The Explainer: Finding Your Company's Core Competencies

Summary

Core competence is the foundational strength of a company, akin to a tree's root system, providing stability and nourishment. It's crucial for strategists to identify these unique capabilities that excel in production coordination and technology. Core competencies should meet three criteria: access to various markets, contribution to customer-perceived benefits, and difficulty for competitors to imitate. Understanding these can prevent strategic errors, like Chrysler's outsourcing mistake, and foster sustainable advantage in global competition.

Takeaways

• 🌳 Core competence is the 'root system' of a company, providing nourishment and stability to various business units and products.
• 🔍 To understand a company's strength, look beyond end products and identify its core competencies.
• 🏆 Core competencies are the unique capabilities that a company excels at and are usually limited to five or six key areas.
• 🚀 These competencies should provide access to a wide range of markets, as exemplified by Honda's engine expertise across cars, lawnmowers, and generators.
• 💡 They must contribute to the customer-perceived benefits of the product, enhancing the value proposition.
• 🛡️ Core competencies are difficult for competitors to imitate, providing a sustainable competitive advantage.
• 🏭 They serve as the foundation for existing businesses and can also foster the growth of new business lines.
• 🏎️ Honda's entry into car manufacturing leveraged their core learnings from engine development in motorcycles.
• ❌ Outsourcing core competencies can lead to failure, as seen with Chrysler's outsourcing of engines to Mitsubishi and Hyundai.
• 🌐 In a globally competitive market, understanding core competencies is crucial for creating a sustainable advantage beyond current product offerings.
• 💼 Core competencies, if not utilized, can fade away, emphasizing the importance of their continuous application and development.

Q & A

What is the specific meaning of 'core competence' as discussed in the script?

Core competence refers to the underlying capabilities and knowledge that an organization possesses, particularly in coordinating production and technology, which provides nourishment and stability to the company, akin to a root system in a tree.

Who introduced the concept of core competence?

The concept of core competence was introduced by C.K. Prahalad and Gary Hamel.

How is a diversified corporation compared to a tree in terms of core competence?

In the analogy, the core products are the trunk and major limbs, business units are the smaller branches, end products are the leaves, and the core competence is the root system that provides nourishment and stability.

Why is it important to identify core competencies for a company?

Identifying core competencies is crucial because it helps a company understand its real strength beyond just comparing end products, and it can guide strategic decisions and resource allocation.

What are the three requirements that core competencies should meet according to the script?

Core competencies should provide access to a wide variety of markets, contribute to the benefits of the product as perceived by the customer, and be hard for competitors to imitate.

How does Honda's expertise in engines exemplify a core competence?

Honda's expertise in engines meets the three requirements of core competencies: it gives them access to various markets like cars, lawnmowers, and generators, contributes to the product benefits, and is difficult for competitors to imitate.

What role do core competencies play in the development of new business lines?

Core competencies can be leveraged to nourish and develop new lines of business, as seen with Honda's transition from making motorcycles to cars, capitalizing on their knowledge of engines.

Why did Chrysler's outsourcing of engines to Mitsubishi and Hyundai not work out well?

Chrysler's outsourcing of engines did not work out well because they considered engines an expensive commodity rather than a core competence, leading to a loss of control over a critical aspect of their product's performance and innovation.

How can understanding core competencies help a company in global competition?

Understanding core competencies helps a company create a sustainable advantage by focusing on the unique strengths that are more than just the sum of current products, allowing them to stand out in a competitive global market.

What is the consequence of not using knowledge that is considered a core competence?

If knowledge, which is part of a company's core competence, is not used, it fades away. This can be detrimental in a world of intense global competition where leveraging core competencies is key to maintaining a competitive edge.

How should strategists approach the identification of core competencies within their organization?

Strategists should start by identifying specific core competencies, which are the five or six things that the company does better than anyone else, ensuring these competencies meet the three requirements mentioned in the script.