In order to be successful, your company must identify and build on a few core competencies. Precisely what do we mean by the term core competence?
What are Core Competencies?
Business professors Bateman and Snell offer this answer:
Simply stated, core competence is something a company does especially well relative to its competitors.
Honda, for example, has a core competence in small engine design and manufacturing; Sony has a core competence in miniaturization; Federal Express has a core competence in logistics and customer service. Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets. /1
Strong core competencies: are well-organized special skills, technologies, processes, knowledge, expertise, or abilities. These are typically achieved by long-term development processes and experiences. create customer value because they are considered by your customers to be unique and distinguishable, and they are not equally accessible to all competitors. are extremely difficult for other companies to imitate, if they can at all. can be transferred to other markets.
Microsoft has the core competence of designing office software products that are user-friendly. PepsiCo has a core competence of mass production and distribution of bottled drinks. Polaroid has a core competence in manufacturing immediately self-developing film. Ernst & Young has the core competence of performing audit functions for Fortune 500 corporations. One of Wal-Marts core competencies is their massive real-time information system.
Types of Core Competencies
There are many different types of core competencies that make companies unique. Identifying and developing your company’s core competencies are management keys to sustaining your company s long-term competitive advantage.
Your company’s core competencies can be applied to the development of new and creative products or services and markets. Take Polaroid for example: before there was video recording, they could have hypothetically tried to develop an instantly developing video camera film from their then existing core competence. Microsoft could use its core competence to develop user-friendly video games. PepsiCo could use its core competence of bottling and distribution to bottle and distribute medicines or hair care products. Ernst & Young could use its core competence to develop a CPA review course. There are many different ways to develop your core competencies. In today s environment of intense global competition, your business must focus its time and resources on developing core competencies and then creatively applying them to an ever-changing market, to remain competitive.
So your core competence is what sets your company apart from other companies. What is your company’s core competence? Think about the underlying skill, ability, knowledge, experience, technology, or process that enables your company to provide its unique set of products or services. How can you use your company s core competence to develop strategic responsiveness in order to gain competitive advantage? These are the kinds of practical questions that astute executives need to ponder.
The overall value delivered to your customers and the uniqueness of your company’s products or services are derived from your company’s core competence. Your company s core competence enables you to develop new products or services to meet ever-changing market demands. Thus, your core competence is like your secret to success.
At the highest level, a company develops new core competencies as well as expanding existing ones in order to enter new and future markets. A company at this high level of functioning recognizes the needs and wants of customers in new and future markets and develops the competencies necessary to meet those needs and wants.
Nokia is a good example of a company performing at the highest level. Nokia, which traditionally manufactured rubber boots, developed new core competencies, ventured out, and now produces mobile phones. Nokia has been able to open up new markets by using their innovative technologies.
Nike is one of the most well known companies in the world. Its famous swoosh logo can be seen all over the world. The company learned a painful lesson in the 1990’s when its market share dramatically fell in the United States. Joyce, Nohria, and Roberson summarized the lesson learned by Nike: Even the most successful strategy will fail unless it is continuously monitored and refreshed to meet changing market conditions. /2
Some companies are finding that they can more easily expand core competencies and develop new ones by hiring a diverse workforce that reflects the population demographics of the nation. Employing a diverse workforce can give an edge in keeping a pulse on the emerging demands of future markets. The pursuit of diversity enables companies to expand their potential talent pool, capitalizing on the full range of aptitudes, skills, and sub-cultural expertise available in the labor market. Presently, minorities and immigrants comprise one-fourth of the U.S. labor market, nonwhites account for 35% of the labor growth rate, and women make up about 47% of the workforce. /3
Sheila Heinze is the president of SM Consulting, an IT consulting firm that has grown 625% in the past five years compared with an industry growth rate of only 31%. What sets SM Consulting apart from most other IT consulting firms?
Heinze would tell you that it is the time invested in research. SM Consulting sales staff members are required to know as much as possible about a prospect before they even pick up the phone. They are to find out the problems and challenges that the customer s company is going through. These practices have become even more important as SM Consulting started targeting new customers in a different industry segment.
We were able to gain instant credibility by having knowledge of what his pains might be and some potential solutions to those pains, Heinze explained after her sales team met with a potential customer. One contact alone brought a $250,000 project that Heinze described as a great potential for add-on business.
SM Consulting keeps developing core competencies as they expand into new industry segments. Having knowledgeable sales personnel who do their homework allows SM Consulting to obtain a competitive advantage and considerable success in a changing industry environment. /4
These examples illustrate the crucial business dynamic we call Build on Your Core Competencies. Although Nokia started out as a manufacturer of rubber boots they constantly were building on their core competencies and are now known for their mobile phones.
How can your company build on its core competencies?
Build on Your Core Competencies was excerpted from There’s Room at the Top, 2004, pages 172-175. Copyright 2004, by Uxbridge Publishing Ltd. Co. All rights reserved.
/1 Bateman & Snell, 2002, page 124.
/2 Joyce, Nohria, & Roberson, 2003, page 258.
/3 Bateman & Snell, 2002, pages 344, 348-350.
/4 INC Magazine, The Inc 500 America s Fastest-Growing Private Companies, 6 ways to outrun the competition, October 15, 2002, page 58.
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