CORE COMPETENCIES
Core competencies are particular strengths relative to other organizations in the industry which
provide the fundamental basis for the provision of added value. Core competencies are the
collective learning in organizations, and involve how to coordinate diverse production skills and
integrate multiple streams of technologies. It is communication, an involvement and a deep
commitment to working across organizational boundaries.
Similarly, A core competence is the result of a specific unique set of skills or production
techniques that deliver value to the customer. Such competences empower an organization to
access a wide variety of markets. Executives should estimate the future challenges and
opportunities of the business in order to stay on top of the game in varying situations
. The term "core competency" is relatively new. It originated in a 1990 Harvard Business Review
article. It is also called core capabilities or distinctive competencies.
It fulfills three key criteria:
1. It is not easy for competitors to imitate.
2. It can be leveraged widely to many products and markets.
3. It must contribute to the end consumer's experienced benefits
An integration of skill:
A competence is a bundle of constituent skills and technologies, rather than a single,
discrete skill or technology. For example, the competence federal express possesses in
package transport and delivery includes bar-coding technologies, linear programming
skills and much more besides. A core competence represents the integration of a variety
of individual skills.
Not an asset:
Second, a core competence is not an ‘asset’ in the accounting sense of word. A factory,
distribution channel or brand cannot be a core competence, but an aptitude to manage that
factory (e.g, Toyota’s lean manufacturing) or channel (Wal-Mart’s logistics) or brand
(Coca-Cola’s advertising) may constitute core competence.
Core versus Non-core:
We use the terms ‘competence’ and ‘capability’ interchangeably. The goal, therefore, is
to focus senior management’s attention on those competencies that lie at the centre, rather
than the periphery, of competitive success. To be considered a ‘core’ competence a skill
must meet three additional tests.
TESTS:
Hamel and Prahalad give three tests to see whether they are true core competences:
1. Relevance: Firstly, the competence must give your customer something that
strongly influences him or her to choose your product or service. If it does not, then it has
no effect on your competitive position and is not a core competence.
2. Difficulty of Imitation: Secondly, the core competence should be difficult to
imitate. This allows you to provide products that are better than those of your
competition. And because you're continually working to improve these skills, means that
you can sustain its competitive position.
3. Breadth of Application: Thirdly, it should be something that opens up a good
number of potential markets. If it only opens up a few small, nic he markets, then success
in these markets will not be enough to sustain significant growth.
Why do we need to worry about core competence? Well, I think we need to know what your core
competence is for a number of reasons:
(a) To make decisions about diversification.
(b) Identify the target market for your business(s).
(c) Suggest to you as to which competencies you should further develop or build to maintain
your competitive advantage in the future.
(d) Provides you the basis for understanding the strength of the competitors. For instance, if you
just looked at the leaves of a tree or the end products of a company, you will neither be able to
assess the strength of the tree or that of the competitor.
(e) Identify potential competitors.
Core competence is about integrating a number of different technologies as well as organization
skills to deliver something of value to the customer. Core competencies can be developed in all
types of organization including service organizations.
IMPORTANCE OF CORE COMPETENCY:
1. Core Competencies are the basis of long term corporate sustainability.
2. Core Competencies are corporate resources and they cut across business units
3. New products and services can be created if core competencies are in place
4. Employees who embody the core competencies of the corporation often get a free hand over
others.
THE LOSS OF CORE COMPETENCIES:
Cost-cutting moves sometimes destroy the ability to build core competencies. For example,
decentralization makes it more difficult to build core competencies because autonomous groups
rely on outsourcing of critical tasks, and this outsourcing prevents the firm from developing core
competencies in those tasks since it no longer consolidates the know-how that is spread
throughout the company.
Failure to recognize core competencies may lead to decisions that result in their loss. For
example, in the 1970's many U.S. manufacturers divested themselves of their television
manufacturing businesses, reasoning that the industry was mature and that high quality, low cost
models were available from Far East manufacturers. In the process, they lost their core
competence in video, and this loss resulted in a handicap in the newer digital television industry.
Similarly, Motorola divested itself of its semiconductor DRAM business at 256Kb level, and
then was unable to enter the 1Mb market on its own. By recognizing its core competencies and
understanding the time required to build them or regain them, a company can make better
divestment decisions.
LITERATURE REVIEW:
Core competence is an invisible competence that can integrate and coordinate the technology and
information and provide the product or service with crucial competitive advantage, which is different
from general competence (Tampoe, 1994; Wang, 2000; Ho, 2003). As Jui (2000) mentioned, the core
competence of an enterprise is exclusive; the crucial competence, which is a combination of the
technology and the professional skills, is beneficial for an enterprise to reach an advantageous position
(Hsu, 1994; Kang, 2002; Lin, 2006). Hamel (1994) pointed out core competence involves value, unique,
difficult-to-imitate and dynamic characteristic; the characteristics represents an accumulation of the past
experience, a unique competitive advantages and an integrated application (Shen, 2002) Besides, the
advantages of core competence is that, in order to produce, expand, establish the organization and reduce
the capitalize cost and working hours, the enterprise resources should be used efficiently and therefore,
the core value of the customers, the differentia from the competitors, potential market and strategies can
be developed (Collis,1994; Hamel, 1994). In Taiwan, from the enterprise’s perspective, most of the
research focused on the enterprise core competence and mainly discussed the strategic originality,
environment and human resource, which might be the factors affecting the operation accomplishment
(Huang, 2003; Lo, 2004; Yang, 2005; Chen, 2006; Hsu, 2006). To sum up, in order to increase the
competitive advantages, the competence to integrate and coordinate the varied competence, decrease the
working hours and capitalize cost can be seen as the core competence of the general hotels.
