Core Competencies

Summary

This video explores the concept of core competencies, crucial for business strategy and competitive advantage. Originated by Haml and Prahalad, it refers to unique skills or abilities that set a business apart. Examples include IKEA's design prowess, Apple's user-centric design, Domino's e-commerce model, and Starbucks' localization strategy. Core competencies should offer distinctive consumer benefits, be difficult to imitate, and support various products and markets. The video also discusses potential criticisms of the core competency model, such as overzealous outsourcing and complacency.

Takeaways

• 🔑 Core competencies are fundamental skills or abilities that give a business a unique competitive advantage.
• 📚 The concept of core competencies was introduced by business theorists Hamel and Prahalad in their book 'Competing for the Future'.
• 🤝 Core competencies often arise from collective learning, expertise, and the integration of various skills and technologies within a business.
• 🏆 A core competence should enable a business to differentiate itself from competitors, offering unique value to customers.
• 🍕 Examples of core competencies include IKEA's design capabilities, Apple's focus on user interface design and ecosystem integration, Domino's system integration for pizza delivery, and Starbucks' localization of the coffee shop experience.
• 🎯 For a competence to be considered core, it must meet three conditions: provide distinctive consumer benefits, be hard for competitors to imitate, and be widely leverageable across products and markets.
• 🛠️ IKEA's design expertise exemplifies a core competence by satisfying all three conditions: consumer benefits, imitation difficulty, and broad application.
• ⚖️ The core competence model has faced criticisms, including overzealous outsourcing leading to loss of competitiveness and skills.
• 🔍 Identifying genuinely unique core competencies can be challenging, as many strengths are shared among competitors.
• 🚀 Focusing solely on core competencies can lead to complacency and neglect of other competencies that may become crucial in the future.

Q & A

What is the concept of core competencies?

Core competencies are fundamental skills or abilities that a business possesses, which enable it to compete effectively. They are unique to a business and are closely linked with its business strategy.

Who first suggested the idea of core competencies?

The concept of core competencies was first suggested by business management theorists C.K. Prahalad and Gary Hamel.

In what book did Prahalad and Hamel discuss core competencies?

Prahalad and Hamel discussed core competencies in their bestselling book titled 'Competing for the Future'.

How does the concept of core competencies relate to SWOT analysis?

Core competencies are closely related to the 'Strengths' component of a SWOT analysis, which represents the internal factors that provide a competitive advantage.

What are the four ways in which a competence can benefit a business?

A competence can benefit a business by arising from collective learning or expertise, the ability to integrate different skills and technologies to create unique offerings, differentiating the business from competitors, and enabling the business to compete effectively.

What are some examples of core competencies in different businesses?

Examples include IKEA's design capabilities and thrift culture, Apple's focus on user interface design and integrated software and devices, Domino's integrated systems for pizza delivery, and Starbucks' ability to localize the coffee shop experience to meet customer needs in different countries.

What are the three conditions that Prahalad said a core competence needs to meet?

A core competence needs to provide distinctive consumer benefits, be hard for competitors to imitate, and be leverageable to support many different products and markets.

How does IKEA's design expertise meet the three conditions of a core competence?

IKEA's design expertise provides consumer benefits by attracting customers with unique designs, is hard to imitate as evidenced by the lack of successful competitors, and is leveraged widely across many different products and markets.

What are some criticisms of the core competence model?

Criticism includes overzealous outsourcing leading to loss of competitiveness, difficulty in identifying genuinely unique competencies, and the risk of complacency by focusing too much on existing competencies without investing in future potential strengths.

What strategic advice did Prahalad and Hamel give regarding core competencies?

Prahalad and Hamel advised businesses to focus on core competencies and to outsource non-core activities, which was a controversial suggestion that led to some of the criticisms mentioned.

Outlines

00:00

📚 Core Competencies in Business Strategy

This paragraph introduces the concept of core competencies, which are fundamental skills or abilities that give a business a competitive edge. It explains that core competencies are unique to a business and are linked to business strategy. The idea was first proposed by Hamel and Prahalad in their book 'Competing for the Future,' where they emphasized the importance of building, deploying, and protecting these competencies for future success. The paragraph also draws a connection between core competencies and the 'Strengths' component of a SWOT analysis. Examples of core competencies in businesses like IKEA, Apple, Domino's, and Starbucks are discussed, highlighting how these companies leverage their unique capabilities to differentiate themselves in the market.

05:01

🔍 Evaluating Core Competencies

This paragraph delves into the criteria that define a core competence: it must provide distinctive consumer benefits, be difficult for competitors to imitate, and be applicable across various products and markets. Using IKEA as a case study, the paragraph examines whether its design expertise meets these criteria, suggesting that IKEA's design capabilities are indeed a core competence due to their consumer appeal, difficulty to replicate, and widespread application. The paragraph concludes with a discussion of strategic implications, suggesting businesses should focus on their core competencies and consider outsourcing non-core activities. It also addresses criticisms of the core competence model, including the risk of overzealous outsourcing leading to loss of competitiveness, the challenge of identifying truly unique competencies, and the danger of becoming complacent and neglecting the development of other important skills.

