ABSTRACT

This study focused on the strategic role of core competencies on competitive advantage as applied by CIC General Insurance Company in Nigeria. CIC General Insurance Company Limited can be used as a case study in successful turn-around strategy. In 2005, the company was among the bottom ten companies in the insurance industry in terms of market share and profitability. Despite advice from consultants that it was impossible to become self-sustaining without selling its stake to another company, CIC General was able to shift to be the top company in offering General Insurance by 2012. This rapid change of fortunes in a short period of time was down to the company focusing on the advantages it had in the industry and banking on them.  The researcher was curious to find out on what advantages the company had that enable this rapid turn-around. The first step was to identify what the company considered to be core competencies. The second step was to find out whether the identified core competencies are used by CIC General Insurance to gain or achieve a competitive advantage. CIC General Insurance is the top general insurance provider in terms of market share and premium income. This is a sharp contrast from 5 years ago when it was among the bottom companies in the insurance industry. A number of international and local studies had been done to try and find out the link between core competencies and competitive advantageThese two theories informed what the researcher was trying to find out. The study was conducted using a case study analysis of the company. Data was collected through interview guides to the key managers in charge of strategy and cooperative societies account management as well as through secondary data collected through the company’s financial statements and data on the company’s website. Data analysis was done using content analysis where qualitative data was coded and converted into quantitative data for tabulation and analysis. The study concluded that CIC General Insurance was able to utilise its key core competence of being linked to the S.A.C.C.O.s to gain an upper hand in gaining an extended reach to its customers. The cooperative movement is used by the company to market and distribute its wide range of products to their large number of members. Due to the high interest rates in the country, S.A.C.C.O.s have gained popularity and tend to recruit a lot of members. Organisations are also forming company based S.A.C.CO.s for their employees. Since CIC General Insurance is the only cooperative insurer in Nigeria, this becomes a key attribute that gives them an edge over its competitors. The core competencies were divided into three, namely, market access competencies, functionality based competencies and integrity based competencies. CIC General has been able to leverage on the first two to gain an upper hand. Michael Porter listed a differentiation strategy as a way of gaining competitive advantage on rivals. CIC General Insurance has utilised this strategy as it has a unique distribution channel that cannot be imitated by competitors. The study therefore concluded that by finding its core competency and leveraging on it, then it becomes possible for a company to gain sustainable competitive advantage.

CHAPTER ONE

 INTRODUCTION

1.1 Background 

In today’s highly competitive business environment, business organisations need to act fast in order to secure their financial situations and their market positions. Firms are continuously striving for ways to attain a sustainable competitive advantage. They need to count more on their internal distinguished strengths to provide more added customer value, strong differentiation and extendibility; in other words count more on their “core competencies” (Hamel &Prahalad, 1994). Therefore, according to Hamel &Prahalad (1994), strategy has to move from competing for product or service leadership to competing on core competence leadership. The core competence has to be a primary factor for strategy formulation as it is an important source of profitability. Therefore, by competing based on core competence leadership, the company is able to form a solid base for sustainable competitive advantage.

The two concepts go hand in hand when utilised effectively.

 This concept can be anchored with two common strategic management theories, namely resource based theory and 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 and 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 non-substitutable, as well as firm-specific (Barney, 1999). Porter proposed the competitive advantage theory in 1985. Porter emphasizes productivity growth as the focus of national strategies. Competitive advantage rests on the notion that cheap labour is ubiquitous and natural resources are not necessary for a good economy. Competitive advantage attempts to emphasize maximizing scale economies in goods and services that garner premium prices (Stutz and Warf, 2009). The term competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Christensen and Fahey, 1984).

Competitive advantage is achieved by companies through strategic planning and management which is a continuous process that evaluates, controls and examines the business, the competitors and the industry at large and sets goals and strategies to overcome obstacles on their way to success. (www.slideshare.net) Therefore, building core competence becomes essential to competitive advantage because advantages emanating from the product-priceperformance-trade-offs are almost short term. Especially in an era where technologies are altering the existing boundaries of business; advantage can last only through competence enjoyed at the very roots of products. (Eric &Saatcioglu, 2006). The motive of this study is therefore to be able to find out if core competence really leads to sustainable competitive advantage.

