{"id":2784,"date":"2024-06-28T17:47:07","date_gmt":"2024-06-28T22:47:07","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=2784"},"modified":"2024-06-28T18:22:35","modified_gmt":"2024-06-28T23:22:35","slug":"what-qualifies-as-a-core-competency","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/what-qualifies-as-a-core-competency\/","title":{"rendered":"What Qualifies As a Core Competence?"},"content":{"rendered":"

The concept of Core Competence<\/a> was first introduced by C. K. Prahalad and Gary Hamel in 1990, in their article The Core Competence of the Corporation<\/em>. \u00a0Since then, this term has become part of the general business vernacular.<\/p>\n

Companies constantly claim various things to be part their “core competencies.” \u00a0But, are these really Core Competencies? \u00a0How do we determine if something qualifies as a Core Competence? \u00a0Perhaps most importantly, how do we develop Core Competencies?<\/em><\/p>\n

To address these questions, let’s introduce the Core Competence Model<\/a>. \u00a0This is a strategy framework that starts the strategy process by thinking about the core strengths of an organization. \u00a0Whereas the traditional outside-in approach (e.g. Porter\u2019s Five Forces, BCG Matrix) places the market, competition, and customer at the starting point of the strategy process, the Core Competence Model does the opposite. It states that in the long run, competitiveness derives from an ability to build a Core Competence at lower cost and more quickly than competitors.<\/p>\n

A Core Competence can be any combination of specific, inherent, integrated, and applied knowledge, skills, and attitudes. \u00a0Leveraging our Core Competence may result in the creation of unanticipated products and services.<\/p>\n

Per the Core Competence Model, a Core Competence is comprised of 4 dimensions:<\/p>\n

    \n
  1. Skills and Knowledge Base<\/li>\n
  2. Technical Systems<\/li>\n
  3. Managerial Systems<\/li>\n
  4. Values and Norms<\/li>\n<\/ol>\n

    \"core<\/a><\/p>\n

    Let’s dig deeper into each of these 4 dimensions of a Core Competence.<\/p>\n

    Skills and\u00a0Knowledge Base<\/strong><\/h2>\n

    The first dimension, Knowledge and Skills embodied in people, is the one most often associated with core capabilities and the one most evidently relevant to New Product Development (NPD)<\/a>. \u00a0This dimension encompasses both firm-specific techniques and scientific understanding.<\/p>\n

    It includes the internal knowledge, technical expertise (e.g. software proficiency, engineering principles), technical skills (e.g. data analysis, project management), business process know-how (e.g. workflow optimization, supply chain management), capabilities in strategic planning and market analysis, and competencies specific to employees’ functional areas and roles, such as financial modeling for finance teams or customer relationship management for sales teams. Furthermore, this dimension covers the continuous development and application of this expertise, ensuring employees stay adept at navigating complex business environments and contributing to the organization’s strategic objectives.<\/p>\n

    Technical Systems<\/strong><\/h2>\n

    Knowledge that has been embedded in Technical Systems results from years of accumulating, codifying, and structuring the tacit knowledge in peoples’ heads. \u00a0Such physical production or information systems represent compilations of knowledge, usually derived from multiple individual sources.<\/p>\n

    Therefore, the whole technical system is greater than the sum of its parts. \u00a0This knowledge constitutes both information and procedures.<\/p>\n

    Information includes blueprints, technical specifications, standard operating procedures (SOPs), maintenance manuals, and software documentation, providing essential data and insights for business operations. For instance, an engineering team relies on a detailed database of past project specifications and outcomes to guide current projects.<\/p>\n

    Procedures refers to systematic processes and methods that employees follow to complete tasks efficiently and accurately. These include workflows, quality assurance protocols, assembly line processes, and troubleshooting guidelines. For example, a manufacturing unit may have a set procedure for calibrating machinery to maintain product quality, while an IT department follows specific procedures for software updates to minimize disruptions. By embedding these elements, organizations create a reliable framework guiding daily operations and supporting strategic goals, ensuring effective performance and optimal results.<\/p>\n

    Managerial Systems<\/strong><\/h2>\n

    This third dimension, Managerial Systems, represents formal and informal ways of creating knowledge–such as via sabbaticals, apprenticeship programs or networks with partners–and of controlling knowledge–such as incentive systems, reporting structures.<\/p>\n

