Core competency

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Core competency is something that a firm can do well and that meets the following three conditions:[1]

  1. It provides consumer benefits
  2. It is not easy for competitors to imitate
  3. It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998). It may also include product development or culture, such as employee dedication.

Contents

[edit] Core Competency vs. Competitive Advantage

Core Competency includes services that an organization must do to be in an industry, like banks must clear checks. No real advantage to keeping this in-house — outsourced is a clear option. Competitive advantage is services that are unique, like a special form of loan offered only by that bank... That kind of service would be kept in-house. Another example is in the brokerage industry: settlement services are a commodity, but algorithmic trading is competitive advantage. There are instances where core competency can be competitive advantage—that being the case where a product is superior. Black & Decker may build lawn mowers like many other companies, but if they build a superior model, that is competitive advantage as well.

[edit] Development of the Concept

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 snow blowers to trucks and automobiles. To take an example from the automotive industry, it has been claimed that Volvo’s core competency is safety. This, however, is perhaps the end result of their competency in terms of customer benefit. Their core competency might be more about their ability to source and design high protection components, or to research and respond to market demands concerning safety.

Ever since Prahalad and Hamel introduced the term in the 1990’s, many researchers have tried to highlight and further illuminate the meaning of core competency. According to D. Leonard-Barton (1992), "Capabilities are considered core if they differentiate a company strategically." On the other hand, Galunic and Rodan (1998) argue that "a core competency differentiates not only between firms but also inside a firm it differentiates amongst several competencies. In other words, a core competency guides a firm recombining its competencies in response to demands from the environment."

[edit] Example of Black & Decker

Black & Decker's core technological competency pertains to 200 to 600 W electric motors, and this motor is their core product. All of their end products are modifications of this basic technology, with the exception of their work benches, flash lights, battery charging systems, toaster ovens, and coffee percolators.

They produce products for three markets:

  1. the home workshop market: In the home workshop market, small electric motors are used to produce drills, circular saws, sanders, routers, rotary tools, polishers, and drivers
  2. the home cleaning and maintenance market: In the home cleaning and maintenance market, small electric motors are used to produce dust busters, etc.
  3. the kitchen appliance market: In the kitchen appliance market, small electric motors are used to produce can openers, food processors, blenders, bread makers, and fans.

[edit] References

  1. ^ Specified by Gary Hamel and C. K. Prahalad in The Core Competence of the Corporation (1990).