Question

Explain the meaning and importance of this advice: firms should base strategies on core competencies rather than products. When is this approach to strategy formulation especially important? With examples we discussed, explain what can go wrong if this advice is ignored.

Answer 1

Core competency is an organization's defining strength, providing the foundation from which the business will grow, seize upon new opportunities and deliver value to end customers. A company's core competency is not easily replicated by other organizations, whether existing competitors or new entries into its market. Basis on these core competencies, company needs to formulate strategies rather than focusing on product because a product without having a base of strategies is nothing. It cannot be sold easily and that will create a problem for a company in short term as well as long term. Therefore, formulating strategies on core competencies are really very important.

A strategy is a detailed action programme to achieve the objective of the organization. In other words, it is a consciously co-ordinated action programme to achieve a particular objective which a company sets. A strategic plan, when communicated to all members of an organization, provides employees with a clear vision of what the purposes and objectives of the firm are. Strategic formulation allows the firm to plan its capital budgeting. Companies have limited funds to invest and must allocate capital funds where they will be most effective and derive the highest returns on their investments. Strategy deals with how product will be made, at a lower cost, with proper quality, marketing required, and ultimately going in segmented market so that it gets delivered to end user while making profits for the company. For all these steps and factors, formulation of strategy at each step of process is vital. If no strategies is followed, then the product with lose customer and company will make loses as a result.

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