Core competencies exist in companies which have a factor central and unique to their business. Core competency is a factor which gives you competitive advantage over others. Examples of core competency are home delivery in case of Domino’s, or Innovation in case of Apple and Google. Your core competency is always defined when compared with others. Let us understand core competency with an easy example.
We are taking an example of product marketing of Honda to understand core competency. Honda is known for its engines. That’s the core competency of Honda. Thus, when it plans a car, the car design and the marketing mix are all secondary. The first thing that it decides on is the engine. Honda knows, that given the right engine and the right power, any car can sell because the customer knows that the engine quality is superior to everyone else. Thus, Honda has always focused on its core competency and has always spent its R & D on improving its engines.
In service marketing, Taj hotels is known for the luxury. The service and the food comes secondary. People know the Taj group of hotels for the luxury that each of their hotel provides. The luxury of the hotel is its core competency. Thus, in Mumbai, the Taj hotel is facing the gateway of India and has fantastic interiors. In Goa, the Taj hotel is directly connected to a private beach. These are exemplary forms of luxury being provided to Taj customers. When planning on a new Taj hotel, the manager has to think on the location and the interiors and has to ensure that he plans on his core competency well.
Thus, a core competency may be technical, service driven or any factor which makes the company unique in the eyes of the customer. For any corporate, core competency is developed over a period of time. Apple has its innovation, Titan has its watch designs, Walmart has its costing. The core competency for all these companies have been developed over time.
Importance of Core Competencies
Core competency decide whether or not the firm has a sustainable competitive advantage. Walmart has a core competency which is its supply chain. Adidas and Reebok have their own core competency which is their brand image. Why do these firms try so hard to build and strengthen their core competency? It is because of the following 3 reasons.
1) Sustainable competitive advantage
the key word here is sustainable. Any company at any given point might have several competitors. Nonetheless the company survives even in face of competition. The reason is that it has a core competency which gives it a competitive advantage.
Mcdonald’s and KFC are both companies who have constant indirect competition with local food outlets. The reason these 2 firms are able to beat others is their core competency. Which is to provide delicious food consistently at affordable prices with a very fast service. These core competencies are very difficult to match at a global level. Thus core competency provides us with competitive advantage.
2) Can be applied in wide variety of markets
A core competence is applicable in a wide variety of products and markets. Samsung’s core competency is its ability to get the most out of the android operating system as well as the quality of their smartphones. If Samsung had not adopted android, it would have become obsolete like Nokia.
The other core competence of Samsung is its pro-activeness to manufacture wide variety of products with different configurations. No matter which smart phone they manufacture, Samsung smart phones are perceived to have the best operating system and the best quality in the market. The same perception is now being felt by customers for all products of Samsung. Because of its high quality in smart phones, samsung’s TV and refrigerators also have received a boost. Thus a core competence can be applied to a wide variety of products or to your complete product portfolio.
3) Difficult for imitation
The advantage of core competency is a unique identity for the organization. Icici is known for its customer service. Amul and Baskin robbins are known for their taste and variety. Fedex is known for its strong processes in supply chain. Apple is known for innovation. Dell is known for performance. Although the products of these companies are regularly imitated, you cannot imitate their core competence. You can design a site similar to Facebook or Google but you cannot imitate their ease of usage or the user experience without copying them from head to toe.
Competency is developed over time and it has to be kept updated. If apple wants innovation as its core competency, it has to innovate and bring new products again and again in the market. Not a simple thing to do. Because of these three reasons, knowing and developing your core competency is important for any organization.
Advantages of developing a core competency are threefold.
Difficult to imitate – You cannot take away the word innovation from Apple easily. This is because apple has continuously brought forward innovative products like Ipod, Iphone, Mcbook and others. Thus, the core competency of Apple is difficult to imitate. In general, take the core competency of any good company, and you will find that it is very difficult to imitate the core competency because the competency has been developed over a long period of time.
Wide usage – As explained in the above example, the engines of Honda have a wide usage. They are used in cars, motorboats, planes and wherever they are compatible. Thus, a core competency is widely applicable in various markets. It is not exclusive to some segments only. It is a quality which is applicable to any market that the company enters.