    Managerial Systems are crucial in shaping the organizational culture<\/a> and driving the deployment of strategic initiatives<\/a>. These systems include performance management processes, leadership development programs, decision-making frameworks, and communication protocols. For instance, regular performance reviews and feedback sessions help align individual goals with the organization’s strategic objectives.<\/p>\n

    Having effective Managerial Systems ensures that knowledge flows seamlessly across different levels of the organization. This involves creating platforms for knowledge sharing, such as internal wikis, cross-functional teams, and collaborative software tools. By facilitating open communication and collaboration, these systems enable the organization to leverage collective expertise, respond quickly to market changes, and drive innovation. For example, a robust internal communication system can help disseminate best practices across global offices, ensuring consistency and efficiency in operations.<\/p>\n

    Values and Norms<\/strong><\/h2>\n

    Infused through the 3 aforementioned dimensions is the last: Values and Norms<\/a>. \u00a0This represents the value assigned within the company to the content and structure of knowledge (e.g. computer engineering vs. marketing expertise; open source software vs. proprietary systems), means of collecting knowledge (e.g. formal degrees vs. experience) and controlling knowledge (e.g. individual empowerment vs. management hierarchies).<\/p>\n

    Be aware that even physical systems embody values.<\/p>\n

    Are you a management consultant?<\/strong> \u00a0You can download this and hundreds of other consulting frameworks<\/a>\u00a0and consulting training guides<\/a> from the FlevyPro library.<\/div>\n

    According to Prahalad and Hamel, Core Competencies can be identified and clarified following a 3-step process.<\/p>\n

    1. Articulate Strategic Intent.<\/strong><\/h2>\n

    We must first articulate our Strategic Intent<\/a>, which is our company\u2019s vision of what we want to achieve in the long term. \u00a0A Strategic Intent must have the following 4 components:<\/p>\n

      \n
    1. Sense of direction<\/li>\n
    2. Emotional element<\/li>\n
    3. Sense of discovery<\/li>\n
    4. Sense of destiny<\/li>\n<\/ol>\n

      2. Identify Core Competencies.<\/strong><\/h2>\n

      There are 3 tests for identifying a Core Competence:<\/p>\n

        \n
      1. Provides potential access to a wide variety of markets.<\/li>\n
      2. Makes a significant contribution to the benefits of the product as perceived by the customer.<\/li>\n
      3. A Core Competence should be difficult for competitors to imitate.<\/li>\n<\/ol>\n

        3. Enhance Core Competencies.<\/strong><\/h2>\n

        After we have identified our Core Competencies, we need to enhance them by redesigning the architecture of our organization. \u00a0For instance, we should invest in required technologies\u00a0that support and strengthen the competency. \u00a0Another example is we can develop strategic partnerships that further nurture this Core Competence.<\/p>\n

        Once we clarify our Core Competencies, our whole organization will know how to support \u00a0our Competitive Advantage. \u00a0We will then have clarity and direction as to how to allocate resources appropriately.<\/p>\n

        One final caveat: \u00a0 care must be taken not to let Core Competencies develop into Core Rigidities. \u00a0A Core Competence is difficult to learn, but is difficult to unlearn as well.\u00a0 Thus, a Core Rigidity is caused by over-reliance on any Core Competence for too long, even after its competitive advantage has turned obsolete.<\/p>\n

        What are the Core Competencies of your organization?<\/em><\/p>\n

        You can learn more about Core Competencies and download an editable PowerPoint about the the\u00a0Core Competence Model\u00a0here on the Flevy<\/a>\u00a0documents marketplace.<\/p>\n","protected":false},"excerpt":{"rendered":"

        The concept of Core Competence was first introduced by C. K. Prahalad and Gary Hamel in 1990, in their article The Core Competence of the Corporation. \u00a0Since then, this term has become part of the general business vernacular. Companies constantly claim various things to be part their “core competencies.” \u00a0But, are these really Core Competencies?… What Qualifies As a Core Competence?<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":2785,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[81],"tags":[383,1175,723,1176,1045,1177],"class_list":["post-2784","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-strategy","tag-c-k-prahalad","tag-core-competences","tag-core-competencies","tag-core-rigidity","tag-gary-hamel","tag-strategic-intent"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/2784","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=2784"}],"version-history":[{"count":9,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/2784\/revisions"}],"predecessor-version":[{"id":14057,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/2784\/revisions\/14057"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/2785"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=2784"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=2784"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=2784"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}