*--Explain the concept of core rigidity. Do long lived organizations inevitably have difficulties avoiding the problem? Use examples from automobile industry --*
Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals (Hanson, 2008). Those capabilities must include usage of services or resources being valuable, rare, non-substitutable and costly to imitate. Using the capabilities strategically will make a core competency, which brings the significance or a valuable asset also referred as core competency for a firm.
Depending on the industry, competitor environment, general environment such as demographic, socio cultural, economic, political/legal would vary. Any firms that find their signature activity would make the strong stand in the market for its firm. This combination and harmonization of multiple abilities make competencies difficult to imitate.
Once the company establishes the core competencies that can be well differentiated over other firms, and uses them well they are likely to enjoy profit and eventually finding themselves in significant market place. Possible examples of core competencies are Wal-mart in inventory management, Honda in dealer management and product realization and Dell’s distribution system.
Unfortunately many core competencies do not seem to last forever. As time elapse, core competencies become vulnerable to the changes in general, industry environment. Firms that do not acknowledge or indifferent to the changes, or refuse to change, in their myopia are likely to suffer financially or from any other areas in the near or not-so-long future. Core rigidity can be explained as “flip side, the dark side of core capabilities is revealed due to external events when new competitors figure out a better way to serve the firm’s customers, when new technologies emerge or when political or social events shift the ground underneath” (Leonard-Barton, N.D).
To be able to overcome capability turning into core rigidity, management need to be seek for innovative ways. But it is sometimes not an easy thing to do to realize the activity a firm is doing, believing it is a core competency to be core rigidity. It is not like core competency becoming core rigidity is apparent or obvious- It is not black and white thing of suddenly all at once.
Also not easy thing to foresee future trends or tendencies, and is not guaranteed that the prediction will be correct- would be just estimates only. As per Leslie Wexner, CEO of Limited brands say “Success begets failure because the more that you know a thing works, the less likely you are to think that it won’t work. When you’ve had a long string of victories, it’s harder to foresee your own vulnerabilities. (Katz, 2001)”
It may be harder for long lived organization inevitably have difficulties avoiding the problem compared to the new entrants of the industry as long lived ones tend to think they have always done pretty well which may lay back a bit, compared to new entrants that are conscious to little changes to be able to come take market share.
General Motors Founded in 1908, began manufacturing and selling their vehicles in several countries and grew rapidly. Shortly thereafter became the worldwide leader within the automotive industry. Throughout most of the 20th century GM has been at the forefront of innovation and technology inventing products such as the electric self-starter as well as developing popular vehicles such as the Suburban and Corvette. By 1976, GM owned 47 percent of the US automobile market. GM was the market leader and thought would always be as they have been successful for decades. GM today however, is no longer the market leader- rather in a trouble.
External and internal factors came into place for GM’s reputation to go down, such as increase in costs -supplies, fuel, healthcare, and pension payouts, over dependence on the US market, organizational structure, and their inability to keep up with the alternative energy movement. During the late 90's early 2000's the automotive industry began to shifting from the big gas guzzling vehicles to the smaller more compact fuel efficient vehicles, and/or vehicles powered by alternative energy, i.e. hybrids. This was the result of both the continuing rise in gas prices, as well as the environmental issues that we now know of. GM however, did otherwise and did not develop a hybrid vehicle until 2004, five years after the release of Honda's Insight Hatchback.
By inevitably having difficulties of avoiding core rigidity, General Motors have fallen from top to bottom line.
It is said that most companies are trapped within their own lines of second wave thinking. They see their organizational map as a serious of strategic business units with products and service portfolios addressing specific market segments. Their strategic plans are geared to greater market share, better margins, newer versions of the same products, and improved quality and efficiency.
They look at build, hold or harvest strategies depending on the state of the market. They don’t think in terms of building core competencies nor is time spent imagining the markets of the future. For example Honda used its core competencies in engines to create market positions in cars, lawn mowers, garden tractors and generators. The company did not see portfolio of products, but instead sees range of core competencies that Honda continue to improve and evolve (Hope, 1997).
Hope, J & Hope, T. (1997) Competing in the third wave: The ten key management issues of the information age, Havard Business Press,