Core Competencies
Core Competencies
Core competencies are the essential capabilities that create a firm’s sustainable competitive advantage. Based on experience, knowledge, and know-how, they are built up over time and cannot be easily imitated. For this reason, products and technologies are seldom core competencies. The advantage they provide is short-lived, and other companies can readily purchase, emulate, or improve upon them. Core competencies are more likely to be processes.
Processes cut across functional lines and departments. Figure 1 shows the processes of product development, order fulfillment, supply chain management, and customer service in contrast to typical business functions such as sales, manufacturing, purchasing, and accounting.
As companies become skilled at thinking processes, instead of functional departments or products or markets, a new dimension of strategy opens up. Consider Chaparral Steel, the tenth largest steel producer in the United States, a minimill of less than 1,000 workers that nevertheless has set world productivity records several times and was the first American steel company to receive a Japanese Industrial Quality Certification. Chaparral management allows its competitors to tour its plants at will because “they can’t take (what we do best) home with them.” Although Chaparral is known for its low cost and high technology, its core competency is not technology, but the ability to transform technology rapidly into new products and processes. By the time a competitor copies its current technology, Chaparral is confident they will have moved on to something else.
Similarly, the Gap can’t predict what young consumers will wear any better than other retailers, but it can offer them more choices and react quickly when styles or colors “hit.” The Gap’s core competency in sourcing, logistics, and supply chains allows the company to introduce more than twenty new fashion lines into its stores each year.
Centering strategy around
Core competencies are the essential capabilities that create a firm’s sustainable competitive advantage. Based on experience, knowledge, and know-how, they are built up over time and cannot be easily imitated. For this reason, products and technologies are seldom core competencies. The advantage they provide is short-lived, and other companies can readily purchase, emulate, or improve upon them. Core competencies are more likely to be processes.
Processes cut across functional lines and departments. Figure 1 shows the processes of product development, order fulfillment, supply chain management, and customer service in contrast to typical business functions such as sales, manufacturing, purchasing, and accounting.
As companies become skilled at thinking processes, instead of functional departments or products or markets, a new dimension of strategy opens up. Consider Chaparral Steel, the tenth largest steel producer in the United States, a minimill of less than 1,000 workers that nevertheless has set world productivity records several times and was the first American steel company to receive a Japanese Industrial Quality Certification. Chaparral management allows its competitors to tour its plants at will because “they can’t take (what we do best) home with them.” Although Chaparral is known for its low cost and high technology, its core competency is not technology, but the ability to transform technology rapidly into new products and processes. By the time a competitor copies its current technology, Chaparral is confident they will have moved on to something else.
Similarly, the Gap can’t predict what young consumers will wear any better than other retailers, but it can offer them more choices and react quickly when styles or colors “hit.” The Gap’s core competency in sourcing, logistics, and supply chains allows the company to introduce more than twenty new fashion lines into its stores each year.
Centering strategy around