Core Competencies Analysis:a measure for competitive advantages

 Industry structure analysis is well suited to describing the what of competitiveness, i.e., what makes one firm or one industry more profitable than another. But understanding the particulars of such advantages as low cost, quality, customer service and time to market may still leave the question of why largely unanswered. For example, why do some companies seem able to continually create new forms of competitive advantage while others seem able only to observe and follow ? Why are some firms net advantage creators and others net advantage imitators ? For assessing competitive advantage it is necessary not only to keep score of existing advantages — what they are and who has them — but also to discover what it is that drives the process of advantage creation. Industry structure analysis is much better suited to the first task than to the second.

Thus, industry structure analysis must be supplemented by an equally explicit core competence focus. Organisations need to be viewed not only as a portfolio of products or services, but also as a portfolio of core competencies.

Core competencies are created by superior integration of technological, physical and human resources. They represent distinctive skills as well as intangible, invisible, intellectual assets and cultural capabilities. Cultural capabilities refer to the ability to manage change, the ability to learn and teamworking. Organisations should be viewed as a bundle of a few core competencies, each supported by several individual skills.

Core competencies are the connective tissue that holds together a portfolio of seemingly diverse businesses. They are the lingua franca that allows managers to translate insights and experience from one business setting into another. Core competence-based diversification reduces risk and investment and increases the opportunities for transferring learning and best practice across business units.

For instance, Microsoft’s only factory asset is its human imagination. This company has excelled in inventing new ways of using information technology for a wide variety of end users. In contrast, using its core competence in information processing, Xerox developed icons, pull-down menus and the computer mouse, but failed to exploit the marketplace.

A core competence is identified by the following tests :
— Can it be leveraged?—does it provide potential access to a wide variety of markets?
— Does it enhance customer value? — does it make a significant contribution to the perceived customer benefits of the end product?
— Can it be imitated?—does it reduce the threat of imitation by competitors?
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