World-Class company still a dream
There is no Malaysian “World Class Company” and this has made our nation’s leaders obsessed with creating or acquiring a few especially during the Tun Mahathir era. We always cite Singapore’s Creative Technologies as a shining example and weep into our teacups because we have nothing to trumpet. Sure, we have Petronas, but that is a national oil company with an absolute monopoly over all our energy resources. We don’t have a truly entrepreneurial Malaysian icon. Korea has its Samsung, Hyundai and LG, China has Haier and Huawei Technologies, India has Infosys and Tata Consulting even the Philippines has San Miguel. Malaysia, well unfortunately we have nothing but a dream.
Yet a world-class company cannot be created out of the figment of the imagination of our nation’s leaders. World-class status is the result of strategic competitive advantage, created through the core competences of companies with truly excellent, innovative management. We fail at the first hurdle because few of our companies come close to creating such competitive advantage, as most are ‘me-too’ businesses with less than the best in management quality. This is no doubt a hard-hitting statement, but I would love to be disproved if anyone can do it.
The concept of a ‘core competence’ is not new, but it was made prominent by two American academics C.K. Prahalad and Gary Hamel in a Harvard Business Review article in 1990. Prahalad and Hamel define core competence as the collective learning in the organisation, the organisation of work and delivery of value and the communication, involvement and a deep commitment to working across organisational boundaries, involving many levels of people and all functions. A core competence also has three characteristics, it provides potential access to a wide variety of markets, it increases perceived customer benefits and it is hard for competitors to imitate.
Three other experts – Kevin P. Coyne, Stephen J.D. Hall, and Patricia G. Clifford - in a 1997 McKinsey Quarterly article define core competence as “…a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard”.
Clearly, the key to creating a core competence and the ability to deliver a competitive advantage lie in the ability of the management within these organisations. Good management alone is not enough however, as they must also be able to use their knowledge, and the collective learning within the organisation to execute one or more critical process to a world class standard.
This is best explored by looking at several examples.
Coyne, Hall and Clifford used the example of the outstanding financial returns earned by Berkshire Hathaway and the Fidelity Magellan Fund using data publicly available to other stock analysts. The core competence of Warren Buffet and Charlie Munger of Berkshire Hathaway is the innate ability to see what others cannot and to successfully invest using publicly available data. This ability to excel using the same information available to others is a core competency.
Let us take several examples in the technology world. Oracle for example has developed a core competence in database management and virtually every large database system in the world uses Oracle, from financial services to governments. It has created such a competitive advantage that in the last 20 years there have been no real challengers to Oracle in the area of database management.
Core competency can also relate to design development. Apple computers is a classic example of a company that keeps re-inventing itself based on its designs. In terms of being a manufacturer of personal computers, it is just another manufacturer like Dell, HP or Acer, but its ability to come up with unique designs, which it can sell at higher margins and thereby keep ahead of other competitors, is its core competency.
Take the iPod for example. There are numerous brands of MP3 players in the market and many were there even before the iPod but when Apple launched its cute-looking iPods it took the MP3 player market by storm. Today it is the standard for MP3 players; in fact no geek will be without one. In terms of quality or as music equipment, there is no difference with any other player, but in terms of design, it is second to none. That is its core competency and that is the only way in which Apple has excelled all these years.
Speaking of Dell, it is until today the only major personal computer supplier that still delivers profits time and time again and is always exceeding investor expectations. It built up a core competency in designing PCs to order and delivering sales online or via the telephone. When Dell first started selling online, none of the other PC manufacturers were at all concerned that it would be able to make an impact on their sales but it has proven them all wrong and is now the world’s second largest PC manufacturer (after HP) and the most profitable. By selling online it saves on sales commissions to re-sellers and by building on demand it can minimise on storage of excess computers and parts, thus saving on costs and delivering consistently higher margins. While every other PC maker is still stuck in the old way of making and selling PCs, Dell continues to outsell most of them, thanks to its core competency in build to order PCs and online sales.
