The world has shown us great Entrepreneurial examples and has also shown us that passion, attitude and capital are not the only requirements for setting up a successful venture. Among the additional requirements is getting your basics right. One needs to know precisely their goal, their strength. As such a clear cut idea is needed about the basic terms ‘Core competencies’ and ‘co-creation’ which are often misunderstood. Also with the slight shift of focus in entrepreneurship, ‘inclusive capitalism’ and ‘fortune at the bottom of the pyramid’ have become an indispensable part of the vocabulary of management gurus, writers, CEOs and students.
To begin with, what does the term ‘core competencies’ mean? Simply put, these are specific abilities or skill sets of an organisation, which afford it a sustainable competitive advantage. It was first introduced in the 1990 Harvard Business Review Article, ‘The Core Competence of the corporation’. According to the authors, Prahalad and Hamel, a company derives its competitiveness from its ‘core competencies’ which in turn, lead to the development of core product. These core products are not usually consumed by end-users; rather, they are used to create various products that benefit the consumer. For example, the capability to build the best-in-class fuel-efficient engines can be a core competency for a company and fuel-efficient engines, the core product. The various business units of the corporation then tap into the core products to develop a variety of end-user products like automobiles, motorcycles, lawn mowers and portable generators.
So how can one identify a ‘business’ core competency? Any skill set or attribute that provides access to a wide variety of markets, contributes significantly to the perceived customer benefits of the end-product and is difficult for competitors to imitate, is a core competency.
According to Prahalad, core competencies are rooted in the ability to combine and synchronize various groups in the organisation. For example, an engineering conglomerate could hire a team of brilliant mechanical engineers who specialize in building massive bridges. This does not necessarily mean that they gain a core competence in that area. It is only when this team of engineers co-ordinates with the rest of the groups in the company to develop a viable product for the market, that it results in core competence.
Similarly ‘co-creation’ was coined in the 2000 Harvard Business Review article, ‘Co-opting Customer Competence.’ The authors, C.K. Prahalad and Venkat Ramaswamy, stated that the world was moving to a new form of value creation, where value is not created by the firm and exchanged with the customer, but co-created by the consumers and the company. Co-creation is not about the firm reaching out to target audiences and being sensitive to their needs. It is about enabling consumers to be partners or solution-providers so that they collectively create and derive value. This makes the customer a part of the creation process, adding greater value to the end result and increasing customer satisfaction.
While delivering a product, it should be of prime importance that the products are customer friendly. This need comes obviously from the following logic – The product is meant for the customer, He is the person who spends most of the time on it. The person who spends lesser time than that is the salesman, then the production team, and then the least of all is the creator. If the product is designed with the view of the customer, it has a lesser chance to fail.
Empowerment at the bottom
Moving on, the terms ‘fortune at the bottom of the pyramid’ and ‘inclusive capitalism’ are amongst the most prominent management buzzwords today. The ‘bottom’ of the pyramid refers to the largest but poorest socio-economic group existing. Although the individuals at the bottom of the pyramid have little money, collectively they represent a vast pool of purchasing power.
In his book Fortune at the Bottom of the Pyramid (2004), C.K. Prahalad identified the world’s poor sector as a potential untapped market for companies. He urged businesses, governments and NGOs to start seeing the poor as value-demanding consumers.
According to Prahalad, a market at the bottom of the pyramid can be effectively served by combining the investment capacity of large firms and harnessing it to the knowledge and commitment of non-governmental organisations in order to improve the living standards of the poor. The poor would then have the power to choose their manner of living and the products they use. He pointed to the success that many MNCs have had in marketing soap-powder and detergents in smaller, cheaper units. This created prosperity downstream through new distribution mechanisms.
These concepts when combined together yield something very powerful – Social Entrepreneurship. Prahalad has quoted some great social entrepreneurship examples in his book Fortune at the Bottom of the Pyramid. A few of them, which have set an example in the Indian subcontinent are-