Core Competency and Competitive Advantage A core competency is something that a firm can do well and that meets

the following three conditions specified by Hamel and Prahalad (1990): 1. It provides customer benefits 2. It is hard for competitors to imitate 3. It can be leveraged widely to many products and markets. A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998). It may also include product development or culture such as employee dedication. Modern business theories suggest that most activities that are not part of a company's core competency should be outsourced. If a core competency yields a long term advantage to the company, it is said to be a sustainable competitive advantage. As an example they gave Honda's expertise in engines. Honda was able to exploit this core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. To take an example from the automotive industry, it has been claimed that Volvos core competency is safety. This however is perhaps the end result of their competency in terms of customer benefit. Their core competency might be more about their ability to source and design high protection components, or to research and respond to market demands concerning safety. Competitive advantage When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation.

The Competitive Advantage model of Porter learns that competitive strategy is about taking offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior return on investment. According to Michael Porter, the basis of above-average performance within an industry is sustainable competitive advantage. There are 2 basics types of CA: - cost leadership (low cost), and - differentiation. Both can be more broadly approached or narrow, which results in the third viable competitive strategy: focus. Approach 1 to Competitive advantage: Cost leadership. a firm sets out to become the low cost producer in its industry. Note: a cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its CA. Note: if more than one company aim for cost leadership, usually this is disastrous. Often achieved by economies of scale Competitive advantage model 2: Differentiation. a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. Note: a differentiator cannot ignore its cost position. In all areas that do not affect its differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it receives from the buyers. Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc. Competitive advantage 3: Focus. = a firm sets out to be best in a segment or group of segments. 2 variants: cost focus and differentiation focus. Stuck in the middle: Usually a recipe for below-average profitability compared to the industry Still attractive profits are possible if and as long as the industry as a whole is very attractive Manifestation of lack of choice Especially risky for focusers that have been successful and then to loose their focus. They must seek for other niches rather then compromise their focus strategy. A firm possesses a Sustainable Competitive Advantage (SCA) when it has value-creating processes and positions that cannot be duplicated or imitated by other firms that lead to the production of above normal rents. An SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated.

Adding value
Is a key concept in busiesss studies. This note explains in more detail. Added value = the difference between the price of the finished product/service and the cost of the inputs involved in making it. So added value is the increase in value that a business creates by undertaking the production process. It is quite easy to think of some examples of how a production process can add value. Businesses can add value by: Building a brand a reputation for quality, value etc that customers are prepared to pay for. Nike trainers sell for much more than Hi-tec, even though the production costs per pair are probably pretty similar! Delivering excellent service high quality, attentive personal service can make the difference between achieving a high price or a medium one Product features and benefits for example, additional functionality in different versions of software can enable a software seller to charge higher prices; different models of motor vehicles are designed to achieve the same effect. Offering convenience customers will often pay a little more for a product that they can have straightaway, or which saves them time.

A business that successfully adds value should find that it is able to operate profitably. Why? Remember the definition of adding value: where the selling price is greater than the costs of making the product. By definition, a business that is adding substantial value must also be operating profitably. Finding ways to add value is a really important activity for a start-up or small business. Quite simply, it can make the difference between survival and failure; between profit and loss. The key benefits to a business of adding value include: - Charging a higher price - Creating a point of difference from the competition - Protecting from competitors trying to steal customers by charging lower prices - Focusing a business more closely on its target market segment