The Work of Hamel and Prahalad
According to Hayes (1979) competencies are generic knowledge motive, skill, trait of a person
or a firm that is linked to superior performance on the job. Similarly, another author Unido
(2002) said that they are set of skills, related knowledge and attributes that allow an individual to
successfully perform a job or an activity within a specific fuction.
The main ideas about Core Competencies were developed by C K Prahalad and G Hamel
through a series of articles in the Harvard Business Review followed by a best-selling book -
Competing for the Future. Their central idea 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.
'In the 1990s managers will 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
corporation it self.' C K Prahalad and G Hamel 1990.
These 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.
For example, for a manufacturer of electronic equipment, key areas of expertise could be in the
design of the electronic components and circuits. For a ceramics manufacturer, they could be the
routines and processes at the heart of the production process. For a software company the key
skills may be in the overall simplicity and utility of the program for users or alternatively in the
high quality of software code writing they have achieved.
Core Competencies are not seen as being fixed. Core Competencies should change in response to
changes in the company's environment. 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.
The Core Competence of the Corporation, C.K. Prahalad and Gary Hamel coined the term core
competencies, or the collective learning and coordination skills behind the firm's product lines.
They made the case that core competencies are the source of competitive advantage and enable
the firm to introduce an array of new products and services.
According to Prahalad and Hamel, core competencies lead to the development of core products.
Core products are not directly sold to end users; rather, they are used to build a larger number of
end-user products. For example, motors are a core product that can be used in wide array of end
products. The business units of the corporation each tap into the relatively few core products to
develop a larger number of end user products based on the core product technology. This flow
from core competencies to end products is shown in the following diagram:
Core Competencies to End Products
End Products
1 2 3 4 5 6 7 8 9 10 11 12
Business Business Business Business
1 2 3 4
Core Product
1
Core Product 2
Competence Competence Competence Competence
1 2 3 4
The intersection of market opportunities with core competencies forms the basis for launching
new businesses. By combining a set of core competencies in different ways and matching them
to market opportunities, a corporation can launch a vast array of businesses.
Without core competencies, a large corporation is just a collection of discrete businesses. Core
competencies serve as the glue that bonds the business units together into a coherent portfolio.
IDENTIFICATION OF CORE COMPETENCES:
To identify your core competences, use the following steps:
1. Brainstorm the factors that are important to your clients.
2. If you're doing this on behalf of your company, identify the factors that influence
people's purchase decisions when they're buying products or services like yours (make
sure that you move beyond just product or service features and include all decision-
making points.)
If you're doing this for yourself, brainstorm the factors (for example) that people use in
assessing you for annual performance reviews or promotion, or for new roles you want.
Then dig into these factors, and identify the competences that lie behind them. As a
corporate example, if customers value small products (e.g. cell phones), then the
competence they value may be "component integration and miniaturization".
2. Brainstorm your existing competences and the things you do well.
3. For the list of your own competences, screen them against the tests of Relevance,
Difficulty of Imitation and Breadth of Application, and see if any of the competences
you've listed are core competences.
4. For the list of factors that are important to clients, screen them using these tests to see
if you could develop these as core competences.
5. Review the two screened lists, and think about them:
If you've identified core competences that you already have, then great!
Work on them and make sure that you build them as far as sensibly possible.
If you have no core competences, then look at ones that you could develop,
and work to build them.
If you have no core competences and it doesn't look as if you can build any
that customers would value, then either there's something else that you can use to
create uniqueness in the market (see our USP Analysis article), or think about
finding a new environment that suits your competences.
6. Think of the most time-consuming and costly things that you do either as an individual
or a company.
If any of these things do not contribute to a core competence, ask yourself if you can
outsource them effectively, clearing down time so that you can focus on core
competences.
For example, as an individual, are you still doing your own cleaning, ironing and
decorating? As a small business, are you doing you own accounts, HR and payroll? As a
bigger business, are you manufacturing non-core product components, or performing non-
core activities?
MANAGING CORE COMPETENCE:
There are four key tasks in the management of core competencies;
1: selecting core competencies
2: building core competencies
3: deploying core competencies
4: protecting core competencies
Selecting core competencies:
A firm cannot actively ‘manage’ core competencies if managers do not share a
view of what those competencies actually are. Thus the clarity of a firm’s
definition of its core competencies, and the degree of consensus that attaches to
that definition, is the most rudimentary test of a company’s capacity to manage its
core competencies.
Building core compentencies:
The capacity to integrate the individual strands into a core competence requires a
rich pattern of cross discipline communication and learning.
One way of reducing the costs of competence building is to borrow skills and
technologies from other companies.
Another determinant of a company’s ability to build core competencies at low
cost is its capacity to leverage, or amortize, its competence-building efforts across
a broad range of products or geographic markets.
Companies intent on competence-than vertically integrated.
Deploying core competencies:
To leverage a core competence across multiple businesses, and into new markets,
it is often necessary to redevelop that competence internally-from one division or
SBU to another.
Protecting core competencies:
Protecting core competencies from erosion takes continued vigilance on the part
of top management. To protect core competencies, a company must be able to
distinguish between a bad business and the potentially valueable competencies
buried within that business.
Capabilities are considered core if they differentiate a company strategically.A
core competency differentiates not only between firms but also inside a firm it
amongst several competencies. In other words, a core competency guides a firm
recombining its competencies in response to demands from the environment.
In short core competencies help the company to shift from one leading product to
another, reacting to the market changes. They have to be contiously inproved with
resource and development. In order to remain competeteive, it is also important to
harmonize the supply chain with the company’s focus by algning business
partners to the company’s core competencies and establishing strategic alliances
to reduce cost.
REFRENCES:
Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation, Harvard Business
Review (v. 68, no. 3) pp. 79–91.
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