Core Competencies, Creating Competitive Advantage for Organizations

Wed, 07/02/2014 - 01:36 -- Gulzar Ahmed

Before understanding core competences you first need to understanding that a company need to have something that customers uniquely value if company want to make good profits.

What are Core Competencies

The concept of core competency in management theory is originally advocated by two business authors and Gary Hamel and C. K. Prahalad in their 1990 article entitled “Competencies of the Corporations”. They said that a core competency is a specific factor that a company sees as central to the way the company or its employee work. It fulfills three key criteria:

  1. Core Competencies of a company or product not easy for competitors to imitate.
  2. Company can reuse it widely for many products and markets.
  3. It must contribute significantly to the final consumer's experienced benefits and the value of the company product or service to its customers.

Define Core Competencies

Core competencies are those unique capabilities of a company that are critical to achieving competitive advantage. Example of core competency of Daewoo (Bus Service) is their refreshment touch within the vehicle and in time departure as well as arrival. The starting point for analyzing company core competencies is to recognizing that competition between different companies on the face of globe is as much a race for competence mastery as it is for market position and market power.

Senior or top level management of a company cannot focus on all business activities and the competencies required undertaking them. So the goal is for senior management to focus their attention on competencies that really affect competitive advantage.

If a company is able to offer something uniquely good in its product or service, customers will want to choose its products and they will be willing to pay more for them.

In simple words we can say that a Core Competency is a deep proficiency that enables a particular company to deliver unique value to customers.

I already mentioned above that Organizational Core Competency creates sustainable competitive advantage for a particular company and it also helps company to branch into a wide variety of related markets. It’s hard for competitors to copy or procure the core competencies of a company.

organization core competencies

How Core Competencies work

For the purpose of developing Core Competencies a company must take these actions:

  1. Compare your company with competitors who have same skills to ensure that it is developing unique capabilities
  2. Isolate company key abilities and hone them into organization wide strengths
  3. Company should develop an understanding that what capabilities, characteristics, features and attributes  its customers truly value, and then invest accordingly to develop and sustain valued strengths
  4. Pursue acquisitions, alliances (merge), and licensing arrangements that will further build the company’s strengths in core areas
  5. Preserve core strengths of the company even management of the company expands and redefines the business

Organizations Use Core Competencies to

  1. Design competitive strategies and positions that capitalize on corporate strengths
  2. Enhance image of company or brand and build customer loyalty
  3. Unify the company across all business departments and functional departments, and improve the transfer of required knowledge and skills among different departments
  4. Help all company staff to understand management's priorities
  5. Integrate the use of latest and advance technologies in carrying out business processes
  6. Decide where to allocate company resources either human or financial
  7. For decision making in regard of outsourcing, divestment and partnering
  8. Widen the sphere in which the company innovates, and generate new or innovative  products and services according to customer needs
  9. Find out new markets (market development) and quickly enter emerging market

Pulling it all together, Understanding Core Competencies allows a particular company to invest in the strengths that differentiate it from rivals and set strategies that unify their entire organization.