The Definition of Core Competency in Relation to Business
Generally speaking, core competencies are the defining capabilities or advantages that a business may have, and that distinguish it from competition. Core competence is the foundation for sharpening a company's competitive edge and it guides brand reputation, business growth, and marketing strategy.
The Origin of Core Competence
The concept of core competence originated as a resource-based approach to corporate strategy; introduced by C.K. Prahalad and Gary Hamel in their 1990 book, "The Core Competence of the Corporation," wherein they describe various core competencies as meeting three universal conditions:
1. They provide consumer benefits
2. They're not easy for competitors to imitate
3. They can be leveraged widely to many products and markets
Such a strict definition of core competence excludes the strengths of small businesses, as most would not be able to meet the third condition.
A More Inclusive Definition
Core competence has evolved over the past 30 years, but it remains based on the exploitation of several competitive advantages. Core competencies are what make it difficult for other businesses to duplicate a product or service, and then outperform the competition.
Successful businesses tend to have more than one of the following core competencies:
- Customer Service
Examples of Businesses With Strong Core Competencies
Walmart is the largest retail department store chain in the world, with global sales of over 514 billion dollars in 2019. The company has more than 5,368 locations in the U.S. and another 5,993 internationally. Walmart's core competencies include:
- Massive buying power: Walmart's mantra is "everyday low prices". The multi-national uses its mammoth purchasing power to constantly pressure suppliers to lower wholesale costs.
- Supply chain management: Walmart excels at all aspects of supply chain management. It has a massive network of distribution centers and has refined purchasing, operations, distribution, and integration into an extremely efficient system of inventory management. This results in better stocking of products in stores and lower costs. Walmart was instrumental in the development of the Universal Product Code (the barcode) and was the first company to implement it on a company-wide basis to collect and analyze data from individual stores.
Apple is the largest company in the world with 961.3 billion in market value. The company has over 137,000 employees worldwide and generated $260 billion in revenue in 2019. Apple has very strong core competencies:
- Innovation: Apple has a long history of developing unique and innovative technology products, including the Mac computer, the iPod, iPhone, iPad, Apple TV, and the Apple Watch. Apple founders Steve Jobs and Steve Wozniak developed the Apple 1 in 1976 and went on to develop the Apple Macintosh and other revolutionary tech devices. Even when it's not the first company to develop a new product, Apple is often the one that's able to take a new product, engineer it in a unique fashion, and make it an enormous commercial success (for example, the release of the iPhone practically killed the sales of Blackberry devices within a few years).
- Brand recognition: Fans of Apple products tend to be extremely loyal to the brand. It's not uncommon for consumers to line up for many hours or days for a new iPhone or other Apple product release. Many Apple users purchase every new release of the iPhone, even if their current model is only a year old. Apple has brand loyalty that is the envy of corporations everywhere.
- Marketing: Apple is a consistent winner of awards for marketing excellence. The Apple marketing philosophy revolves around understanding the needs of the customer, focusing on building innovative but intuitive products and devices that all work insync.
Costco: Costco is the world's largest membership-based warehouse chain. As of 2019, it boasts 785 warehouses worldwide, over $149 billion in sales, and 254,000 employees worldwide. Costco prides itself on the following core competencies:
- Customer service: With its free shipping and unmatched return policy Costco is famous for its customer service.
- Value: Costco's high-volume, bulk sales model allows the company to charge very low prices on a wide variety of quality products. In fact, many small business use Costco as a wholesale source.
- Employee recognition: Costco is well known for taking care of its employees by paying a living wage, providing health benefits, and offering generous retirement packages. According to Costco, the company prides themselves on, "emphasizing inclusion and diversity, providing resources to enrich and inspire, supporting leadership training, and promoting from within."
Harvard Business Review. "The Core Competence of the Corporation." Page 7. Accessed Jan. 29, 2020.
Walmart. "2019 Annual Report." Accessed Jan. 29, 2020.
Statista. "The 100 Largest Companies in the World by Market Value in 2019." Accessed Jan. 29, 2020.
U.S. Securities and Exchange Commission. "Apple Annual Report 2019." Accessed Jan. 29, 2020.
Costco. "2019 Annual Report." Accessed Jan. 29, 2020.