Keywords

💡Core Competencies

Core Competencies refer to the unique skills or abilities that a business possesses, which enable it to compete effectively in the market. In the video, core competencies are described as fundamental strengths that are hard for competitors to imitate and can be leveraged across various products and markets. The concept is central to the video's theme, as it discusses how businesses can achieve a competitive edge by focusing on and developing these competencies.

💡Business Strategy

Business Strategy is the method by which a company plans to achieve its long-term goals and objectives. The video connects core competencies with business strategy, emphasizing that understanding and leveraging core competencies is a strategic move for businesses to outperform their competitors. It is mentioned as a framework within which core competencies are identified and utilized.

💡Collective Learning

Collective Learning is the cumulative knowledge and expertise that a business gains over time through shared experiences and interactions. In the context of the video, it is one of the ways in which a core competence can arise, suggesting that the collective intelligence and experience of a company's workforce can lead to the development of unique capabilities.

💡SWOT Analysis

SWOT Analysis is a strategic planning tool used to identify a company's Strengths, Weaknesses, Opportunities, and Threats. The video mentions SWOT Analysis in relation to core competencies, specifically the 'Strengths' component, which are the internal factors that provide a competitive advantage and align with the concept of core competencies.

💡Differentiation

Differentiation in the video refers to the ability of a business to distinguish itself from its competitors, often through unique products or services. It is closely tied to core competencies, as these unique capabilities often enable businesses to stand out in the market and attract customers based on factors like quality or service.

💡Ikea

Ikea is used as an example in the video to illustrate a company with a strong core competence in design and a culture of thrift. The video explains how Ikea's design capabilities and low-cost approach are hard for competitors to imitate, providing a clear consumer benefit and contributing to its competitive advantage.

💡Apple

Apple is mentioned as a company with core competencies, particularly in design and the integration of software and hardware around its app ecosystem. The video suggests that Apple's focus on user interface simplicity and its ability to create a cohesive technology experience are examples of core competencies that provide a competitive edge.

💡Dominoes

Dominoes is highlighted in the video as a business that has leveraged its core competence in system integration to become an e-commerce leader in the pizza delivery space. The company's ability to offer a seamless ordering experience across various devices is presented as a key differentiator and a result of its core competencies.

💡Starbucks

Starbucks is discussed as a company with core competencies in localizing the coffee shop experience to meet customer needs in different countries. The video emphasizes how Starbucks's ability to adapt its in-store environment to various markets is a strategic strength that sets it apart from competitors.

💡Outsourcing

Outsourcing is mentioned in the context of focusing on core competencies. The video suggests that businesses should concentrate on their core competencies and outsource non-core activities. However, it also points out the potential risks of overzealous outsourcing, which can lead to a loss of competitiveness if key skills are outsourced.

💡Complacency

Complacency in the video refers to the danger of businesses becoming too satisfied with their current core competencies and neglecting to invest in other areas that may become important in the future. It serves as a cautionary note about the importance of continuous innovation and development beyond existing strengths.

Highlights

Core competencies are fundamental skills or abilities that give a business a unique competitive advantage.

The concept of core competencies was introduced by business management theorists Haml and Prahalad in their book 'Competing for the Future'.

Core competencies should be linked to a business's strategic strengths and are closely related to the 'S' in SWOT analysis.

A core competence can arise from collective learning or expertise within a business.

Businesses can develop core competencies by integrating various skills and technologies to create unique products and services.

Core competencies enable businesses to differentiate themselves from competitors based on quality or service.

Examples of core competencies include IKEA's design capabilities, Apple's focus on user interface, and Domino's e-commerce integration.

Starbucks' ability to localize the in-store environment to meet customer needs in different countries is a potential core competence.

A core competence must meet three conditions: provide distinctive consumer benefits, be hard to imitate, and be widely leverageable.

IKEA's design expertise likely meets the criteria for a core competence, providing consumer benefits, being hard to imitate, and being widely leveraged.

The core competence model suggests businesses focus on core competencies and outsource non-core activities.

Overzealous outsourcing of non-core activities can lead to businesses losing competitiveness and skills.

It can be challenging to identify core competencies that are genuinely unique to a single business.

Focusing solely on core competencies can lead to complacency and neglect of other important competencies.

