Business Core Competencies: Examples And How To Determine Yours

Post A Job For Free, Promote It For A Fee

Summary. The core competencies of a business are its unique skills and resources that give the company a distinct advantage over competitors.

Every business has a reason to exist. The most successful companies take this reason and fulfill certain market needs. If they are lucky, they do this so well that they make a name for themselves and offer something their competitors can not.

This doesn’t happen overnight but through the strategic development of resources and activities.

Your business may already do this, and if not, you should strongly consider what your organization can do to create such an advantage for yourselves.

Key Takeaways:

The three conditions of business core competencies are that a business activity must be of superior value, provide potential access to multiple markets, and must be difficult to replicate or imitate.
Companies may focus on core competencies in areas such as innovation, customer service, market power, design, and reliability.
Research and feedback are necessary to develop successful core competencies.
Well-developed core competencies help a business stay resilient to risk.

What Are Core Competencies?

Core competencies are the skills and resources of a business that provide a strategic advantage to distinguish itself from its competitors. In other words, a company’s core competencies are the capabilities to provide a good or service that no one else can match.

The idea of core competencies dates back to a 1990 Harvard Business Review article written by C.K. Prahalad and Gary Hamel. They discussed how businesses in the 1990s should operate compared to how they operated in the 1980s.

To that end, Prahalad and Humel came up with the management theory of core competencies, which suggested that businesses will want to achieve growth and value through their ability to identify, cultivate, and exploit their collective skills and resources.

There are three conditions that a business activity must achieve to be considered a core competency:

It must provide a premium value or perceived benefit to the consumer.
It must provide potential access to a wide variety of markets.
It must be unique and difficult to replicate or imitate.

Combined, the three conditions of a core competency explain why a business is better than its competitors.

11 Core Competencies Examples

As the core competency definition implies, each business will have a unique set of skills and resources to achieve a competitive advantage. The type of core competency by an organization will vary by industry and philosophy.

However, there are some general categories of core competencies that many businesses will target, including:

Innovation. A company that focuses on innovation wants to determine the future of its industry or the economy as a whole. This means they always have to provide something new and valuable to stay ahead. Research and development are key to this core competency.
Lowest cost. Some businesses attract consumers simply because they provide the lowest cost for their goods or services. These types of businesses value efficiency as they look for ways to reduce costs in any way possible. Logistics and operations are key to this core competency.
Best customer service. A company can stand out for its ability to provide its customers with the best possible experience. This may be in how they help customers make decisions or accommodate their needs. Interpersonal skills, conflict resolution, and communication are key to this core competency.
Highest quality. When a company’s core competency revolves around high quality, it must constantly evaluate its success. This requires robust quality control procedures, as well as an awareness of competitor activity.
Buying power. A company can use its buying power to establish dominance within its industry. This results from their ability to outspend competitors and benefit from pooling together resources. High revenue or large loans, as well as expert negotiation, are key to this core competency.
Company culture. Company culture can determine an organization’s ability to attract and retain an effective workforce. Some companies will use their culture as a branding strategy to attract employees and consumers alike. Honest employee feedback and marketing are key to this core competency.
Speed. Some companies take pride in their ability to get their goods or services to their customers faster than anyone else. This is especially true in industries that value efficiency in their logistics. Logistics, operations, and data analysis are key to this core competency.
Design. The design of a product or service is sometimes enough to stand out among the crowd. Companies can also use their design to provide unique features that other companies lack. Research and development, as well as consumer feedback, are key to this core competency.
Reliability. Some consumers just want their goods and services to be dependable. A company that makes reliability a core competency should mitigate surprises through consistent evaluations of customer feedback. Quality control is a huge component of this core competency.
Adaptability. Companies that can adapt are resilient, which establishes a greater market share over time. Adaptability as a core competency is especially important in dynamic sectors of the economy, such as in media or computer engineering. This requires investments in modular or flexible business strategies.
Community development. Having a positive impact on a community gives a company a chance to go beyond its business needs by incorporating social responsibility.

In fact, some organizations use their business activities to achieve their primary goal of a specific social impact. Defining and measuring social impact is key to this core competency.

Businesses can mix and match core competencies, but you may notice that it is impossible to focus on everything everywhere all at once. Due to the inherent nature of limited time, money, and other resources, companies have to make compromises when developing their core competencies.

For example, you may want your business to provide the lowest cost, highest quality product that is always up to date and quickly reaches its consumers, but you’ll face some issues.

For one, to reduce costs effectively, you will likely have to turn to inferior materials. Also, for your newest products to reach the market as soon as possible would require sacrificing time for research and development.

You must be targeted with your business’s core competencies and make sure they work in tandem with one another if you want to achieve success.

How To Determine Core Competencies For Business

Whether your company has yet to be established or has been around for years, the following steps will help you identify and develop your core competencies to achieve success over your competitors:

Evaluate your mission statement. Your core competencies should serve as the reason why your company exists in the first place. This way, you can avoid conflicting agendas and be effectively focused on your overall goal.

