A core competency is something that a firm can do well and that meets the following three conditions:^[1]

1. It provides consumer benefits
2. It is not easy for competitors to imitate
3. It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998). It may also include product development or culture such as employee dedication. ...

Core Competency includes services that an organization must do to be in an industry, like Banks must clear checks. No real advantage to keeping this in-house - outsourced is a clear option. Competitive Advantage are services that are unique, like a special form of loan offered only by that bank . . . That kind of service would be kept in-house. Another example is in the Brokerage Industry: Settlement services are a commodity, but algorithmic trading is competitive advantage. There are instances where Core Competency can be Competitive Advantage - That being the case where a product is superior. Black & Decker may build lawn mowers like many other companies, but if they build a superior model, that is competitive advantage as well. Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. ...

Development of the Concept

The concept of core competencies was developed in the management field. C.K. Prahalad and Gary Hamel introduced the concept in a 1990 Harvard Business Review article. They wrote that a core competency is "an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity." As an example they gave Honda's expertise in engines. Honda was able to exploit this core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. To take an example from the automotive industry, it has been claimed that Volvo’s core competency is safety. This however, is perhaps the end result of their competency in terms of customer benefit. Their core competency might be more about their ability to source and design high protection components, or to research and respond to market demands concerning safety. PEO ÁC.K. Prahalad, the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan, is a globally recognized business consultant whose client list includes AT&T, Cargill, Citicorp, Oracle, TRW and Unilever. ... Gary Hamel, a graduate of Andrews University and the Ross School of Business at the University of Michigan is the founder of Strategos, an international management consulting firm based in Chicago, and a visiting Professor of Strategic Management at London Business School. ... This article is about the year. ... December 2006 issue of the Harvard Business Review. ... This article is about the Japanese motor corporation. ... The automotive industry is the industry involved in the design, development, manufacture, marketing, and sale of motor vehicles. ... Volvo Cars, or Volvo Personvagnar, is a well-known Swedish automobile maker founded in 1927 in the city of Gothenburg in Sweden. ...

Ever since Prahalad and Hamel introduced the term in the 1990’s many researchers have tried to highlight and further illuminate the meaning of core competency. According to D. Leonard-Barton (1992), "Capabilities are considered core if they differentiate a company strategically." On the other hand Galunic and Rodan (1998) argue that "a core competency differentiates not only between firms but also inside a firm it differentiates amongst several competencies. In other words, a core competency guides a firm recombining its competencies in response to demands from the environment."

For example, Black and Decker's core technological competencies pertain to 200 to 600 W electric motors, and this motor is their core product. All of their end products are modifications of this basic technology (with the exception of their work benches, flash lights, battery charging systems, toaster ovens, and coffee percolators). Black & Decker (NYSE: BDK) is a corporation based in Towson, Maryland best known for power tools and home appliances. ... For other kinds of motors, see motor. ... A core product are a companys products which are most direclty related to their core competencies. ...

They produce products for three markets:

1. the home workshop market: In the home workshop market, small electric motors are used to produce drills, circular saws, sanders, routers, rotary tools, polishers, and drivers
2. the home cleaning and maintenance market: In the home cleaning and maintenance market, small electric motors are used to produce dust busters, etc.
3. the kitchen appliance market: In the kitchen appliance market, small electric motors are used to produce can openers, food processors, blenders, bread makers, and fans.

Characteristics of Core Competencies

There are three tests for Core Competencies

1. Potential access to a wide variety of markets - the core competency must be capable of developing new products and services
2. A core competency must make a significant contribution to the perceived benefits of the end product.
3. Core Competencies should be difficult for competitors to imitate. In many industries, such competencies are likely to be unique.

References