Evaluating Your Core Competencies for Competitive Advantage

A core competency of an individual in the workplace is an attribute that makes that person stand out over the rest. When businesses are assessing job candidates, they look at this attribute to decide who to hire. Similarly, the definition of core competencies in the business world is the elements that make an organization more robust than the rest in various ways.

What are some business core competencies?

Many things can fall under the category, including “equipment, processes or intellectual property, but more often they're skills or specific abilities that a company performs especially well,” according to Entrepreneur. An organization that knows its core competencies well usually develops its brand around those and capitalizes on them.

In a way, the core competency of a person is the same as that of a business. The goal is to find what you’re good at, build on that, and perfect it as much as possible. The term “core competency” was mentioned in a 1990 Harvard Business Review article by C.K. Prahalad and Gary Hamel.

In that article, Prahalad and Hamel noted that three elements define a core competency. They are:

“A core competency can lead to the development of new products and services and must provide potential access to a wide variety of markets.”
It “must make a significant contribution to the perceived benefits of the end product.”
It “should be difficult for competitors to imitate. In many industries, such competencies are likely to be unique.”

Another way of thinking about these elements is as offering something new to consumers in a way that’s widely accessible and incredibly beneficial to them. Plus, the product or service should not be easy to imitate.

Prahalad and Hamel gave automaker Honda as an example, citing the company’s advancement in engine development as a core competency. This advantage is thanks to the engine’s strength and versatility, paving the way for Honda to develop lawn mowers, snowblowers, automobiles, and other products.

How to measure a core competency

Deciding what makes up a core competency is no easy task, although the definition from the Harvard Business Review article gives us some guidance on how to do it. There should be something new, inimitable, and value-driven about the attribute. When exploring further, we can learn more about what makes up a core competency.

The Balance Small Business writes that “successful businesses tend to have more than one of the following core competencies:

Quality
Customer Service
Value
Innovation
Marketing”

These are all elements that certainly add to what makes up a core competency. According to Investopedia, other key competency attributes include a company’s “talent pool, physical assets, patents, and brand equity.” After a business gains an understanding of those competencies, it’ll have a better idea of how to use its resources to increase its earning potential.

To successfully measure your business’ core competencies, there are four elements to consider, which are derived from some of the factors stated above. They are:

Your product or service offers higher value and/or better benefits than the competition.
You have top-notch customer service that fulfills the needs of the customer as much as possible.
Your product, service, or invention is unique and nearly impossible to replicate by the competition. There is nothing cookie-cutter or copycat about it.
There is an element of innovation. What your company offers is breaking new ground in a particular field, or maybe even creating a new business model.

Your core competencies must include one or more of those elements to be considered an actual driver of value above other businesses in the same space.

Core competencies examples: Microsoft and Spotify

One of the biggest tech companies in the world is also one of the personal computer innovators of the 20th and 21st century. We’re talking about Microsoft, which has several core competencies that begin with the company’s reputation as one of the biggest software brands in the world right now. Cloud computing service Microsoft Azure offers professional functionalities to organizations in virtually every industry, and this versatility has made the brand a leader in the cloud computing space.

Another organization that leads the charge in its space is Spotify. The music streaming service has licensing agreements with all major music labels, artists, and beyond. The company’s licensing deals allow it to sell its product for an affordable price, making it accessible and full of value for consumers.

Spotify also benefits from not being tied down to one specific platform, as competitors are such as Apple with Apple Music. By not committing to any specific hardware, Spotify has the benefit of being a music-listening experience of equal quality across the board.

These core competencies have helped Spotify become among the largest music streaming services, with more than 286 million users and 130 million subscribers across 79 markets.

What are the core competencies of your business?

No one knows what your business’s biggest value drivers or pieces of innovation are better than you. If you’re trying to figure out exactly what core competencies your business offers, refer back to the four elements. Where are you superior to the competition? Where are you innovating? How are you meeting customers’ needs? What is unique about your business?

Once you answer these questions, you’ll have a good idea of where your core competencies lie and how to maximize extracting value out of them.