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The Explainer: Finding Your Company's Core Competencies
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The Explainer: Finding Your Company's Core Competencies

Core Competence in Business Strategy

The concept of core competence is crucial for strategists and companies with multiple business units or product lines. CK Prahalad and Gary Hamel likened a diversified corporation to a large tree, emphasizing the importance of identifying and leveraging core competencies.

Understanding Core Competence

  • Core competence is akin to the root system of a tree, providing nourishment and stability to the entire organization.
  • Identifying specific core competencies (typically five or six) that your company excels at is essential.
  • Core competencies must meet three criteria: access to diverse markets, enhancing customer-perceived benefits, and being difficult for competitors to replicate.

Importance of Core Competence

  • Core competencies grant a competitive advantage across various products and markets.
  • They enhance customer value perception by improving product benefits.
  • Competitors find it challenging to imitate core competencies, giving the company a sustainable edge.

Application in Business Strategy

  • Core competencies not only strengthen existing businesses but also facilitate expansion into new ventures.
  • Understanding core competencies can prevent costly outsourcing mistakes like Chrysler's experience with engine outsourcing.
Video description

What does your company do better than anyone else? In the short run, a company’s competitiveness derives from the price/performance attributes of current products. But in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. Unlike physical assets, which deteriorate over time, core competencies are enhanced as they are applied and shared. But competencies still need to be nurtured and protected; knowledge fades if it is not used. Competencies are the glue that binds existing businesses. They are also the engine for new business development. --------------------------------------------------------------------- At Harvard Business Review, we believe in management. If the world’s organizations and institutions were run more effectively, if our leaders made better decisions, if people worked more productively, we believe that all of us — employees, bosses, customers, our families, and the people our businesses affect — would be better off. So we try to arm our readers with ideas that help them become smarter, more creative, and more courageous in their work. We enlist the foremost experts in a wide range of topics, including career planning, strategy, leadership, work-life balance, negotiations, innovation, and managing teams. Harvard Business Review empowers professionals around the world to lead themselves and their organizations more effectively and to make a positive impact. Sign up for Newsletters: https://hbr.org/email-newsletters Follow us: https://hbr.org/ https://www.linkedin.com/company/harvard-business-review https://www.facebook.com/HBR/ https://twitter.com/HarvardBiz https://www.instagram.com/harvard_business_review