core competency (core competencies)

Core competency is an organization'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 organizations, whether existing competitors or new entries into its market.

A company can have more than one core competency. Core competencies, which are sometimes called core capabilities or distinctive competencies, help create a sustained competitive advantage for organizations.

The concept of identifying and nurturing core competencies to drive competitive advantages and future growth applies to companies across industries.

Origin and history

The concept of core competency stems from the 1990 article titled, "The Core Competence of the Corporation," written by C.K. Prahalad and Gary Hamel and published in Harvard Business Review.

In that article, the authors asserted in their opening paragraph that business executives in the 1980s "were judged on their ability to restructure, declutter and delayer their corporations." But moving forward, in the 1990s, they would "be judged on their ability to identify, cultivate and exploit the core competencies that make growth possible."

Prahalad and Hamel observed that successful enterprises viewed themselves as "a portfolio of competencies versus a portfolio of businesses," and these competencies "empower individual businesses to adapt quickly to changing opportunities."

Core competency defined

The authors defined core competencies "as the collective learning of the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology."

They wrote, "If core competence is about harmonizing streams of technology, it is also about the organization of work and the delivery of value."

The article cited Honda to explain core competencies, explaining that Honda's core competencies were in engines and power trains, and those competencies drove its advantage in the car, motorcycle, lawn mower and generator businesses.

Core competency skills chart

Identifying, nurturing core competencies

Prahalad and Hamel wrote that a core competency can be identified by three characteristics: It "provides potential access to a wide variety of markets"; "make[s] a significant contribution to the perceived customer benefits of the end product"; and "should be difficult for competitors to imitate."

Furthermore, the authors declared that "core competence is communication, involvement and a deep commitment to working across organizational boundaries. It involves many levels of people and all functions."

To ensure long-term growth and success, an organization should identify its core competencies and then invest in those areas, focusing resources on building and maintaining the skills that contribute to the competencies.

A company seeking to develop its core competencies needs to first isolate those abilities that they do well or can provide a competitive advantage, and then develop them into organizationwide strengths. They need to develop those skills and strengths in ways that are unique from competitors and in ways that deliver identified value to customers.

Some management experts assert that an organization should outsource or divest areas that fall outside the core competencies, thereby freeing more resources to reinvest into the core capabilities.

To help sustain its core competencies, a company should use them to guide its strategic visions, as well as its management priorities. A company should focus on communicating their value to employees, building a culture based on these capabilities and deploying technology to support them.

Additional applications of the term

Today, some businesspeople apply the term core competencies to the strengths that individuals possess, particularly as those strengths relate to their positions or professions. As such, some will identify an individual worker's core competencies as specific abilities -- for example, fostering teamwork or managing change.

This was last updated in March 2017

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