Currently, there are about 47 insurance companies licensed to operate in Nigeria. The insurance penetration in Nigeria is less than 5%. All these companies are competing for a relatively small market. Based on the Association of Nigeria Insurers’ 2014 annual report, CIC General Insurance was first in terms of market share for purely general insurance. This means that the company is the benchmark for the industry. This study will focus on this company’s strategy and the use of its core competencies to gain competitive advantage.

1.1.1 Core Competency

A core competency can be defined as a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace. To be considered as such, a core competency must fulfil three criteria. It should provide potential access to a wide variety of markets. This means that it should enable the firm to position itself in different market segments easily. It should also make a significant contribution to the perceived customer benefits of the end product. The customers should be able to get value for their money by getting quality products at an affordable price. The core competency must also be difficult to imitate by competitors. The core competence should enable a firm to completely differentiate its products and/or services in the market while giving the competitors little chance of being able to deliver similar products and/or services at a lower cost or better standard. (www.wikipedia.org)

Core competencies are valuable capabilities that are collective and unique in their characteristics, as well as strategically flexible contributing towards the success of potential business. An organizational core competency is an organization's strategic strength. Thus, it is what it does best than its competitors and should never outsource. Organizational core competencies, the unique resources of an organization, affect many products and services and provide a competitive advantage in the market place (Johnson & Scholes 2002).

Organizations use their unique resources which include their capabilities and competencies to be ahead of their competition. Once an organization identifies its unique area of excellence, its management is required to come up with a strategic plan of how to utilize its competencies to achieve great competitive advantage. 

1.1.2 Sustainable Competitive Advantage

Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. Companies strive to build sustainable competitive advantages. Competitive advantage is at the heart of a company’s performance in competitive markets. It is about how a company puts the generic strategies into practice and it grows fundamentally out of the value a firm is able to create for its buyers (Porter, 1990). It may take the forms of prices lower than competitors for equivalent benefits or the provision of unique benefits that more than offset a premium price. Thompson & Strickland (2002) argue that competitive strategy consists of all those moves and approaches that a firm has and is taking to attract buyers, withstand competitive pressure and improve its market position. Competitive advantage in companies grows out of the way the companies organize and perform discrete activities.

Competitive advantage is at the heart of firm's performance. It is concerned with the interplay between the types of competitive advantage, i.e., cost, differentiation and the scope of the firm's activities. A sustainable competitive advantage creates some barriers that make imitation difficult. Without a sustainable competitive advantage, above average performance is usually a sign of harvesting (Porter, 1985). The secret of a sustainable competitive advantage lies in performing every step in the value chain in an appropriate way. A competitive advantage essentially has to be one that not only merely represents better performance than that of its competitors, but also delivers genuine value to the customer, thus ensuring a dominant position in the market. The internal resources and capabilities of an organization play a very important role in building competitive advantage.

1.1.3 Core Competence and Sustainable Competitive Advantage

An organization's competitive advantage potential depends on the value, rareness, and imitability of its resources and capabilities. However, to fully realize this potential, an organization must also be organised to exploit its resources and capabilities. In a dynamic world, only organizations that are able to continually build new strategic assets faster and cheaper than those of their competitors will earn superior returns and create long term competitive advantage. 

The competitive advantage to which core competencies lead is a function of several forces from both the supply and the demand side (Kak, 2008). The concept of core competence is distinct from both the traditional strategic thinking of competing for market share and

Porter’s (1985) low cost-differentiation strategy.

CIC General Business is a member of the CIC group where CIC General caters for insurance against damage to or loss of property. General insurance covers a number of classes of insurance. These include covers against damage by fire, theft of items, motor vehicle insurance, personal injury covers, marine insurance as well as cover for theft of money during transit or by employees. CIC General Insurance is the flagship of the company and contributes the biggest amount to the gross written premium as well as to the profitability.

CIC General Insurance is the pioneer in offering insurance cover to small scale traders and micro enterprises. The company also has innovative products that enable it to be a market leader. The CIC Motor Commercial Plus product is the most profitable commercial cover in the insurance industry and this has been the biggest contributor to profitability in the company.

1.2 Research Problem

Hamel &Prahalad (1990) contend that “core competencies are the collective learning in the organizations, especially how to coordinate diverse production skills and integrate multiple streams of technologies.” They argue that core competence is communication, involvement, and a deep commitment to working across organizational boundaries. Gupta, Woodside, Dubelaar&Bradmore, 2009 point out that core competence was originally invented as a tool for justifying business diversification at large companies, and for supporting internal processes such as product development (Hamel &Prahalad, 1990). This argument is supported by the resource based theory.

