What is Core Competence?
Core Competence is what the company does best. Because it is translated as central competence, and represents the function of greater excellence in the organization, which adds more to the consumer and marks the differential in relation to the competition.
The definition of core competencies allows the company’s management to focus on what it does best, and opens up outsourcing to other areas. Business functions that are not anchored in core competence can be outsourced, if economically valid. For a company does not need, and should not, try to be the best in everything, at the risk of compromising what it really is superior to.
Entrepreneurs are recommended that, when launching a new business, identify and then focus on their core competence as a way of gaining brand recognition and establishing market share.
How to identify Core Competence?
To identify a company’s Core Competence, the manager must ask the following question:
What does our organization do best?
The answers to this question provide an idea of what Core Competence is. We then proceed to systematize what emerged from the questioning, and see if they fulfill the requirements to be the central competence. A function developed by the company must have three requirements to qualify as Core Competence:
· Potential to expand the variety of markets
· Consumer benefit
· Difficulty reproducing by competition
After identifying core competence, the manager should still ask himself, in order to restructure the company’s strategy around certain competencies:
1. How long does the company manage to preserve competitiveness without controlling this core competence?
2. How important is this core competence in terms of consumer benefits?
3. What opportunities will be missed if the company loses this competence?
Core Competence Examples
Core Competence Wal-Mart
Wal-Mart’s Core Competence, for example, is reducing operating costs. The company is able to reduce expenses to a minimum, as well as the profit margin. This ensures the lowest possible price for the consumer and a high sales volume. What keeps the business profitable is precisely this volume, which is also a competitive advantage over the competition when negotiating with suppliers.
Coca-Cola Core Competence
At Coca-Cola, core competence is the unique flavor of the product and the branding built around the brand. These are two competencies that cannot be reproduced by the competition in more than a century of the company’s existence.
Difference between Core Competence and Core Business
Core business is the business activity on which the company is centered, that is, it is the result of core competence appropriate to the business strategy.
After identifying the competitive advantage intrinsic to the service or product offered, core competence, management should return the company’s activity to its development and improvement. This activity is the core business, it is to make core competence a profitable business.
Core Business and Core Competence
Core Business and Core Competence are complementary concepts in business management. What differs from each other is that Core Business represents the company’s core business, that area in which the company is better and more profitable, while Core Competence is the core competence, the role performed with excellence.
In general, the core business is developed as a result of core competence. The company identifies what it does best and focuses on this factor as the main one for the business.
In the case of a restaurant, for example, core competence can be a specific dish or the skill of a particular cook. The core business is the business generated from this, ranging from marketing based on these advantages, to training the team so that everyone can cook with the same level of excellence as the cook who made the restaurant famous. Thus, as a business, it is also not restricted to the competence of a single person, which further on may damage the business strategy in the event of lack of this element.
How to identify core competence and core business?
To identify core competence, the entrepreneur must ask himself the following question:
- What does my company do best?
And then see if this function fulfills three basic requirements:
- have the potential to expand the variety of markets;
- offer benefits to the consumer;
- present difficulty of reproduction by the competition.
Once the central function in the company is found, the company starts thinking about core business. With core competence in mind, the entrepreneur must think about the following issues to identify the core business:
- What attracts the most customers to the company?
- Who are the main consumers?
- What the company does better than the competition
- What innovations does the company bring to the market?
- What are the best-selling services / products?
- What is the most profitable area?
- Who is who in charge at the company and why are those people there?
It is necessary to take care of the discrepancies between the answers related to the core competences and the core business, so that the strategy is properly aligned. Thus, the manager guarantees the appropriate investment in that function and area of the business that will best match his growth expectations.