Core competencies are a combination of resources and capabilities that distinguish a company from its competitors. It provides a competitive advantage when it contributes to creating value, scarce, and non-substitutional.
Core competence is rooted in the company’s ability to integrate and coordinate a variety of internal resources. That is not just by hiring brilliant and innovative staff. Instead, it is about organizing the team to work together and strengthen each other. Coordination is essential because often, each crew competes for their own interests.
Furthermore, core competencies focus on collective learning, especially in coordinating the flow of technology and production skills.
The following are examples of core competencies of leading global companies:
- Toyota with its lean production techniques allows the company to have a low production cost structure
- Apple is under Steve Jobs with brilliant consumer technology imagination and also knows how to market it appropriately.
- Walmart, with reliable supply chain management, makes it not only has an extensive distribution network but is also efficient.
- Google, with a combination of skilled software engineers, a comfortable work environment for innovation, and its open innovation.
Why do companies need to have core competencies?
Core competencies become the primary source of strategic competitiveness. When successfully exploiting it, the company can achieve a competitive advantage.
With it, the company offers a unique product for which customers are willing to pay more. Or, the company sells products at an average price, but with a lower cost structure than the average competitor.
Both strategies will produce maximum profits and a higher return on capital than the industry average. The company creates not only value for customers but also investors, especially shareholders. Customers get satisfaction from products (higher quality or cheaper). On the other hand, either high prices or low costs, both result in higher profitability. As a result, the return on invested capital should also be higher than the average competitor.
How can core competencies produce sustainable competitive advantage?
Core competencies allow the company to produce a superior position above its competitors. Core competencies provide a competitive advantage when meeting the following criteria:
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- Valuable
- Rare or unique
Both contribute to creating customer value. Such competence is valuable if the company can neutralize threats and, at the same time, exploit opportunities in its external environment. Rare means that there are no or few competitors who have it, less likely they will surpass the company.
For competitive advantage to be sustainable, these core competencies must also:
- Difficult or expensive to imitate
- Nonsubstitutable
