Core Competencies
Summary
TLDRThis 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
📚 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.
🔍 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.
Mindmap
Keywords
💡Core Competencies
💡Business Strategy
💡Collective Learning
💡SWOT Analysis
💡Differentiation
💡Ikea
💡Apple
💡Dominoes
💡Starbucks
💡Outsourcing
💡Complacency
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
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