20 Ağustos 2014 Çarşamba

Core Competency and Its Influence on the Success of the Company

Core competency is something that a firm can do well and that meets the following three conditions:[1]

·         It provides consumer benefits,
·         It is not easy for competitors to imitate,
·         It can be leveraged widely to many products and markets.

A core competency is a fundamental knowledge, ability or expertise in a specific subject area or skill set. For example, an individual who becomes certified as a Microsoft Certified Software Engineer is said to have a core competency in certain Microsoft systems and networks.

Core competencies are extreme capabilities that serve as a source of competitive advantage for a firm over its rivals. Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities. Since it will be discussed in the later chapters, we need to show the criteria for determining whether a capability is a core competency or not is; its capability of producing sustainable competitive advantage. A capability can deliver competitive advantage without meeting all of the required criteria, but this will only be for a limited time.[2]

The Importance of Core Competency


As it is seen in the previous part; the core competency of a company depends on the three major factors which help the company to differentiate among the others. This core competence gives the company a competitive advantage to attract more customers. Furthermore, since it is very difficult to copy the core competency of a company, the company can use it before a new and more differentiated ability, expertise or knowledge is discovered.

Furthermore, the core competencies of the companies should be determined according to their financial impact. This means that the activities or processes that are not the core competencies of the company will not have big financial impact on the activities. These should be outsourced. However, the others should be seen as the core competencies of the company since they satisfy all conditions depicted in the first part.

Figure 1. Core Competency Financial Impact Analysis


The areas shown in the above figure represent the following:[3]

·         First Area: Low Core Competency Relevance, Low Financial Impact: They could be outsourced as early as possible since they are not core to the business and their financial impact may be minimal.

·         Second Area: High Core Competency Relevance, Low Financial Impact: These are the business processes that could be easily outsourced but you may need to seek out specialists in that area.

·         Third Area: Low Core Competency Relevance, High Financial Impact: These are business processes that are the last to be outsourced.

·         Fourth Area: High Core Competency Relevance, High Financial Impact: These could be business processes that the company may not want to outsource at all. The company is making money on the transactions coming mainly from this area.


The core competency of a company is the main source of the competitive advantage as it was discussed in the previous chapters. Competitive advantage occurs when the company makes profit that exceeds its industry average. The way to do it has been shown by M.Porter as follows:

·         Cost advantage
·         Differentiation advantage

These two items are the main competition strategies of M.Porter and they give cues to the company to decide on which strategy is the best for them. They need to look into their organization and decide on one of them or both of them.

After defining the competitive advantage, we need to show the effect of the core competency to this advantage in the following figure.

 

Figure 2. Effect of Core Competence to Competitive Advantage


The first thing that the company should have is the sufficient capabilities and resources which will give the company a few core competencies. These core competencies will be used to design new processes or products that will either have a cost advantage or differentiation advantage that will make the company different from the industry by means of either price or attributes of the product or process. This will create value which will lead the company to have the competitive advantage over the others. Since the company will create competitive advantage by using its core competencies that can not be imitated easily, the competitive advantage will last for a long time.





[3] Nari Kannan, “A Simple Way To Use Core Competency and Financial Impact Analysis in Outsourcing Planning”, http://www.sourcingmag.com/content/c060830a.asp

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