What Are Core Competencies?

Core competencies are the resources and capabilities that comprise the strategic advantages of a business. A modern management theory argues that a business must define, cultivate, and exploit its core competencies in order to succeed against the competition.

A variation of the principle that has emerged in recent years recommends that job seekers focus on their personal core competencies in order to stand out from the crowd. These positive characteristics may be developed and listed on a resume. Some personal core competencies include analytical abilities, creative thinking, and problem resolution skills.

Key Takeaways

  • Core competencies are the defining characteristics that make a business or an individual stand out from the competition.
  • Identifying and exploiting core competencies is seen as important for a new business making its mark or an established company trying to stay competitive.
  • A company's people, physical assets, patents, brand equity, and capital can all make a contribution to a company's core competencies.
  • The idea of core competencies was first proposed in the 1990s as a new way to judge business managers compared to how they were judged in the 1980s.
  • Examples of companies that have core competencies that have allowed them to remain successful for decades include McDonald's, Apple, and Walmart.

Understanding Core Competencies

A successful business has identified what it can do better than anyone else, and why. Its core competencies are the "why." Core competencies are also known as core capabilities or distinctive competencies. Core competencies lead to competitive advantages.

Core competency is a relatively new management theory that originated in a 1990 Harvard Business Review article, “The Core Competence of the Corporation.”

In the article, C.K. Prahalad and Gary Hamel review three conditions a business activity must meet in order to be a core competency:

  • The activity must provide superior value or benefits to the consumer.
  • It should be difficult for a competitor to replicate or imitate it.
  • It should be rare.

The article pointed out the contrast of how businesses operated in the 1980s versus how they should operate in the 1990s. The article asserted that in the 80s, business managers were "judged on their ability to restructure, declutter, and delayer their corporations. In the 1990s, they'll be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible."

The core competencies that distinguish a business vary by industry. A hospital or clinic may focus on excellence in particular specializations. A manufacturer may identify superior quality control.

Utilizing Core Competencies

A variety of resources, such as talent pool, physical assets, patents, and brand equity, make a contribution to a company's core competencies. Once it understands those competencies, the company can properly focus all of those resources. It may even outsource activities that are outside its core competencies in order to devote its resources to what it does best.

The business should use its core competencies in every facet of its operations, from advertising to growth strategies, to sponsorship, to its reputation. The advantage will be that these core competencies will lead to longevity for a firm.

Even if a firm comes out with a unique product, if it is easy to replicate, once the patent expires, it will find itself with numerous competitors in the market eating away at its once-dominant market share.

To prevent this, a company will have to rely on other core competencies, such as customer service, quality control, advertising, and innovation to stay ahead of the new entrants in the market.

Real-World Examples

A business is not limited to just one core competency, and competencies vary based on the industry in which the institution operates.

Some of the core competencies of established and successful brands tend to be there for all to see:

  • McDonald's has standardization. It serves nine million pounds of French fries every day, and every one of them has precisely the same taste and texture.
  • Apple has style. The beauty of its devices and their interfaces gives them an edge over its many competitors.
  • Walmart has buying power. The sheer size of its buying operation gives it the ability to buy cheap and undersell retail competitors.