Transcripts

hi there in this short video we're going

to take a look at this concept called

core

competencies now this is a concept that

is very much connected with business

strategy and the idea of a core

competence there's a bit of a clue in

the words core means something

fundamental and a competence means a

skill or an ability while in the

business context a core competence is

taken to be something which is unique

that a business has or can do which

enables it to compete effectively so

it's a strategic concept around uh

business

strengths and the idea of core

competences was first suggested by two

well-known business management theorists

called haml and prahalad they wrote A A

bestselling book which looked at the

strategies and the comp competitive

strengths of high performing businesses

back in the uh back in the 1980s and

1990s the book was called competing for

the future and what they said was that

the key to competing in the future is

for management teams to build and deploy

and protect and defend what they called

core

competences now of course this therefore

links very closely with another

important and very popular managemental

strategy tool called the SWAT analysis

so it's worth making a connection

between core competencies and the S of

SWAT analysis as strengths which of

course if you remember from SWAT

analysis are the strengths and

weaknesses are the internal factors and

strengths are the sources of competitive

Advantage now uh uh the two professors

said that there were four uh different

ways in which a competence could be C to

a business it could arise from the

collective learning or the expertise

within the business it could arise from

the ability of a business to bring

together a host of different skills and

Technologies to create something

unique and therefore to be able to

deliver products and services that were

in some ways or many ways far superior

to what the competition could deliver

and I guess as a consequence of those a

core competence also enables a business

to differentiate itself from the

competition we know from strategy don't

with that differentiation the ability to

from the customer point of view to be

clearly differentiated from all the

other competitors in the market whether

that be on quality or service or

whatever that's a very important

competitive

strength so some possible examples what

do we mean by core competences well

let's just have a look at four different

businesses and think what theirs might

be I think all of these are are pretty

pretty valid examples of core

competences I think Ikea in particular

has this unique organized I ational

culture based on Thrift the culture of

thrift low cost low price but also

phenomenal design capabilities the

ability to be able to come up with

designs that are in many ways unique

very hard to compete and copy with that

copy that Apple of course would be many

will be on many people's lists of a

business that has some very important

competitive

advantages not the least being its

almost obsessive focus on design

particularly built around the user and

the Simplicity of the user interface but

of course what it's very cleverly done

is integrated its software and its

devices in particular around the app

ecosystem so that's an example of

bringing technology and skills together

to create an

advantage what about a slice of pizza

guys what about dominoes a wonderful

business it's now described as an

e-commerce business that happens to sell

pizza because it's been so successful

partly as a result of investing so much

in integrating all its systems to enable

us to order a pizza from any kind of

device and the the whole operational

system enables that pizza to be

delivered on time but of course it's

also managed to integrate its systems

around a very successful and profitable

franchise model and lastly one of my

favorites Starbucks and there's no doubt

that Starbucks has some potentially

significant core competencies when it

comes to the coffee shop or uh coffee

experience Market not the least being an

ability to very carefully and

successfully localize the product the in

store environment inore environment to

meet customer needs in different

countries now one of the questions you

will need to think about when you're

looking a business and if you're asked

to say well is this a core competent of

the business what uh prah haml said is

it needed to meet three conditions so

let's quickly look at those three

conditions so a core competence firstly

needs to be able to provide consumer

benefits distinctive consumer

benefits secondly for it to be a core

competence it needs to be hard for

competitors to

imitate so if it's something that's easy

to to imitate that's unlikely to be a

core competence and thirdly it needs to

be something that can be leveraged

widely to support many different

products and enable the business to

compete in different

markets let's have a look at an example

let's we we suggested that we thought

Ikea could have some distinctive

capabilities these core competences

let's just check to see whether we think

Ikea meets these three

conditions well I think on balance it

probably does firstly that uh phenomenal

design expertise does that provide

consumer benefits well you only have to

have a look at the number of people

walking around Ikea stores on a weekend

to suggest it absolutely does how easy

is it for competitors to imitate well of

course lots of people have tried but I

can't think of a furniture or household

chain certainly not a global one that's

come anywhere near to being able to copy

or imitate the success of Ikea so yes I

would say that's not easy to imitate and

has it been used widely has this design

capability being used widely to many

different products and markets well of

course it has isn't it look around an

Ikea store just see how many of the

household areas household items it's

been able to use those design

capabilities so absolutely so it looks

like that whole design ethos is

definitely a core competence of

Ikea what prahalad and haml suggested

businesses do from a strategic point of

view is focus in order to compete well

is to focus on core

competencies but also quite

controversially to Outsource activities

which were non core and this has led to

some criticisms of the core competence

model one of which is that and of course

this was a very widely used and

supported concept called competences

particularly in the '90s and early 2000s

one of the criticisms is that many

businesses took it too uh too much to

his word and started Outsourcing almost

every non-core activity so-called

overzealous Outsourcing and it's argued

that in some cases this led to bus

business is losing competitiveness

particularly by losing some of the

skills that the business had built up of

course another criticism is that as you

look at core competencies it's quite

hard to find them which are genuinely

unique to a business in the same way

that a competitive strength or

competitive Advantage is really

completely unique to just one business

in the market and a third criticism is

that the danger of just focusing on core

competences is that you become too

complacent about what those are and

forget to invest in other competencies

that may become more important to the

business in the

future that's been an overview of and an

introduction to the concept of core

competences