Benefits and Value – The luxury of Taj gives delights to its customers and creates value for the brand. At the same time, there are benefits. The benefit is that wherever you go, you can rely on the Taj brand. And thus, anywhere Taj establishes its hotels, customers are sure to flock in. Thus, when you have a strong core competency, customers recognize the benefits and values of the core competency.
The major thing here is that core competency gives your brand a push and at the same time creates a barrier for the competition which is required for your brand. Each of the above brands has a competency which they are recognised for. To develop such a competency requires time and effort. Hence developing a core competency is an excellent tactic for competitive advantage.
Threats to core competency is when a company comes along who either nullifies your core competency or takes away market share by having a better core competency. For example – Although apple is known for innovation, and has a wide spread fan following for its mobile smart phone, the market share is taken away by Samsung, who is known for its android platform. Thus, even though Apple’s core competency is stronger in terms of value, the market share is being taken away by a separate technology. This technology, android, is the core competency of Samsung smartphones. Thus, the competitive advantage benefit of core competency is limited and does not ensure an absolute position in the market.
Here is a video by Marketing91 on Core Competencies.
Limitation of Core Competencies
A core competency is developed over time and stays with the company in all of its products and is the major differentiator for the company. Wal-Mart has its pricing. Apple has innovation. Intel has technology. But what if the core competencies of these companies are attacked? Can your core competency be limiting to you? Can Wal-Mart launch high priced products and still maintain brand equity. Can Apple ever launch me too products now? I don’t think so.
Thus there are certain factors which will limit your core competency and will be a hindrance to the company’s expansion. The factors are as follows
1) Adaptation and differentiation –
The first factor is technological. The core competency of sify internet cafe was fast internet connection. But now that internet Wi Fi and broadband is present country wide in India, sify is dropping out of the market slowly but surely. You need to adapt to a changing business environment. Differentiation is the key to adaptation. With a changing business environment comes the need of finding a new core competency which will give a new identity to your business. This empowers you to let go of the older core competency or differentiating factors which are limiting you and are outdated.
2) Core competency is your identity –
Taking the example at the start of the article, you cannot think of expansion when your brand identity is due to your core competency. If Wal-Mart has price as its core competency, it cannot think of expanding in higher priced product because it directly affects its brand identity. Same ways Apple cannot launch a simple television or a simple laptop now because its brand equity is because of innovation.
3) Limitation of resources –
Limitation of resources can also cause you to limit your expansion based on core competency. For example, the core competency of china is skilled labour. However, the same is not true for India (though it can be made true with government intervention). We have labour but they are mostly unskilled and hence we are poor in manufacturing and our imports are so high. At the same time taxes and unfavourable laws limit our manufacturing expansion. Thus we import. When your resources are limited, you cannot expand on your core competency. China, having a lot of skilled potential, has expanded its manufacturing so much so that it is exporting to practically every single country in the world.
4) Limitation of material –
Limited raw material is also an extension of Limitation of resources. If you have shortage of raw material, then you will not be able to expand your business. What you would need is more raw material. Recently, Marico developed a completely new supply chain structure just because they were finding it very difficult to bring in raw material which was coconut oil. This in turn was hampering their production and affecting their flagship brand – parachute. So, when your core competency – Raw material is limited, you have a problem.
5) Outsourcing is not being used –
There comes a time when your resources are not enough and you need to outsource. However, if you are not ready to outsource than you are limiting your core competency. For expansion, several processes like small parts, servicing, advertising etc needs to be outsourced. Even manufacturing can be outsourced. Whenever you are growing, some things will have to be let go where you cannot give personal attention. And you will have to outsource these things to others to ensure you capitalize on your core competency.
Solution to this problem – A good look at the market and business environment, the industry and then your company can give you an optimum solution to your problem. You need to adapt and differentiate if your core competency is becoming obsolete or is limiting you in the expansion of your company.
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Edward Maty says
well explained and easy to understand