Core competency is not only about expertise or knowledge; it is also about creating organisational processes that create the greatest possible competitive advantage for your firm. Take Wal-Mart the world’s largest and most successful supermarket chain. Few know that Wal-Mart has one of the most advanced computer systems in the world just to keep track of its stock of goods, to manage its logistics and to ensure that all its supermarkets are well stocked all the time. The size and sophistication of its computer systems is second only to the Pentagon, in fact it could probably run entire governments if need be.
One of the worst experiences for a shopper is to go to a supermarket and find empty shelves. Wal-Mart solved this problem via its highly sophisticated data warehousing and data management system which links all its supermarkets to a central office which is then linked to its storehouses, its in-house trucking service and its suppliers. The sophistication of its system enables it to not just manage its stocks but also keep track of customer preferences on a daily and seasonal basis, track competitor prices, manage deliveries just in time to minimise holding costs and manage its entire logistical process. This is Wal-Mart’s core competence. There are many large supermarket chains in the world from K-Mart to Carrefour to Makro but none of them had such a sophisticated system and never developed this as a core competency until Wal-Mart came along.
Creating a World-Class company is not a matter of government support or venture capital funding or getting listed on an exchange. The government can provide all the assistance it can muster but it will never create a World-Class company, and that is where Malaysia has failed.
Creating a World-Class company demands the creation of a core competency in the firm, whatever that core competency may be. If a Malaysian company wants to challenge the best in the world, then it has to examine its internal capabilities, its people and systems to determine where its core competence is and make that the engine that drives its business towards being the best of breed. Being world class is about being the best in what you do and to be the best, you must know what to be best in and how that can be achieved.
Too many of our companies are mediocre, without the best quality of management and systems. The most important thing to do is to hire the best people in all areas of management yet in virtually 99.9 % of Malaysian firms we will find it hard to say they have the best management in Malaysia if not Asia, and unless that happens we can forget about creating World-Class companies. It certainly is not for lack of talent as there are many Malaysians working overseas or in multinational corporations within Malaysia and doing an excellent job.
First start with the people then with the systems and this can only be achieved by each individual company and not by government support or pressure. Will we ever have a world-class company? It is a definite possibility but it will not be easy to break our culture of mediocrity and our crutches of dependence on the government. Until we do that it will remain but a dream.
Dated: 11 July 2005
Yet a world-class company cannot be created out of the figment of the imagination of our nation’s leaders. World-class status is the result of strategic competitive advantage, created through the core competences of companies with truly excellent, innovative management. We fail at the first hurdle because few of our companies come close to creating such competitive advantage, as most are ‘me-too’ businesses with less than the best in management quality. This is no doubt a hard-hitting statement, but I would love to be disproved if anyone can do it.
The concept of a ‘core competence’ is not new, but it was made prominent by two American academics C.K. Prahalad and Gary Hamel in a Harvard Business Review article in 1990. Prahalad and Hamel define core competence as the collective learning in the organisation, the organisation of work and delivery of value and the communication, involvement and a deep commitment to working across organisational boundaries, involving many levels of people and all functions. A core competence also has three characteristics, it provides potential access to a wide variety of markets, it increases perceived customer benefits and it is hard for competitors to imitate.
Three other experts – Kevin P. Coyne, Stephen J.D. Hall, and Patricia G. Clifford - in a 1997 McKinsey Quarterly article define core competence as “…a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard”.
Clearly, the key to creating a core competence and the ability to deliver a competitive advantage lie in the ability of the management within these organisations. Good management alone is not enough however, as they must also be able to use their knowledge, and the collective learning within the organisation to execute one or more critical process to a world class standard.
This is best explored by looking at several examples.
Coyne, Hall and Clifford used the example of the outstanding financial returns earned by Berkshire Hathaway and the Fidelity Magellan Fund using data publicly available to other stock analysts. The core competence of Warren Buffet and Charlie Munger of Berkshire Hathaway is the innate ability to see what others cannot and to successfully invest using publicly available data. This ability to excel using the same information available to others is a core competency.
