What Are 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. In other words, core competencies are what the company does best and consist of the combined activities, operations, and resources that distinguish the company from competitors.

Understanding Core Competencies

A new business must first identify its core competencies and then focus on developing them as it simultaneously grows the business. Developing and focusing on core competencies is essential for a business in order 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.

[Important: Core Competencies are what a business does best, consisting of the combined activities, operations, and resources that make it stand out from the competition].

How Core Competencies Work

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—something not found in a competitor.

Developing Core Competencies

Many factors can represent or contribute to what defines a company's core competencies. Resources, such as human resources, physical assets, patents, brand equity, and capital, can all constitute or contribute to what defines a company's core competencies.

An organization's capabilities can also constitute or contribute to what are considered to be the core competencies—notably, 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.

Examples of Core Competencies

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

Core Competencies in Government and Medicine

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 Competencies in Retail

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 $495 billion in sales in 2018, 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.

Key Takeaways

  • Core competencies are defining characteristics or capabilities that distinguish a company or organization from its competitors.
  • Identifying and developing core competencies is key for a new business making its mark in a competitive landscape and for an established company trying to stay competitive.
  • Human resources, physical assets, patents, brand equity, and capital can all contribute to what defines a company's core competencies.