It is helpful to first understand what a core competency is. Core competencies differentiate an organization from its competition—they create a company’s competitive advantage in the marketplace. Typically, a core competency refers to a company’s set of skills or experience in some activity, rather than physical or financial assets. An organizational core competency is an organization’s strategic strength. Honda’s strategic strength, for example, lies in its small engine design and manufacturing; Sony has a core competency in miniaturization; Federal Express has a core competency in logistics and customer service.
Three tests can be applied to determine a core competency:
The concept of core competencies was developed in the management field. C.K. Prahalad and Gary Hamel introduced the concept in a 1990 Harvard Business Review article. They wrote that a core competency is “an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity.” As an example, they gave Honda’s expertise in engines. Honda was able to exploit this core competency to develop a variety of quality products from lawn mowers and snowblowers to trucks and automobiles.
Ever since Prahalad and Hamel introduced the term, many researchers have attempted to further refine the meaning of core competency. According to D. Leonard-Barton, “Capabilities are considered core if they differentiate a company strategically.”
Identifying and developing your company’s core competencies are management keys to sustaining your company’s long-term competitive advantage.
In determining your company’s core competencies, you need to ask what is the underlying skill, ability, knowledge, experience, technology or process that enables your company to provide its unique set of products or services. You next need to determine how you can use your company’s core competencies to develop strategic responsiveness to gain competitive advantage. High-performing companies develop new core competencies and expand their existing ones to enter new and future markets. A company at this level of functioning recognizes the needs and wants of customers in new and future markets and develops the competencies necessary to meet those needs and wants.
Apple’s unique competence seems to be its product design process. With the iPod, Apple combined the elements of jukebox software, which could organize a large amount of songs, and MP3 players, which held lots of songs. Apple combined these elements in a way that was simple to use. Simplicity turned out to be the core attribute that made the iPod a revolutionary product, one that changed consumer expectations.
Company executives should be aware that even the most successful strategy will fail unless it is continually monitored and refreshed to meet changing market conditions. It is doubtful that anyone in today’s workplace would recognize the names MicroPro or WordStar. But in the mid-1980s WordStar, developed by the company MicroPro, was the most popular word processing software in the world. However, when IBM announced it was bringing to market a PC version called DisplayWriter, MicroPro focused on creating a clone that it marketed as “WordStar 2000.”
Neither program was as successful as its developer had hoped, and the lack of attention MicroPro had paid to the original WordStar in the meantime, coupled with WordStar 2000’s poor support for WordStar formats, had allowed competing products an opportunity to take over market share. WordPerfect, in particular, used the same key sequences as the popular Wang line of dedicated word processor computers, which made it popular with secretaries switching from those to PCs. WordStar rapidly declined following WordPerfect’s appearance. MicroPro had failed to improve on the early WordStar, leaving it outdated.
Will your company’s newly defined competencies add value to its bottom line and become an integrated part of company culture? The answer lies in how these competencies are developed, applied and monitored.
Please Note: This material is provided as general information and is not a substitute for legal or other professional advice. Contact the Knowledge Center for more information.
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