Talking to a networking contact recently, it became apparent that he was missing out on opportunities that would be easy to exploit using processes he had already developed and offering these as services to clients he already knew. This conversation, which will hopefully lead to a new service, got me thinking about core competence.

If you know what you are good at, you can easily create new offers to exploit new business opportunities. Your core competencies are the base skills and attributes of your business. They are the things that you can use as foundations to add new products and services to your business.

Core competence is something a company does especially well relative to its competitors.

• Honda, for example, has a core competence in small engine design and manufacturing;

• Sony has a core competence in miniaturization;

• Black and Decker’s core technological competency is in 200 to 600 W electric motors. Most of their products are variants of this basic technology;

• Federal Express has a core competence in logistics and customer service.

Typically, a core competence refers to a set of skills or experience in some activity, rather than physical or financial assets.

The idea of core competence was introduced into management literature in 1990 by C.K. Prahalad and Gary Hamel. The two business academics wrote:

Core competencies are the collective learning in the organisation, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies…core competence is communication, involvement and a deep commitment to working across organisational boundaries…core competence does not diminish with use. Unlike physical assets, which do deteriorate over time, competencies are enhanced as they are applied and shared.

Prahalad and Hamel went on to outline three tests that can be applied to help work out whether something is a core competence. These are questions to ask yourself in trying to identify the core skills, processes and technologies in your business that you should be nurturing, developing and improving:

1. Does it provide potential access to a wide variety of markets?
   In other words – does it give you access to a broad range of clients and potential clients.

2. Does it make a significant contribution to the perceived customer benefits of the end product?
   Or, if it was not available as part of your offer, would people notice?

3. Is it difficult for competitors to imitate because it is a combination of technologies and skills?
   Be careful here – many people fall into one of two traps:

   • Trap 1 – because they have acquired knowledge, skills and experience over an extended period, they fail to see how hard it might be for people to imitate from a standing start.

   • Trap 2 – they are so wrapped up in the stuff that their business does, they believe that everything they do is special. They therefore fail to see how easy it might be for others to emulate something that they do.

The core competence idea is useful in three ways:

• Helping you to focus on the essentials;

• Helping you to identify core skills and processes that can be used as foundations for new products or services;

• Identifying those things that are not “at the core” – should these non-essential activities or processes consume precious time and resources?

This was a guest post by Paul Fileman of SPS who are a national team of proven senior management professionals, passionate about working to help businesses achieve their next level of development and performance. Whether they are facing market changes, financial problems, people/skills issues, or are preparing a major project, they offer dedicated support from a multi-disciplined team of experts.

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