Core Competencies

A Mahesh Sharma
M.B.A., UGC-N.E.T.,S.E.T., (PGD IR PM)

 A core competency is a concept in management theory originally advocated by CK Prahalad, and Gary Hamel, two business book writers, through a series of articles in Harvard business review. In their view a core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

 It is not easy for competitors to imitate. It can be leveraged widely to many products and markets. It must contribute to the end consumer's experienced benefits.

A core competency can take various forms: including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development culture, such as employee dedication, best Human Resource Management (HRM), good market coverage etc.

 Core competencies are the most significance value of creating skills within your corporation and key areas of expertise which are distinctive to your company and critical to the company's long term growth. Your company's core competencies are the things that you do better than your competitors in the critical, central areas of your company where the most value is added to your products.

 These areas of expertise may be in any area product development to employee dedication. A competence which is central to your business's operations but which is not exceptional in some way should not be considered as a core competence, as it will not generate a differentiate advantage over rival businesses.

 It follows from the concept of Core Competencies that resources that are standardized or easily available will not enable a business to achieve a competitive advantage over rivals.

Identifying the core competencies Core competencies can be identified by examining what business achieves. Prahalad and Hamel suggest three criteria's to identify the core competencies of the organization:

 Provide potential access to wide variety of markets: The key core competencies may be those that enable the creation of new products and services; extend the distribution service networks; enhance brand recognition etc.

 Make significant contribution to the perceived customer benefits of the end product: Core competencies are the skills that enable a business to deliver a fundamental customer benefit. In other words, what is that causes customers to choose one product over another? Why is the customer willing to pay more or less for one product or service than another? What is customer actually paying for ?

 Difficult for competitors to imitate ( Unique and distinctive ): Examples of core competencies: Product development proactive marketing Supply chain speed and deep penetration into market. Sales force effective customer service. Technology inventions and innovations. Manufacturing practices Service levels etc.

Development of core competencies :

Evaluation : building the skills along with the routine works done by the individuals in the organization. Incubation : It refers to creating a separate group to focus on the chosen competence. A small team develops the competence over three year period and once it is strong enough to drive a value , it is transferred to other parts of the organization. Acquisition : Finally the acquiring the core comopetence from all parts of the organization and [ractice it on a large scale. acquisition is again divided into three parts : Technological excellence Heavy investment Developing human expertise.

 Technological excellence: Core competence is based on the technologies and capacity to integrate multiple streams of technologies. the expertise to harness diverse production skills are some of the requirements of harnessing the core competencies.

 Heavy investment : For building core competencies it is necessary for firms to invest heavily on technology and R&D. look for relevant technologies and build core competencies on them. Develop human expertise : Organization must develop human expertise that would use the technologies as building blocks and work on them. Expertise is a result of learning and experience curve effects.