Organizational Core Competence and Competitive Advantage
Chapter One
Research Objective
The objective of the study was to determine how core competencies affect competitive advantage in organisations.
CHAPTER TWO
LITERATURE REVIEW
Theoretical Foundation
The theories upon which the study was anchored are resource-based theory and competitive advantage theory. The Resource based theory is necessary as it analyses and interprets internal resources of the organizations and emphasizes resources and capabilities in formulating strategy to achieve sustainable competitive advantages. On the other hand, competitive advantage theory is defined by Michael Porter as the types of competitive advantage an organization can achieve relative to its rivals: lower cost, differentiation and focus. This advantage derives from attribute(s) that allow an organization to outperform its competition, such as superior market position, skills, or resources. In Porter’s view, strategic management should be concerned with building and sustaining competitive advantage.
Resource Based View
A resource-based view of a firm explains its ability to deliver sustainable competitive advantage when resources are managed such that their outcomes cannot be imitated by competitors, which ultimately creates a competitive barrier (Mahoney & Pandian, 1992).
Resource based theory explains that a firm’s sustainable competitive advantage is reached by virtue of unique resources being rare, valuable, inimitable, non-tradable, and nonsubstitutable, as well as firm-specific (Barney, 1999). These authors write about the fact that a firm may reach a sustainable competitive advantage through unique resources which it holds, and these resources cannot be easily bought, transferred, or copied, and simultaneously, they add value to a firm while being rare. It also highlights the fact that not all resources of a firm may contribute to a firm’s sustainable competitive advantage (Grant, 1991, Mahoney & Pandian, 1992).
Competitive Advantage Theory
Porter proposed the theory in 1985. The study of such advantage has attracted profound research interest due to contemporary issues regarding superior performance levels of firms in the present competitive market conditions. “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player” (Barney, 1991). Successfully implemented strategies will lift a firm to superior performance by facilitating the firm with competitive advantage to outperform current or potential players (Passemard & Calantone, 2000). To gain competitive advantage a business strategy of a firm manipulates the various resources over which it has direct control and these resources have the ability to generate competitive advantage (Reed & Fillippi, 1990). Superior performance outcomes and superiority in production resources reflects competitive advantage (Day & Wesley, 1988).
Michael Porter defined the three types of competitive advantage an organization can achieve relative to its rivals: lower cost, differentiation and focus. This advantage derives from attribute(s) that allow an organization to outperform its competition, such as superior market position, skills, or resources. In Porter’s view, strategic management should be concerned with building and sustaining competitive advantage.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
This study was conducted through a case study and it was considered suitable as it allowed an in-depth study of the subject of investigation of core competencies adopted by CIC General Insurance Company Limited. According to Mugenda & Mugenda (2003), a case study involves a careful and complete examination of a social unit, institution, family, cultural group or an entire community and embraces depth rather than breath of the study. The primary purpose of a case study was to determine factors and relationships among the factors that have resulted in the behaviour under study.
Since this study sought to investigate the core competencies adopted by CIC General Insurance Company Limited in Nigeria, a case study design was deemed as the best design to fulfil the objective of the study. Donald (2006) notes that a case study seeks to describe a unit in detail with the aim of organising data and looking at the object to be studied as a whole. In addition, case studies are powerful forms of qualitative analysis that involve careful and complete observations of social units.
Data Collection
The study used both primary and secondary data. Primary data was collected through an interview guide (Appendix II). An interview guide is a set of questions that the interviewer asks when interviewing (Mugenda & Mugenda, 2003). It makes it possible to obtain data required to meet specific objectives of the study.
The interviewees were branch managers at Head Office and Town Office, Operations Managers, Strategy and Development Managers and Business Development Managers at CIC General Insurance Limited. . The interview guide was presented through a face to face interview to ensure that the required information was obtained as per the research objective. Secondary data was obtained from the findings of published annual reports, the company’s strategic plan, articles and journals.
CHAPTER FOUR
DATA ANALYSIS, RESULTS AND DISCUSSION
Background Information
The study initially sought to inquire information on various aspects of the respondents’ background. The aspects explored included respondents positions in the organisation as well as their experience based on the number of years while working in the insurance industry. This information aimed at testing the appropriateness of the respondent in answering the questions regarding the core competencies utilised by CIC General Insurance Company Limited.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
The objective of the study was to ascertain the link between leveraging on core competencies and gaining competitive advantage on competitors at CIC General Insurance Company Limited in Nigeria. The study found that the core competencies could be group into three. These include integrity related competencies, functionality related competencies and market access competencies.
Core competencies contribute significantly to the creation of perceived customer benefits and enables potential access strategies to a wide variety of markets. These enable the company to have a close relationship with its customers. Core competencies involve how to coordinate diverse production skills and integrate multiple streams of technologies which enable insurance companies to straddle a variety of their business functions.
Maintaining core competencies requires an understanding of the interaction of a change in one aspect of the environment with other aspects of the organization. The use of core competences by companies results in sustainability, growth, profit, time advantage, differentiation advantage and cost leadership advantage.
