Core Competencies

KEY POINT:  This is a widely-used term that causes confusion for business executives and students alike. Core competencies need to be unique, hard to imitate and robust.  When something causes rampant confusion its value is questionable.

1. Introduction

Gary Hamel developed in 1990 the concept of core competencies. 

Porter's five forces model provides insight to industry averages, but executives want their company to be able to obtain superior performance. They recognize that in order to beat the competition they need special resources and competencies.

The focus is the resource-based view, and asks what unique resources and competencies the company possesses. The video clip below explains clearly the importance of the resource-based view of the firm and the focus upon core competences.

 

 

2.   Defining Traits of Core Competencies

As the clip above explains, competences should possess four traits:

  1. they should valuable to the customer;
  2. they should be rare or even unique;
  3. they should robust - be durable and hard to imitate; and,
  4. they should be non-substitutable.

3.  Resources vs Competencies

Resources - these are nouns (e.g. plant, machinery)

Competencies - these are verbs (e.g. developing new drugs; designing elegant products; integrating hardware and software; managing logistics; building brands etc).

It is important for each company to ask whether its core competence is a mirage?

4.  "A Bridge Too Far"

Apple is very good at designing products. So why does it not design cars? You probably think this is a wild suggestion because you recognize that this seems to stray away from whatever it is that Apple is really good at.

So when it comes to this notion of core competencies, perhaps a much more mundane view might prove more useful.  In developing a strategy a company needs to understand what it does really well, and if it can apply these skills to another market or market segment, and enjoy an equally strong competitive advantage then that seems wise. But when a company starts embarking on what appears to be ventures far removed from its line of business then this appears very high risk.

"Stick to the knitting" - often this is sound advice. So RIM (maker of Blackberry), when you went after the b2c market you strayed from b2b, and your core competence (i.e. encryption or security) had minimal value with consumers. Disaster was highly predictable.

5. Drifting Away from Core Competencies

Nike is excellent in developing and marketing products for the casual wear or sports wear market. Imagine it decided to focus upon denim wear or more formal dress wear. This represents an example of moving away from its core competencies. One would be surprised if Nike could compete effectively in such markets. Indeed in late 2012, it decided to sell its Cole Hahn brand.

Toys-R-Us enjoyed a core competency in toy retailing. The problem is that this business model is possibly becoming obsolete as Online becomes more popular. The company has announced its plans to enter the entertainment industry and develop a streaming service of programs for children. This is clearly a giant step away from the company's traditional core competencies. This appears a very high risk move but sometimes if a company faces a bleak future it has no alternative bust to try and develop very new core competencies.

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Comment by Tyler Addington on April 23, 2012 at 2:59pm

On this slide I think it would be beneficial for students to have an example of companies that have drifted from their core competencies and the effects it had on their business (e.g. bankrupcy, etc.)

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