The most powerful way to prevail in stiff competition is still invisible to many companies. Long time ago, top executives were judged on their ability to restructure, declutter and deliver results to their companies. Today, they’ll 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 company itself.
Thirty two years ago, Apple Computer changed the world of desktop computing. That’s when it introduced the Macintosh, a small computer with a graphical user interface (GUI, pronounced gooey). Why did this revolutionize the computing world? Because it made the computer easier to use.
Up until then you had to learn the DOS or CP/M computer languages if you wanted to perform even the simplest of tasks on a computer. Apple took us to a place where we could ‘point and click’ with a mouse (also popularized by the release of the Macintosh) and actually get something done.
Apple (no longer Apple Computer) is an interesting example of a business that has exploited the true meaning of a core competency.
The term core competency was coined by the leading management experts – C.K. Prahalad and Gary Hamel – in an article in the famous Harvard Business Review. By providing a basis for companies to compete and achieve sustainable competitive advantage, Prahalad and Hamel pioneered the concept and laid the foundation for companies to follow in practice.
Some core competencies that companies might have included are technical superiority, their customer relationship management and processes that are vastly efficient. In other words, each company has a specific area in which it does well relative to its competitors; this area of excellence can be reused by the company in other markets and products and finally, the area of strength adds value to the consumer.
The implications for real-world practice are that core competencies must be nurtured and the business model built around them instead of focusing too much on areas where the company does not have competency. This is not to say that other competencies must be neglected or ignored. Rather, the idea behind the concept is that companies must leverage upon their core strengths and play to their advantages.
According to Prahalad and Hamel, the characteristics of core competencies are as follows:
A core competency provides access to a wide variety of markets.
- A core competency provides the value behind end-product benefits.
- A core competency provides unique attributes difficult for competitors to imitate.
Think about your Macintosh, iPod, iPod Touch or iPhone. What is Apple’s core competency? It’s the ability to make these devices attractive and easy to use. Apple studies how customers use its equipment and then it makes the interface work just like its users think.
Does this provide customer benefit? Yes. Is it easy for competitors to imitate? No. Does Apple leverage it across all of their products? Yes, again.
If we take more examples from real-world companies and evaluate their core competencies, we find that many companies have benefited from the application of this theory and that they have succeeded in attaining competitive advantage and sustainable strategic advantage. For instance, the core competencies of Walt Disney Company lie in its ability to animate and design its shows, the art of storytelling that has been perfected by the company, and the operation of its theme parks that is done in an efficient and productive manner. Hence, Walt Disney Company would be well advised to configure its strategy around these core competencies and build a business model that complements these competencies.
Diversified giant NEC competed in seemingly disparate businesses - semiconductors, telecommunications, computing and consumer electronics - and dominated them all. Their motto is - create an information society that is friendly to humans and the earth.
How? It considered itself not a collection of strategic business units but a portfolio of core competencies—the company’s collective knowledge about how to coordinate diverse production skills and technologies.
NEC used its core competencies to achieve what most cornpones only attempt: invent new markets, exploit emerging ones, delight customers with products they hadn’t even imagined—but definitely needed.
Think of a diversified company as a tree: the trunk and major limbs as core products, smaller branches as business units, leaves and fruit as end products. Nourishing and stabilizing everything is the root system:
Unique integrated systems
- Focusing on core competencies creates unique integrated systems that reinforce fit among your firm’s diverse production.
- Identify core competencies.
- How long could we dominate our business if we didn’t control this competency?
- What future opportunities would we lose without it?
- Does it provide access to multiple markets? (Casio’s core competence with display systems let it succeed in calculators, laptop monitors and car dashboards)
- Do customer benefits revolve around it? (Honda’s competence with high-revving, lightweight engines and other multiple consumer benefits)
Build core competencies
Once you’ve identified core competencies, enhance them:
- Invest in needed technologies. Be always a step ahead of competition by adopting an operating system that leverages your competencies.
- Infuse resources throughout business units to outpace rivals in new business development. (3M and Honda won races for global brand dominance by creating wide varieties of products from their core competencies. Results? They built image, customer loyalty and access to distribution channels for all their businesses.)
- Forge strategic alliances. NEC’s collaboration with varied partners gave it access to the mainframe and semiconductor technologies it needed to build core competencies.
Cultivate a core-competency mindset
Competency-savvy managers work well across organisational boundaries, willingly share resources and think long term. To encourage this mindset:
- Stop thinking of business units as sacrosanct. That imprisons resources in units and motivates managers to hide talent as the company pursues hot opportunities.
- Identify projects and people who embody the firm’s core competencies. This sends a message: Core competencies are corporate—not unit—resources and those who embody them can be reallocated.
- Gather managers to identify next generation competencies. Decide how much investment each needs and how much capital and staff each division should contribute.
Fighting off competition
By using its core competence, your company is capable of developing unexpected and surprising products provided that the production costs are low and that developments can be realized faster than those of the competition. There are more advantages to be obtained when core competence are applied to all organisation-wide technologies and production skills.
This will enable the organisation to respond quickly and flexibly to a dynamic environment, based on using core competence.
Core competence model
The core competence model focuses on a combination of specific, collaborative, integrated and applied knowledge, skills and attitude. The strategic objectives should not focus on fighting off the competition but on creating a new competitive space. They should look to the future rather than look back on the past.
The core competence model comprises four competences:
Resources - These are the sources for the development and acquisition of skills and technologies.
Capabilities - The various possibilities to build core competences.
Competitive advantage - The challenge to acquire and develop the largest possible market share of core products.
Strategy - The strategy to develop the largest possible market share of finished products. This strategy has a high-yield potential. Because your company is moving into unfamiliar territory, there are potential risks involved in this. It could mean a mega opportunity for an organisation because competences are improved and the market reach will be expanded.
(Lionel Wijesiri is a retired corporate director counting three decades of senior management experience. He is now an independent consultant and a freelance journalist. He may be contacted on email@example.com)