I have helped many companies identify and leverage their core competencies through the years, and doing this can really make a difference in the products or services you provide to your customer. Core competence is a concept introduced by C.K. Prahalad, professor at the University of Michigan, and Gary Hamel, management expert and founder of Strategos. They define it as “a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace.”
Core competencies fall into two categories; those which the organization possesses today and those you aspire to have. It can be helpful to identify both. In addition, unlike a core value, which is something you should discover (not aspire to have), you can develop strategies to add new core competencies that you can leverage in order to create a sustainable competitive advantage.
Example: Honda’s core competence in engines and power trains gives them a distinctive advantage in car, motorcycle, lawn mower, and generator businesses.
How to Develop Core Competencies
You first need to brainstorm a list of business competencies relevant to the core of your business. One way to do this is to articulate the strategic intent that could define your company as a leader in the markets it serves and identify which competencies are needed to dominate your market based on that intent. Once you develop the list of core competencies, make sure that you develop a way to improve these business competencies so that they remain a distinct competitive advantage. If you don't keep improving on them, you are leaving space open for competition.
Next, identify which of these competencies are core. Prahalad and Hamel provide us with these questions to get us started:
- How long could we dominate our business if we did not control this competency?
- What future opportunities would we lose without it?
- Does it provide access to multiple markets?
- Do customer benefits revolve around it?
After asking these questions, narrow your first list down to the ones you believe are possible core competencies.
Example: 3M has a few widely shared core competencies like substrates, coatings and adhesives and leverages them to create a wealth of new products each year.
The final step is to test your core competencies.
How to Test Core Competencies
Once we create a list of candidates, there are three tests to help us confirm we have identified true core competencies:
- Provide potential access to a wide variety of markets and give you the ability to leverage the full potential of the capability on a large scale
- Should make a significant contribution to the perceived customer benefits of the product and provide value not easily found elsewhere
- Difficult to imitate by competitors
Expert Tip: Keep your core competencies down to just a few, certainly no more than five or six. If you have identified more than this, they are probably not all valid.
A Few More Core Competency Examples
Here is a short list of competencies to get you thinking about leveraging your core competencies:
- Precision machining to extremely high tolerances, EMC Precision
- Ability to cut & weld thin wall aluminum, Cannondale
- Outstanding Customer service, think of Zappos or LL Bean
- Product Design, think of Apple's approach which actually came from emulating Sony in the early days
- Ability to design and write complex software that's easy to use, think of Apple again
- High-quality optics, think of Nikon or Canon
How to Leverage Core Competencies
Once you have identified your core business competencies, it is important to protect them from your competitors. Growing up in manufacturing and experiencing the shift to global sourcing, I have watched as many companies gave away their core competencies, only to destroy their business a few years later. Cannondale was a company in my own backyard which did this like many other manufacturers in the bicycle industry. They developed proprietary technologies to cut, fixture and weld thin wall aluminum frames, then began to share these technologies with manufacturers in China to outsource the frames. Today, there are very few Cannondale bicycles actually made in the USA, not to mention, very few other brands. The companies that adopted these technologies soon began to make products under their own brands and undercut the innovators.
Remember that core competencies are something that may be effective today, but table stakes tomorrow or something replicated by a competitor. Spend time in your “Think” sessions evaluating your core competencies to ensure they are still working for the company while looking for ways to enhance, retire and identify new ones.
Companies that take the time to identify differentiating core competencies have the ability to create more value for their customers and increase their pace of growth. It also allows you to sell on value, rather than margin, which adds to the bottom line.
Good luck with the journey as you grow with purpose, Alan
Want to learn more about Core Competencies? Check out these additional resources:
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