Core Competencies

Core Competencies

Introduction

Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage.

The Work of Hamel and Prahalad

The main ideas about Core Competencies where developed by C K Prahalad and G Hamel through a series of articles in the Harvard Business Review followed by a best-selling book - Competing for the Future. Their central idea is that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth.

'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible - indeed, they'll have to rethink the concept of the corporation it self.' C K Prahalad and G Hamel 1990

These areas of expertise may be in any area but are most likely to develop in the critical, central areas of the company where the most value is added to its products.

For example, for a manufacturer of electronic equipment, key areas of expertise could be in the design of the electronic components and circuits. For a ceramics manufacturer, they could be the routines and processes at the heart of the production process. For a software company the key skills may be in the overall simplicity and utility of the program for users or alternatively in the high quality of software code writing they have achieved.

Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.

Identifying Core Competencies

Prahalad and Hamel suggest three factors to help identify core competencies in any business:

What does the Core Competence Achieve? Comments / Examples

Provides potential access to a wide variety of markets The key core competencies here are those that enable the creation of new products and services.

Example: Why has Saga established such a strong leadership in supplying financial services (e.g. insurance) and holidays to the older generation?

Core Competencies that enable Saga to enter apparently different markets:

- Clear distinctive brand proposition that focuses solely on a closely-defined customer group

- Leading direct marketing skills - database management; direct-mailing campaigns; call centre sales conversion

- Skills in customer relationship management

Makes a significant contribution to the perceived customer benefits of the end product Core competencies are the skills that enable a business to deliver a fundamental customer benefit - in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one