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What is 'Core Competencies'

Core competencies are the resources and/or strategic advantages of a business, including the combination of pooled knowledge and technical capacities, that allow it to be competitive in the marketplace. They are what the company does best and consist of the combined activities, operations, and resources that distinguish the company from competitors.

BREAKING DOWN 'Core Competencies'

A new business must first identify and then focus on its core competencies to establish a footprint while gaining a solid reputation and increasing brand recognition. Leveraging core competencies usually provides the best chance for a company's continued growth and survival.

Origins of Core Competency

Core competency is a relatively new management theory, originating in a Harvard Business Review article titled “The Core Competence of the Corporation.” In the article, the authors, C.K. Prahalad and Gary Hamel, review three conditions a business activity should fulfill to be a core competency. First, the activity must provide superior value/benefits to the consumer. Secondly, a core competency should not be easily replicated or imitated by competitors.  Lastly, it should be rare; it should be something not found in a competitor.

Development of Core Competencies

Resources, such as human resources, physical assets, patents, brand equity, and capital, can be or can contribute to a company's core competencies.  An organization's capabilities can also be or contribute to core competencies, and they consist of how a firm uses its resources to be competitive and operate efficiently.  Once an organization identifies its core competencies, internal investment should be directed toward maintaining these areas and ensuring they remain unique within the industry sector. Sometimes, when particular functional areas or activities are outside of the core competencies of the business, outsourcing is considered.  Outsourcing is essentially a transfer of business to a company whose core competencies include the transferred activities and functions.

Core Competency Areas

A business is not limited to just one core competency, and competencies vary 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, budget, and finance. Hospitals and clinics may focus on patient care and medical knowledge, while childhood education agencies may prioritize growth and development, health, and nutrition.

Core Competency and Retail Business

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

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