Core Competencies Analysis

The development of core competencies falls in perfect order as the fourth element of internal analysis where present offerings have been developed, marketing mix defined, and internal resources analyzed for competitiveness. The outcome from the third component of internal analysis typically yields in identification of key capabilities of a firm from its resource set. But there is a difference between resources and capabilities which we shall address now.

Differences between Resources and Capabilities

Amit and Schoemaker (1993) made a key distinction of the encompassing construct called ‘resources’ and divided it into resources and capabilities. Resources are a stock of available factors that are owned or controlled by the organization, and capabilities are an organization’s capacity to deploy resources.

Understanding Competitive Advantage and Core Competencies It is important to understand the reason for conducting a competency analysis which is primarily to gain competitive advantage. Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. A competitive advantage can be attained if the current strategy is value-creating, and not currently being implemented by present or possible future competitors.

Although a competitive advantage has the ability to become sustainable, this is not necessarily the case. A competitive advantage is sustainable when the efforts by competitors to render the advantage have ceased. When the imitative actions come to an end without disrupting the firm’s competitive advantage, the firm’s strategy can be called sustainable. For a firm to manage sustainable competitive advantage over time, it needs to sustain its core competencies. Let us delve deeper to understand this concept.

Core competency as a management concept was introduced by C.K. Prahalad, Julian Kriviak, and Gary Hamel. It can be defined as a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace. In their book Competing for the Future, Hamel and Prahalad suggested that business leaders view their organizations as a portfolio of competencies which should be shared across business units rather than being retained by small business units for their own benefit. A competency according to them is built and sustained over time and is a bundle of skills rather than a unique skill. It is this integration of skills that define a core competence.

A core competency, thus, is a bundle of skills that enable an organization to provide particular benefits to customers. Its not a product or service in itself rather it helps build such new offerings.

According to the authors, there are three tests to identify core competencies of a firm:

1. Relevance: The competence must give the customer something that strongly influences him/her to choose a firm’s product or service. If it does not, then it has no effect on competitive position and is not a core competence.
2. Difficulty of imitation: The core competence should be difficult to imitate. This allows the firm to provide products that are better than competition. And, through continuous work to improve these skills, a company’s competitive position can be sustained.
3. Breadth of application: It should be something that opens up a good number of potential markets. If it only opens up a few small, niche markets, then success in these markets will not be enough to sustain significant growth.

Let us look at a few examples of how top companies develop unique core competencies and make use of them to develop new and even more differentiated offerings. The nearest example which would come to anyone’s mind of the top two most innovative, classy, and yet differentiated companies in today’s time is of Google and Apple. If we compare both, we would see a quite differentiated set of core competencies though each of them have targeted similar customers in the same period in history.

For Google, here are some of the key core competencies which it has developed over the years through a mix of skills and capabilities across product, design, marketing, technology, etc.

1. Search accuracy: With its patented algorithms which could conduct millions of searches with much higher accuracy than competition, this was its first-mover advantage, a competency which it has still retained to its present day.
2. Design simplicity: With just a plain textbox at the center, and much superior design across all of its digital products, design has been crucial to Google’s success.
3. Querying speed: The investment in setting up huge and expensive servers to make sure that search results appear the fastest on a click has been a very strong competency.
4. Aesthetic branding: With a recognizable and vibrant logo to succinctly laid corporate values, to its hiring and employee care policies, Google has established itself as a brand with a great recall, owing much to its product set which is highly consumer centric.
5. Guided navigation concept: When Google came across, it brought unique concepts like superior and guided web navigation, a competency mix which had never been thought of earlier. Also, the testing and execution of these concepts is what made the biggest difference as consumers could now expect flawless performance regularly.
6. Free of cost services: With Google’s market strategies of charging advertisers rather than consumers for its services, its pricing model has helped it gain prominent mindshare across a wide set of customers, a move which improved the positioning of its other consumer products too.

Similar to Google, Apple also had a first mover advantage in launching premium-end technology products which had no earlier precedence in their respective industries. Let us look at some of their evident core competencies.

1. Product innovation: With the launch of industry-changing products across areas like computing, music, telecom, movies, graphics, Apple has showcased a unique approach to product innovation as its core competency.
2. User experience: With design and user ease as its founding philosophies, Apple showed how superior user experience in itself can be a core competency for firms.
3. Technology competence: Apart from product, incremental innovation in multiple technology areas and trade-marketing has been a unique differentiator.
4. Brand marketing: The whole aura and unique marketing prowess displayed by Steve Jobs helped build a brand which marketed itself through credible word-of-mouth.
5. Premium positioning: As opposed to Google, Apple’s products have adopted the premium pricing strategy, a move which not only helped develop it as a premium category product but also became a core competency which was hard to emulate.

In both of the above examples we see that there are some distinct overlaps of key competency areas; it is actually the development, execution, and continuous enhancement of these unique skills which sustains competitive advantage and makes the ‘core competency’ difficult to imitate. With Google’s multiple changes to its search algorithm throughout the year and with Apple’s regular product launches, software upgrades, and new version launches of its operating systems, both the companies are able to maintain their distinct competitive elements.

With a knowledge of the concept of core-competencies emerging from a firm’s resources to capabilities development towards building a set of differentiated skills, according to Hamel and Prahlad, a company needs to keep evaluating its core competencies by answering some of the questions below:

1. Do customer’s benefits revolve around these core competencies?
2. How long could we dominate our business if we didn’t control this competency?
3. Does it provide access to multiple growth markets and help in developing new products and services?
4. What future opportunities would we lose without it?

In this section, we have understood the concept of core competencies and their importance in developing truly differentiated businesses. It is crucial, as we have seen here, to identify and nurture core competencies in a strategic manner and also align digital marketing activities to portray these strengths and expertise areas uniquely for customer connect.