The Core Competence of the Corporation: Develop for Growth

Often times, companies discover that losing sight of core competencies isn’t difficult. With expanding technology, many businesses find themselves offering new products and services that simply don’t mesh with their core competencies. But the problem is, losing sight of these attributes can severely limit a company’s success and hamper future opportunities for growth. Investing time in developing a set of strong core competencies can give a company the ability to expand product offerings, and drive profit - without sacrificing the foundation of the company.

Developing Core Competencies
When perfecting core competencies, it’s important to ask a few questions about your current product offerings. Determine if your current core competencies allow you to tap into a variety of markets. If not, you could be limiting your company’s ability to grow in the future. Also, determine if your competencies are producing strong benefits to consumers. And finally, make sure your competencies aren’t generic and competitors can’t “copy” your unique abilities.

Reshaping Management Strategies
Although market leaders make developing core competencies look easy, it’s often the complete opposite. This leaves many businesses wondering “what’s the secret?” These skilled companies are able to design competencies that are flexible; they can easily change with the marketplace. When rethinking these attributes, keep in mind that products need to be capable of adapting to a consumer’s desire for functionality and likeability.

This may sound straightforward, but in practice, accomplishing this task is often difficult. Companies need strong management to make these changes. And often times, management changes will be needed. Maximizing internal resources can also help companies recognize their core competencies and then develop additional opportunities.

Making Core Competencies Stronger
Once a company has identified core competencies, it’s important to strengthen those attributes to drive success. Putting together groups and committees that include individuals from all business units of the organization can help a company develop stronger core competencies. During this process, the company will also need to look at how funds are allocated. For example, if a large chunk of the budget is allocated for breaking into emerging markets, some of that money should be shifted back to strengthening core competencies.

Organizing Delivery Value
Before a company can successfully strengthen their core competencies, they must determine the delivery value. Marketers, salespeople and production staff must all understand the customer’s needs and how to deliver a message and product that fits perfectly with those needs. This will allow companies to differentiate their products from key competitors and earn a reputation as the market leader.

Partnering with Employees
Senior managers should invest time in employees so they understand the company’s core competencies. Employees who work in a “silo” environment are so focused on their individual tasks they often can’t see the big picture. Integrating employees into a process that helps connect their job function to core competencies can help employees have a broader focus. They will also be able to share their experience with other individuals in the organization, which is crucial to success.

Protecting Core Competencies
If a company loses sight of core competencies, they can often lose their best assets in the marketplace. These attributes provide strength and lay the foundation to develop new products and technologies. Keeping core competencies in mind when entering new markets can also help guide success. The Harvard Business Review article “The Core Competence of the Corporation” discusses 3M’s competency with sticky tape. The company recognized that their core competency lay with sticky tapes and developed the famous post-it-notes, magnetic tape and pressure sensitive tapes. Although the company’s product offerings are broad, each product can still be tied to the company’s core competencies.

Perfecting Technology
Technology is an important driver to success. For example, auto manufactures often have distinct engines that give them a competitive advantage in the market place. This is also true for video cameras, digital cameras and computers. Focusing on technology provides a core competency that customers start to recognize and feel a loyalty towards.

Also, over time the marketplace changes and consumers demand technology advances. For example, many consumers are drawn to “miniaturization,” wanting smaller, sleeker and more advanced products. Companies that anticipate these advances and incorporate them into current core competencies can gain market share and drive up profits.

Protecting Core Competencies
The Harvard Business Review article explains that companies who judge their competitiveness by pricing and performance of end products are risking the erosion of core competencies. Outsourcing important components can often be a mistake. Instead of outsourcing, companies should try to keep unique technology and designs in-house instead of trusting them with an outsourced company. This allows a company to keep control over their core products and services and have greater power to determine future success.

Investing in the development and preservation of core competencies can help a company enter markets more effectively and develop a market leader position. All business units must work together and share talented employees for the greater good of the company. Managers must be willing to circulate talent and skills to protect and build the most effective core competencies.

Resource:C.K. Prahalad and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.