A Core Competency is a deep proficiency that enables a company to deliver unique value to customers. It embodies an organization’s collective learning, particularly of how to coordinate diverse production skills and integrate multiple technologies. Such a Core Competency creates sustainable competitive advantage for a company and helps it branch into a wide variety of related markets. Core Competencies also contribute substantially to the benefits a company’s products offer customers. The litmus test for a Core Competency? It’s hard for competitors to copy or procure. Understanding Core Competencies allows companies to invest in the strengths that differentiate them and set strategies that unify their entire organization.

Usage and satisfaction among survey respondents

How Core Competencies work:

To develop Core Competencies a company must take these actions:

• Isolate its key abilities and hone them into organization-wide strengths
• Compare itself with other companies with the same skills to ensure that it is developing unique capabilities
• Develop an understanding of what capabilities its customers truly value, and invest accordingly to develop and sustain valued strengths
• Create an organizational roadmap that sets goals for competence building
• Pursue alliances, acquisitions and licensing arrangements that will further build the organization’s strengths in core areas
• Encourage communication and involvement in core capability development across the organization
• Preserve core strengths even as management expands and redefines the business
• Outsource or divest noncore capabilities to free up resources that can be used to deepen core capabilities

Companies use Core Competencies to:

• Design competitive positions and strategies that capitalize on corporate strengths
• Unify the company across business units and functional units, and improve the transfer of knowledge and skills among them
• Help employees understand management’s priorities
• Integrate the use of technology in carrying out business processes
• Decide where to allocate resources
• Make outsourcing, divestment and partnering decisions
• Widen the domain in which the company innovates, and spawn new products and services
• Invent new markets and quickly enter emerging markets
• Enhance image and build customer loyalty

Etude

Management Tools & Trends

Five key trends emerged from Bain's survey of 1,268 managers.

Selected references

Alai, David, Diana Kramer, and Richard Montier. “Competency Models Develop Top Performance.” T + D, July 2006, pp. 47–50.

Campbell, Andrew, and Kathleen Sommers-Luchs. Core Competency-Based Strategy. International Thompson Business Press, 1997.

Critelli, Michael J. “Back Where We Belong.” Harvard Business Review, May 2005, pp. 47–54.

Drejer, Anders. Strategic Management and Core Competencies: Theory and Applications. Quorum Books, 2002.

Hamel, Gary, and C. K. Prahalad. Competing for the Future. Harvard Business School Press, 1994.

Prahalad, C. K., and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review, May 1990, pp. 79–91.

Quinn, James Brian. Intelligent Enterprise. Free Press, 1992.

Quinn, James Brian, and Frederick G. Hilmer. “Strategic Outsourcing.” MIT Sloan Management Review, Summer 1994, pp. 43–45.

Schoemaker, Paul J. H. “How to Link Strategic Vision to Core Capabilities.” MIT Sloan Management Review, Fall 1992, pp. 67–81.

Zook, Chris. “Finding Your Next Core Business.” Harvard Business Review, April 2007, pp. 66–75.

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