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 main ideas about Core Competencies were developed by C K Prahalad and G Hamel. The central idea of core competency was 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.
The core 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.
Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment which is constantly changing. 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:
a. 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.
b. 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.
c. Difficult for competitors to imitate: - A core competence should be "competitively unique" where the product is difficult to imitate.
Resources that are standardised or easily available will not enable a business to achieve a competitive advantage over rivals.
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