Core Competency

Core competency is an organisation's defining strength, providing the foundation from which the business will grow, seize upon new opportunities and deliver value to customers. A company’s core competency is not easily replicated by other organisation, whether existing competitors or new entries into its market.

It can be defined as “a harmonised combination of multiple resources and skills that distinguish a firm in the marketplace” and therefore are the foundation of companies’ competitiveness.

What does It Mean In Practice?

The Notion Of Increased attention of this article was caused by proposing mainly two contribution in strategic management literature :

  • New complementary approach to strategic planning.
  • Which provided tool for achieving better synergies in a multi-businesses corporations among its various businesses units.

While much was investigated on what is core competency, this article core competency is represented as a tool in strategic management process and represents to senior managers clear 8 steps on strategic advantage to gain more core competency and capabilities.

Better Understanding by Comparison:

Traditional Approach

  • Usually, it starts from analysis of external threats and opportunities.
  • Analysis of: macro-environment, stakeholders, industry, competitors and trends.
  • Then, company develops strategy with existing resources and addresses threats and opportunities.
  • Finally, sets up the implementation plan through resource which are allocates and company gradually moves through according to the steps of plan.

New Approach

  • Prahald and Hamel, proposed the planners not to start from outside-orientation search, but inside. Meaning that, planners should start from internal analysis and then examine external environment.
  • Core Competence and Core Capabilities needs to understand fully to successfully exploit resources usage.
  • Basically, this study of thought called “The Resource based View of the Firm”.
  • It advocates that firms own different types of resources that need to be approached, as they will result different strategies.

Such in-depth understanding can lead to a better match between external opportunities and internal strengths because once the corporation knows its areas of strength, it can search the external environment to identify possible ways of better exploiting those strengths.

Walt Disney’ s core competence in entertaining families has directed it into a seemingly diverse set of businesses such as amusement parks, hotels, video channels and movie studios.

Defining the Concept:

Core competence is a tool for investigating internal analysis.

Core Competency-” the collective learning in the organization, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies”.

Strategic Business Unit (SBU) As in case of Disney, many multi-business companies realize through integration process, the rise of potential businesses, that called Strategic Business Unit (SBU).

Capabilities and Resources

Figure 1. The competencies hierarchy

The first step in eliciting a companies competencies is universal understanding among all management levels, the drivers-concepts: Core competence, Competencies, Capabilities, Resources.

  1. Resources- are the inputs of the organizations value chain. Resources categorized into 4 groups: Physical(plant, equipment, location, assets); Human( manpower, management team, training process); Organizational(culture, reputation); Some resources are Tangible(equipment) other Intangible(reputation).
  2. Capabilities- refers to the companies ability to exploit its resources. They are Functionally based, as it represents the process of transition from input to output.
  3. Competencies- is a cross-functional integration and co-ordination of capabilities. It shows, integration between SBUs functional capabilities.
  4. Core Competence- Highest level of hierarchy, as a result of interaction between different SBUs competencies.

Capabilities and Strategic Hierarchy

The hierarchy of competencies relates to the hierarchy of strategies in a multi-business company. In formulating business portfolio, senior managers should go beyond identification the place where it want to be:

  • They should conduct current and possible competencies.
  • This will help them to asset the usage of resources more effectively and efficiently.
  • It will help to understand and stay stick with new synergies that would be helpful, which also needs to be filtered.

8 steps:

  1. To know how?
  2. Is this know-how present in one function, one SBU, or across the corporation?
  3. Are we any better than our competitors?
  4. Does it matter?
  5. How durable is our advantage?
  6. What are the key changes taking place in the industry?
  7. Given the key changes taking place in the industry?
  8. Where do we go from here?

By answering above questions, the 45 managers divided into 5–6 groups were asked to participate in the study that would help in designing company’s core competency’s and capabilities in systematic and methodical way.( US Natural Gas Pipeline Company,1995)

Defining Each Question-step:

  1. To know how?- managers must identify what ever it is that their company performs very well. They need to identify as many subcategorizes as possible for each skill set.
  2. Is this know-how present in one function, one SBU, or across the corporation?- the purpose of this question is to decide whether what the company does well is a Capability(functionally based), Competency(SBU based), or a Core Competency(cross-SBU).
  3. Are we any better than our competitors?- this question enables managers to discuss the corporations capabilities and competencies in twofold context: First, to initiate the process of linking competencies to competitive advantage. Second, is to prevent too much introspection by forcing decision makers to consider the external environment.
  4. Does it matter?- at this point its critical to distinguish two concepts: competitive advantage and core competency that are closely related but not same, because a succefull competitive advantage is built on the firms core competencies and competitive advantages.
  5. How durable is our advantage?- in the stage of relative attractive position in the market, the higher pressure on competitors, its time to remind managers that very few advantages last for a long time. The aim is to prepare company for eventual challenge in the environment.
  6. What are the key changes taking place in the industry?- the purpose of this question to ensure that managers do not become too introspective, in a way that they need external analysis as well.
  7. Given the key changes taking place in the industry?- ensure a strategic and dynamic discussion of competencies and capabilities, that help to allocate resources according to environment changes.
  8. Where do we go from here?- at this stage, managers need to fully connect the competency exercise with strategic planning process, specifically within time frame and resource used.

Conclusion:

The fundament base of this article is on systematic and methodical analysis of its resources, capabilities, and competencies. Thereby, to help managers provide clear operational definition of the important concepts. Several steps need to be considered for companies:

  • General consensus on meaning of these concepts.
  • The process should be an integral part of the company’s strategic planning process, to match external opportunities with internal resources.
  • All line managers should be integrated in enhancing in quality improvement of the organization communication and collective learning that will facilitate execution of strategic plans.

Examples of Core Competency

  • Analytical Thinking - Applies logic to solve problems and get the job done.
  • Client Service - Ability to respond to the clients and anticipate their needs.
  • Computer Competency - Is skilled at operating a computer.
  • Conflict Resolution - Works to resolve differences and maintain work relationships.
  • Continuous Education - Implements professional development and training.
  • Creative Thinking - Ability to look outside the box and develop new strategies.
  • Decision Making - Can make decisions and take responsibility for them.
  • Document Use - Ability to use and understand documents.
  • Empowers Others - Gives employees confidence and allows freedom to complete tasks.
  • Ethics - Has personal and professional ethics and fosters a diverse and respectful workplace.
  • Evaluation - Ability to evaluate according to accepted methodologies.
  • Even Temperament - Controlling emotions and not retaliating to negative behavior.
  • Excellent communication - Can use language effectively to gather information and facilitate the exchange of ideas.
  • Flexibility - Ability to adapt to changes while keeping focus on goals and apply knowledge to new circumstances.
  • Influence - Can enlist the support and cooperation of others and encourage them to be proactive.
  • Initiative - Ability to obtain information from several sources to address present needs.
  • Interpersonal Relations - Exhibits respect and understand of others to maintain professional relationships.
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