Core Competencies

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What are 'Core Competencies'

Core competencies are the main strengths or strategic advantages of a business, including the combination of pooled knowledge and technical capacities that allow a business to be competitive in the marketplace. Theoretically, a core competency should allow a company to expand into new end markets as well as provide a significant benefit to customers. It should also be hard for competitors to replicate.

BREAKING DOWN 'Core Competencies'

A business just starting out must try to first identify, and then focus on, its core competencies, allowing it to establish a footprint while gaining a solid reputation and brand recognition. Using and leveraging core competencies usually provides the best chance for a company's continued growth and survival, as these factors are what differentiate the company from competitors.

Origins of Core Competency

The term core competency is relatively new, originating in an article titled “The Core Competence of the Corporation” published in the Harvard Business Review. In the article, the authors, C.K. Prahalad and Gary Hamel, review three conditions a business activity should meet in order to be considered a core competency. First, the activity must provide a benefit to the consumer. Additionally, a core competency should not be easily replicated or imitated by competitors and should be widely leveraged across various markets and products.

Development of Core Competencies

Once an organization identifies its core competencies, internal investment should be directed toward maintaining these skill areas and ensuring they remain unique within the industry sector. If particular functional areas are outside of the core competencies of the business, consideration as to whether the operations can be outsourced should be given.

Core Competency Areas

A business is not limited to just one core competency, and preferred areas of competency often change based on the industry in which the institution operates. For example, a government agency involved in unemployment case management may include core competencies in the areas of information technology management and budget and finance. Hospitals and clinics may focus on patient care and medical knowledge, while childhood education agencies may prioritize growth and development as well as health and nutrition.

Other core competencies may include, but are not limited to, brand recognition, marketing excellence, innovation, leadership or customer service.

Core Competency and Retail Business

While customer service could apply as a core competency in both the goods are services industries, certain areas are more exclusive to those businesses involved in the distribution and sale of goods. For example, with over $480 billion in sales in 2015, Wal-Mart exhibits the core competencies of buying power and supply chain management to keep prices low while maintaining a high availability of products within its stores.