What Is The Essence Of Core Competency?
Core competency is an expertise an organisation has, that gives it a competitive advantage over its competitors. It cannot be easily duplicated or replicated by other organisations. It is rare, costly to imitate and cannot be substituted. It is an expertise the organisation has developed in its operations or business over a period of time. It takes a lot of effort too. When an organisation realizes its areas of expertise, it uses its resources or capabilities in those areas to strengthen it more and tends to outsource its non-core areas of work. A core competency may be technical, marketing driven, service driven or anything which makes the company unique in the eyes of the customer. It gives the the product a fillip while creating entry barriers for the competitors.
What Leads To Core Competency?
The basic inputs that allow the organisation to function are its resources such as physical assets, human resources and capital. Physical assets are tangible like, machinery or property. Resources like reputation, market credibility, and brand equity are intangible. An organisation’s capability is to function well utilizing its resources in the best possible manner. Over time, these capabilities are honed and result in the expertise of the organisation in certain functional areas or area. This gives the organisation a competitive advantage over its competitors. The competitors cannot replicate that area of the organisation and cannot even substitute it. Hence, the meeting of resources and capabilities of the organisation in the most effective manner becomes the core competence of the organisation, resulting in better market performance and profitability.
The Path Breakers
The term ‘Core Competency’ was introduced and coined in 1990 by C.K. Prahalad and Gary Hamel. The two academicians wrote:
“Core competencies are the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies…core competence is communication, involvement and a deep commitment to working across organisational boundaries…core competence does not diminish with use. Unlike physical assets, which do deteriorate over time, competencies are enhanced as they are applied and shared”.
Prahalad and Hamel went on to outline three factors that determine whether something is a core competence:
- First, a core competence provides potential access to a wide variety of markets.
- Second, a core competence makes a significant contribution to the perceived customer benefits of the end product.
- Third, a core competence is difficult for competitors to imitate because it is a complex harmonization of individual technologies and production skills.
A Core Competency creates sustainable competitive advantage for the organisation and helps it branch into a wide area of related markets.
To deepen its core competency, the organisation should identify its expertise in its key areas and work towards bettering those skill sets, spread this awareness across the whole organisation so that different departments relate to the core competency and are on the same page, keep a check on its competitors as to what their capabilities and resources are and where they stand compared to the unique capabilities of the organisation. The organisation should further see what capabilities their customers value and should invest into and strengthen those areas. It should also join hands with other organisations which help to strengthen its core areas.
Examples Of Core Competence
For example, Mukesh Ambani’s Reliance Industries have a core competence in the execution of large capital intensive projects. This is something they have done repeatedly. For instance, their first refinery that came up at Jamnagar in 1999 was completed in a record time of three years as against the deadline of around six years.
Their acquisition of stakes in organisations abroad tells of how they leveraged their operational skills to rise in the global refining business.
The other example can be given of Apple. Their deep proficiency in making innovative products like Mac computers, iPhone, iPod, iPad, Apple watch and TV have placed them among the top in the global ratings. They also have a core competency in the area of marketing because they understand the needs of the customers very well and design products that have depth and that integrate with each other seamlessly.
Adapting Your Core Competency With The Changing Times
It is to be noted that an organisation can have more than one core competency or more than one area of core competency. Core competencies change with change in the business environment or the organisation’s internal environment. These have to adapt with the changing circumstances. So the organisation should be flexible enough to change as per the market situation, though such market changes do not happen overnight. An organisation can have a core competency for years before market conditions or competitors compel it to change. The organisation gets enough time to change, though.
The digital marketing era in India had started way back in 1996 but today it has spread to all the business sectors in India. Organisations were compelled to change their old models of marketing if they were to survive. But the market had enough time to evolve to the digital concept. Today, most of the organisations have incorporated digital marketing in their traditional models of marketing.
E-bidding had started in India in around 2006 with LG Electronics getting e-bids done for their purchase of raw materials. Now with players like Amazon, Flipkart, Snapdeal, Shop Clues, Infibeam etc., e commerce is a booming industry in India. Instead of talking to their target segments as a whole, these players are conversing with the buyer one-to-one. So, different strategies are employed by the organisations to woo their individual buyers. Thus, core competencies in conventional marketing need to be replaced partly or wholly with digital marketing, depending upon the business sector or the type of industry.
In conclusion, I would say that a core competence is a must for every organisation that desires to succeed in the market profitably over a long period of time. Times will change, technologies will change, core competencies will differ but the organisations that adapt well to the changes and develop new core competencies will rule the market.