The strategic philosophy and values of your mission statement will guide you to specific types of core competencies and help you prioritize your needs.
Review goods or services. Make sure you have a clear understanding of exactly what your company does or plans to do. Come up with a cohesive list that categorizes your goods and services so that it can be easier to compare against the competition.
Determine market status amongst competitors. Since your core competencies will help you declare an advantageous position, you need to know what your position is currently. Seek out data that accurately shows how you measure against your competitors. From this, you can discover how much work needs to be done.
Get external feedback from consumers. Along with your actual market share, you’ll want to be aware of your perceived status with consumers. Consider what customers know and how they feel about you. This may reinforce what you already know about your company, or it may reveal a disconnect between expectation and reality.
Get internal feedback from employees and investors. Employees, investors, and other internal stakeholders can also offer a different perspective about the company. Similar to your customers, your internal feedback allows you to compare expectations to reality.
Brainstorm or list capabilities. Based on the information you gather from market analysis, external feedback, and internal feedback, you should have a more accurate picture of what your company does currently or plans to do in the future.

Using this, begin to brainstorm or list what skills, resources, and other activities define your company.
Test potential competencies against definition. Although you may think every one of your company’s capabilities is a core competency, it’s likely some fall short of the mark. Use the core competency definition and three defining traits to determine which ones provide top quality that is unique and accessible to multiple markets.
Prioritize competencies. Once you think you have your competencies, it’s now time to decide which ones will be at the core of your organization’s identity. Combine your mission statement with the reality of your current situation to decide which competencies best align with your values and needs.

Then list them in order of importance. At times you may have to sacrifice one competency for another, so it’s better if you know ahead of time which ones are the most important to you. This helps avoid confusion, indecision, or conflicting business strategies that would harm your company’s market presence.

The Importance Of Core Competencies In Business

Core competencies are very important because they are the defining traits of a business which allows them to claim a certain amount of success.

Therefore, core competencies help a business better understand itself which allows them to focus their time and energy more appropriately on matters that help further their impact.

When a company embraces its core competencies, it becomes more stable and secure, as well as resilient to change and risk. This is because the business uses its strengths to its advantage and relies on them to maintain a market advantage.

Core competencies also improve a company’s branding and stakeholder relationships. Consumers that can pinpoint the core competencies of a business will be more aware of how their company can meet their needs when the time comes. Additionally, the core competencies may align with consumers or employees, which will result in stronger connections and loyalty.

Pros And Cons Of Core Competencies

Focusing on core competencies can have its advantages and disadvantages. This is because there is a finite amount of time and energy that a company can spend on addressing its strategy.

Core competencies are helpful because they:

Provide instant recognition to consumers.
Focus resources toward capabilities.
Challenge competitors to make changes.

Core competencies are not helpful because they:

May not align with the company mission statement.
May conflict with one another.
Can reduce the adaptability to changing market or economic trends.

Core Competencies For Individuals

In recent years, there has been a discussion about applying the core competencies framework to individuals as job candidates and employees.

The idea is that an individual can discover their own core competencies and use that as leverage in their professional life.

Similar to business core competencies, personal core competencies are the capabilities of an individual that sets them apart from others. They reveal the unique value that makes this person an ideal candidate or employee.

Some personal core competencies include:

Project management.
Interpersonal communication.
Creativity.
Leadership.
Conflict resolution.
Easy to train.

Candidates and employees may use their core competencies to establish a professional identity or brand that makes it easier to be recognized by organizations and recruiters.

Core Competencies FAQ

What is the best core competency?

There is no one specific core competency that is better than others. The “best” core competency is the one that aligns with your company’s mission and values. This is because it means the purpose of your business is effectively accomplished.
What are the three competencies?

The three competencies are core, cross-functional, and functional. Core competencies are what a company is specifically good at that gives them an advantage over competitors.

Cross-functional competencies are capabilities that are not directly related to any particular task. Functional competencies are the duties and responsibilities of an organization and its workforce.
What is the difference between core competencies and core values?

Core values define the philosophical beliefs of an organization, while core competencies are the strengths and activities that achieve a unique market advantage.

In other words, core values are the “why” to what a company does, while core competencies are the “how.” Usually, but not always, the core competencies of a business will be guided by its core values.
What can contribute to a company’s core competencies?

Any resource or activity of a business can contribute to a company’s core competencies. This could be their workforce, physical assets, finances, branding strategy, patents, or access to capital. How a company marshalls its resources helps define its core competencies.

References

Harvard Business Review – The Core Competence of the Corporation

Startup Formation

Author

Conor McMahon

Conor McMahon is a writer for Zippia, with previous experience in the nonprofit, customer service, and technical support industries. He has a degree in Music Industry from Northeastern University and in his free time he plays guitar with his friends. Conor enjoys creative writing between his work doing professional content creation and technical documentation.