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Core Competences

Use this framework to determine what gives you a unique competitive advantage

In 1994 Gary Hamel and CK Prahalad, two American professors of business strategy, published a book called Competing For The Future. It became a bestseller and it showed how to get a competitive edge by recognising the core competences of a business. As the term core competences suggests, these are the strengths of a company that enable it to win future business.

Core competences arise from different assets of the business, very often from its people and their know-how. Over time, businesses build up a collective expertise. The business gains strength from integrating its different skills and technology so that it can offer superior products and services. The core competences give a business a differentiating edge.

The core competences have to meet one of three different conditions:

1. It/they must provide benefits to the customer as this is how a competitive advantage is achieved.
2. They must be hard for competitors to imitate for otherwise anyone can copy and compete.
3. They must be capable of being widely leveraged so that a business can use them to compete in different markets.

As we have so often seen, focus is critical. Hamel and Prahalad suggest that a business should focus on its core competences and keep these in-house. Competences that are not core to the business can be outsourced. (Be careful here. The dash to outsource everything can be a dash too far).

Once the core competences have been determined, they can help devise a strategy within the marketplace. 

Existing core competences can be "polished" so that existing customers and markets see that the business does it better than anyone else. Apple has used its core competence of design to built up a loyal following of customers.

Existing core competences can also be used to develop products and services for new customers. Virgin has successfully used its core competence of making travel fun to move into holidays.

New core competences can be developed to better serve existing customers. Starbucks uses its barista skills to serve us Caramel Macchiato.

Most difficult of all, a company can reinvent itself by developing new core competences for new markets.  Microsoft started its business writing software for PCs and it has now developed Netflix-like game-streaming service that will live in the cloud.

No doubt you will have picked up the similarity of the core competences matrix with Ansoff's grid.

The key to the framework is to be sure that the core competences are truly valued by customers and that they are unique. It is easy to be deluded into thinking that you are the only company that can do something.

 

And be sure to fight complacency and arrogance because a competitive advantage can very easy drift away with a small puff of wind.

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