
Pertaining to Competitive risks, the ‘cost-leadership strategy’ entails the protection of core activities from becoming obsolete due to competitor innovations, as this portents high-risk business vulnerability. There should be a balancing of both costs and services pursuit coming at a cost that may/ may not satisfy consumer service levels. In terms of imitations, the prerequisite of only a single-cost leader being present at a given period necessitates fierce competition. Once, a firm loses this advantage, there is little prospect of achieving competitive advantage (Lee, 1999, p 36).
Converse is the ‘differentiation strategy’, great price differences between it and ‘cost-leadership oriented strategy may result in reduced customer volumes, especially in times of financial hardships (Swamidass, Darlow & Baines, 2001, p 1289). There is also the other issue of the differentiation of an entity’s unique products becoming obsolete, or no longer in demand. In addition, in scenarios where differentiation does not deliver perceived consumer benefits, the alternative low-cost options become more enticing as consumers look for more cost-cutting options. Due to the susceptibility of different offerings/ products to counterfeiting and replication, such market-clinching strategies may become obsolete as fakes flood the existent market (Porter, 2008, p. 80).
In conclusion, Wal-Mart as per the above, maintains a ‘cost-leadership strategy as pertaining to the formulation of strategy. Through the ‘outsourcing strategy’, the entity has been successful in franchising foreign outlets, in supporting its logistics angle and in the procurement of products and services core to its success. Its strategy is based on upper-management roles in accordance with its Board of Directors and stakeholders wishes. Prahalad is able to work with them through the utility of the ‘core competency’ approach in evaluating the global entity.