Resource based theory explains that a firm’s competitive advantage is reached by virtue of unique resources being rare, valuable, inimitable, non-tradable, and non-substitutable, as well as firm-specific. Competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market. It is therefore important to try and link the two concepts together in order to gain sustainable competitive advantage on competitors.

 Contemporary business theory argues that companies must compete to keep or gain competitive advantage. Insurance companies also strive for competitive advantage. In Nigeria the insurance industry has about 47 main stream insurance companies competing for almost the same target market. The distribution channel for insurance products is intermediarydriven i.e. insurance brokers and agents. Banks are the latest entrants to join the insurance distribution channel by offering bancassurance to their customers. All this has led intense competition and insurance companies are now trying to position themselves strategically to be able to compete effectively. The focus of this study will be on CIC General Insurance Company Limited. The company is a market leader in the General Insurance industry and this means the company must be employing the right strategies.

There have been various studies done on core competence in relation to competitive advantage. Agha (2012) studied the effect of core competence on organisational performance.

His finding was that proper use of core competence led to better organisational performance. Lado& Wilson (1994) studied human resource systems as a form of competitive advantage.

They found that by hiring the right people, a firm was able to gain an edge over its rivals. King, Fowler &Zeithaml (2001) studied the middle management edge in utilising core competencies to gain competitive advantage. They found that deciding on the core competencies should not be a management decision only but rather the views of all the staff need to be sought. Papula&Volna (2013) observed that technology and innovation were key drivers of competitive advantage in an ever changing environment. 

A number of local studies have also been done. Wanyanga (2007) studied the utilization of organization’s capabilities as an operation strategy in the hotel industry in Nigeria. His study noted that most hotels in the country had not fully identified their strategic capabilities and always scanned the external environment to identify the opportunities without identifying their internal non-imitable capabilities that will give them a competitive advantage. A study by Ngugi (2011) looked at the strategic capabilities at the British Broadcasting Corporation (B.B.C.) – Africa. He concluded that the firm’s capabilities and resources available to it must interact positively with the requirements of the firm’s markets and their requirements be defined clearly and explicitly for the firm to achieve desired performance results. Marucha (2011) studied core competencies for the Nigerian Insurance industry as a whole. In his study, he found that most companies had various core competencies but do not focus solely on their main one. Ilovi (2011) studied how insurance companies gained competitive advantage. The finding was that there was no single strategy and they usually followed Michael Porter’s framework.

From the various studies, none of the authors have focused on use of distribution channels as core competence. If an organisation is able to leverage on a unique channel that can reach more people, then they are able to significantly gain a competitive advantage. In the insurance industry in Nigeria, the products and services offered by insurance companies are rarely differentiated. For instance, the standard motor insurance product is being sold at a strictly regulated rate with a legal requirement of instant premium payment before cover is considered effective, that is, cash and carry. In addition, the rating of huge risks (commonly referred to as Listed Risks), is heavily controlled by Insurance Regulatory Authority which consults with a panel from the Association of Nigeria Insurers to provide the rating guidelines hence a uniform rate across the industry for the identified specific risk. Industry players are therefore not allowed to vary the rate for compliance purposes. This leads to firms seeking other avenues of competition other than price. As a result, insurance firms have to be smart to beat their competitors to the business. Some companies then invoke their customer care skills, speedy service delivery among others to beat the competition. These set of tools used by the firms are the companies’ competencies and capabilities which help the gain competitive advantage. Hence, how is CIC General Insurance Company using its perceived core competencies to gain sustainable competitive advantage?

1.3 Research Objective

The objective of the study was to determine how core competencies affect competitive advantage in organisations. 

1.4 Research questions

1. what are the core competencies of CIC general insurance company.

2. what are the effect of these core competences on competitive advantage of organizations.

1.5 Significance of the Study

This study contributes to the resource based theory as it adds a different dimension to the resources that may be put into good use when creating competitive advantage. The resource based theory focuses on the internal strengths but does not focus on the distribution methods that can be employed to maximise on the internal strengths of the organisation.

You either get what you want or your money back. T&C Apply

Talk to us right now: (+234)906-451-7926 (Call/WhatsApp)

---