What are your core competencies?
Defining Your Core Competencies and Strategic Intent
In a June 1990 Harvard Business Review article, “The Core Competence of the Corporation,” Prahalad and Hamel outline the concepts of core competencies that still hold true today. A core competence is an intangible, not an asset that can be found on an accounting balance sheet, and not a patent (intellectual property.)
It is something your venture does especially well in comparison to direct competitors. Each core competence represents specialized expertise, know-how, or a bundle of skills and technologies that rivals do not have and cannot readily duplicate.
As a set, they represent the sum of learning across your venture’s activities that when combined, create unique organizational capability by providing a particular benefit and value to customers. They are extendable, they do not wear out; the more refined they get, the more valuable they become. And most importantly, they are the central subjects of your business strategy as they grow to become your distinct competitive advantage.
These roots of your competitive advantage lie in the viability and health of your core competencies. As Prahalad and Hamel suggest, think of your venture as a tree. The trunk and major limbs are core products; the smaller branches are business segments focusing on different market niches based on specific customer needs. The leaves, flowers, and fruit extending from each branch are your end products. The root system that provides nourishment, sustenance, and stability is your base of core competencies.
As they say, “You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves.” To that end, you cannot graft an orange branch on an apple tree, although both are fruit trees.
Let us consider Honda, whose core competence is in highly engineered small engines and power trains. It gives them a distinctive advantage in the car, motorcycle, lawn mower, and generator business. Their root system is based on Soichiro Honda’s personal commitment and engineering skills that led him to create the world’s finest team for designing small, high-performance engines, first for motorized bicycles, then for motorcycles, and later for automobiles, including some of the most successful Formula-1 racecar engines ever built.
How do you identify your core competencies?
– First, is the competence a significant source of competitive differentiation and does the competence generate distinct value and benefits for your customers?
– Second, does the competence transcend a single business opportunity? For example, does it cover a range of businesses, market segments, and does it or will it provide access to a variety of product and market niches?
– Finally, is the competence hard for competitors to imitate and is it difficult for others to learn?