The study found that CIC General Insurance Company had a key core competency that they employed in order to gain sustainable competitive advantage. CIC General is the only cooperative insurer in Nigeria. There are over 7,000 S.A.C.C.Os in Nigeria. With CIC General having exclusive access to the cooperative movement, they are able to spread their market access further than the competitors. Core competencies could be split into three categories. These include integrity related competencies, functionality related competencies and market access competencies.
Integrity related competencies include competencies such as superior quality, just in time management and cycle time management. Core competencies can be linked to sustainable advantage by ensuring there is efficiency and effectiveness in the work process. This leads to superior quality products produced in a cost effective manner. Functionality related competencies refer to the skills that enable the company to invest its products or services with unique functionality or distinctive customer benefits. This involves being different from the competitors. The functionality related competencies involve a lot of innovative ideas. Market access competencies include management of brand, sales and marketing channels, distribution and logistics as well as technical support. By having unique channels of marketing, distribution and logistics, a company is able to create access to a clientele that the competitors cannot be able to reach. This leads to an advantage as a company is able to lock in on its customers and prevent them from being wooed by their rivals.
CIC General has been able to leverage on the functionality related and market access competencies. By coming up with innovative products such as the CIC Motor Commercial Plus policy, the CIC Lady Auto policy and being the pioneer of micro insurance the company has been able to create unique value to its customers and insuring the previously uninsurable. Small scale traders have taken up insurance and helped the company to increase its market share. The innovative products and the aspect of insuring those who were initially turned away by other insurance companies builds a sense of loyalty to those who take up the insurance cover. The satisfied customers also aid in marketing the company and helping to increase its market share.
Market access competencies are brought about by the utilisation of the 7,000 S.A.C.C.O.s in the marketing and distribution of the company’s wide range of products. The use of the cooperative movement is a unique and very rare marketing and distribution channel. This is a channel that cannot be imitated by any of the 46 other insurance companies in Nigeria. The S.A.C.C.O.s are usually created by corporate entities. By serving the S.A.C.C.O.s properly, the marketers are able to get an upper hand in selling the company products to the corporate entity as a whole. This is a unique strategy of introduction to large corporate companies.
Michael Porter devised a framework for gaining competitive advantage. He listed three strategies for gaining competitive advantage. These include cost leadership, differentiation strategy and focus strategy. With the insurance industry highly regulated in terms of pricing, it is very difficult to compete on cost. Hence this is not a very viable option in the industry. CIC has used focus strategy to gain an advantage by focusing on the micro businesses in
Nigeria. This model is very similar to that of Equity Bank in the banking industry. The key strategy that gives CIC General its competitive advantage is the use of the differentiation strategy. The functionality related and market access competencies are both a form of differentiation strategy. They both involve employing a unique way of doing things that cannot be imitated by competitors. Hence, it was possible to find a link between the use of core competencies and the achievement of sustainable competitive advantage by CIC General Insurance Company.
Conclusion
The objective of the study was to establish CIC General Insurance’s core competencies and to link those competencies to a strategy that can be employed to gain sustainable competitive advantage. The study found that CIC General’s key competency was its accessibility to the over 7,000 S.A.C.C.O.s in Nigeria. This enables it to have a wider market access in all parts of the country including a unique marketing and distribution channel that is unrivalled by its competitors. This unique attribute of the company brings about a differentiation strategy meaning the company has sole access to that market and insulates itself from the competitors.
This allows CIC General to achieve sustainable competitive advantage.
Recommendations
The study has recommendations on theory, managerial policy as well as managerial practice. This section covers recommendations for the management, the policy makers, the stakeholders, the organization as well as the insurance industry.
Recommendation for Theory
The study was anchored on two theories namely: the resource based theory and the competitive advantage theory. A resource-based view of a firm explains its ability to deliver sustainable competitive advantage when resources are managed such that their outcomes cannot be imitated by competitors, which ultimately creates a competitive barrier (Mahoney
& Pandian, 1992). Resource based theory explains that a firm’s sustainable competitive advantage is reached by virtue of unique resources being rare, valuable, inimitable, nontradable, and non-substitutable, as well as firm-specific (Barney, 1999). The resource based theory can be amended to include distribution channels as a unique resource that can be used to gain sustainable advantage as is the case with CIC General Insurance Company Limited.
Recommendations for Managerial Policy
Foremost, the study found out that the company has been using core competence to achieve competitive advantage. It is therefore recommended that in order to sustain competitive advantage, the company must continually enhance its core competencies and if constant renewal does not take place, other companies will imitate and make the competencies which lead to competitive advantage obsolescence. Therefore, it is important that the strategy based on core competencies keeps evolving.
Recommendations for Managerial Practice
The study established that there are 46 other insurance companies. The companies used different core competence to achieve competitive advantage. It is recommended that the regulator should encourage the insurance players to use their known core competencies to inculcate professionalism in their operations.
This will lead to financial stability and service consistency which will lead to customer satisfaction and mutual benefit for all stakeholders. This will also mean that there will be healthy competition which results a stable economy and avoid the collapse of the companies.
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