Let us take several examples in the technology world. Oracle for example has developed a core competence in database management and virtually every large database system in the world uses Oracle, from financial services to governments. It has created such a competitive advantage that in the last 20 years there have been no real challengers to Oracle in the area of database management.
Core competency can also relate to design development. Apple computers is a classic example of a company that keeps re-inventing itself based on its designs. In terms of being a manufacturer of personal computers, it is just another manufacturer like Dell, HP or Acer, but its ability to come up with unique designs, which it can sell at higher margins and thereby keep ahead of other competitors, is its core competency.
Take the iPod for example. There are numerous brands of MP3 players in the market and many were there even before the iPod but when Apple launched its cute-looking iPods it took the MP3 player market by storm. Today it is the standard for MP3 players; in fact no geek will be without one. In terms of quality or as music equipment, there is no difference with any other player, but in terms of design, it is second to none. That is its core competency and that is the only way in which Apple has excelled all these years.
Speaking of Dell, it is until today the only major personal computer supplier that still delivers profits time and time again and is always exceeding investor expectations. It built up a core competency in designing PCs to order and delivering sales online or via the telephone. When Dell first started selling online, none of the other PC manufacturers were at all concerned that it would be able to make an impact on their sales but it has proven them all wrong and is now the world’s second largest PC manufacturer (after HP) and the most profitable. By selling online it saves on sales commissions to re-sellers and by building on demand it can minimise on storage of excess computers and parts, thus saving on costs and delivering consistently higher margins. While every other PC maker is still stuck in the old way of making and selling PCs, Dell continues to outsell most of them, thanks to its core competency in build to order PCs and online sales.
Core competency is not only about expertise or knowledge; it is also about creating organisational processes that create the greatest possible competitive advantage for your firm. Take Wal-Mart the world’s largest and most successful supermarket chain. Few know that Wal-Mart has one of the most advanced computer systems in the world just to keep track of its stock of goods, to manage its logistics and to ensure that all its supermarkets are well stocked all the time. The size and sophistication of its computer systems is second only to the Pentagon, in fact it could probably run entire governments if need be.
One of the worst experiences for a shopper is to go to a supermarket and find empty shelves. Wal-Mart solved this problem via its highly sophisticated data warehousing and data management system which links all its supermarkets to a central office which is then linked to its storehouses, its in-house trucking service and its suppliers. The sophistication of its system enables it to not just manage its stocks but also keep track of customer preferences on a daily and seasonal basis, track competitor prices, manage deliveries just in time to minimise holding costs and manage its entire logistical process. This is Wal-Mart’s core competence. There are many large supermarket chains in the world from K-Mart to Carrefour to Makro but none of them had such a sophisticated system and never developed this as a core competency until Wal-Mart came along.
Creating a World-Class company is not a matter of government support or venture capital funding or getting listed on an exchange. The government can provide all the assistance it can muster but it will never create a World-Class company, and that is where Malaysia has failed.
Creating a World-Class company demands the creation of a core competency in the firm, whatever that core competency may be. If a Malaysian company wants to challenge the best in the world, then it has to examine its internal capabilities, its people and systems to determine where its core competence is and make that the engine that drives its business towards being the best of breed. Being world class is about being the best in what you do and to be the best, you must know what to be best in and how that can be achieved.
Too many of our companies are mediocre, without the best quality of management and systems. The most important thing to do is to hire the best people in all areas of management yet in virtually 99.9 % of Malaysian firms we will find it hard to say they have the best management in Malaysia if not Asia, and unless that happens we can forget about creating World-Class companies. It certainly is not for lack of talent as there are many Malaysians working overseas or in multinational corporations within Malaysia and doing an excellent job.
First start with the people then with the systems and this can only be achieved by each individual company and not by government support or pressure. Will we ever have a world-class company? It is a definite possibility but it will not be easy to break our culture of mediocrity and our crutches of dependence on the government. Until we do that it will remain but a dream.
Dated: 11 July 2005
posted by Dr. Siva at 10:24 PM
0 Comments:
Post a Comment
<< Home