DESIGN YOU BUSINESS POLICY
AROUND YOUR CORE COMPETENCY
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.
THEORY & PRACTICE OF
CORE COMPETENCY:
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
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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?
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Comments
/ Examples
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Provides
potential access to a wide variety of markets
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The key core competencies here are those that enable the
creation of new products and services.
Example: Why has XXX established such a strong
leadership in supplying financial services (e.g. insurance) and holidays to
the older generation?
Core Competencies that enable XXX 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
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Makes
a significant contribution to the perceived customer benefits of the end
product
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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 product or service than
another?" "What is a customer actually paying for?
Example: Why have XXX been so successful in capturing
leadership of the market for online grocery shopping?
Core competencies that mean customers value the XXX
experience so highly:
- Designing and implementing supply systems that
effectively link existing shops with the XXX web site
- Ability to design and deliver a "customer
interface" that personalises online shopping and makes it more efficient
- Reliable and efficient delivery infrastructure (product
picking, distribution, customer satisfaction handling)
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Difficult
for competitors to imitate
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A core competence should be "competitively
unique": In many industries, most skills can be considered a
prerequisite for participation and do not provide any significant competitor
differentiation. To qualify as "core", a competence should be
something that other competitors wish they had within their own business.
Example:Why does XXX have such a strong position in the
personal computer market?
Core competencies that are difficult for the competition
to imitate:
- Online customer "bespoking" of each computer
built
- Minimisation of working capital in the production process
- High manufacturing and distribution quality -
reliable products at competitive prices
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A competence which is central to the business's
operations but which is not exceptional in some way should not be considered as
a core competence, as it will not differentiate the business from any other
similar businesses. For example, a process which uses common computer
components and is staffed by people with only basic training cannot be regarded
as a core competence. Such a process is highly unlikely to generate a
differentiated advantage over rival businesses. However it is possible to
develop such a process into a core competence with suitable investment in
equipment and training.
It follows from the concept of Core Competencies
that resources that are standardised or easily available will not enable a
business to achieve a competitive advantage over rivals.
