What are core competencies?

Core competencies are specific qualities that set your business apart from others in your industry. They can include any feature your business offers as an advantage over its competitors, whether it’s a specialized product design or a unique service.

When the topic was first introduced in the early 1990s, The Harvard Business Review outlined three factors of every core competency.

To be considered a core competency, an ability must be:

1. Rare
2. Challenging for competitors to imitate
3. Of superior value to customers

Using this framework, you can identify the core competencies of your own business. Most companies have more than one, though there may be a primary competency that supersedes the rest and lays the groundwork for separation from the competition.

Understanding the VRIO framework

In addition to the three factors listed above, core competencies are also measured on a scale known as the VRIO framework. VRIO stands for value, rarity, inimitability and organization; the acronym represents the criteria used to determine a company’s competitive edge. When all four criteria are met, it’s a sign that your abilities have given you a sustained advantage over the competition.

Related: 14 Ways to Grow Your Business

The importance of core competencies

Why bother identifying your company’s core competencies? Understanding where your business excels can help you determine how to allocate resources and capitalize on your inherent advantages. It also gives you a sense of which projects you should pursue based on how well they align with your strengths.

On a day-to-day level, knowing your core competencies gives you an idea of where to provide training that will capitalize on them. Plus, you’ll know which tasks you can outsource to maximize in-house efficiency. Your core competencies even act as a foundation for your company’s branding—find out what’s already speaking to customers and you’ll know exactly what to build upon.

Examples of core competencies

There are countless attributes that may make up your company’s core competencies. Some examples include:

• Reliability
• Innovation
• Flexibility
• Superior online presence
• Customer-targeting
• Content delivery
• Product development
• Superior quality control
• Standardization
• Buying power
• Customer service
• Forward-thinking
• Quality

You may be able to identify many of these abilities in your company, but that doesn’t mean you should automatically add them to your core competency list. In order to qualify, it should be one factor that your company is exceptionally skilled at.

Core competencies in action

To truly understand the strategic value of core competencies, it helps to look to companies that have capitalized on theirs. Here are some brands that have transformed their unique advantages into global success.

Netflix

The streaming giant’s core competencies include:

• Innovation. Netflix has long been at the forefront of its industry as one of the first to make video streaming a global phenomenon.
• Brand equity. The company remains prominent largely due to strong brand recognition and word-of-mouth advertising.
• Product mix. Netflix users have access to nearly 15,000 titles in 30 languages in addition to its self-produced content.

McDonald’s

Despite a group of fierce competitors, McDonald’s reigns supreme in the fast-food industry thanks to core competencies like:

• Positive brand image. McDonald’s has positioned itself as a staple of satisfying food available at low prices.
• Global brand awareness. With nearly 40,000 locations in 100 countries, the company is the world’s leading food service retailer.
• Portfolio of trademarks. The company’s trademarks (including its cast of characters and iconic golden arches) are both legally protected and instantly recognizable.

Target

The big box store is currently the seventh-largest retailer in the United States. Its core competencies include:

• Social responsibility. Target incorporates its stance on social issues into its brand, making them part of its strategic goals.
• Optimal internal processes. The company places significant emphasis on its internal processes for better performance management.
• Brand recognition. Target has established itself as a leading brand for quality home and food items at lower prices.

Starbucks

Founded in Seattle in 1971, Starbucks has transformed into the world’s largest coffee chain thanks to core competencies such as:

• Product mix. The chain’s product differentiation strategies have made for its unique consumer culture.
• Customer service. Part of the company’s branding is its “Starbucks Experience,” setting it apart from the run-of-the-mill service of its competitors.
• Strong values. Starbucks’s outspoken support for human resources has helped it cultivate strong relationships with international suppliers.

Related: Gaining Competitive Edge: Strategies for Small Businesses

How to identify core competencies for your business

While the importance of core competencies is clear, the process of identifying them is less so. Luckily, you can find out where your company’s foundational strengths are by focusing on where it already excels. Here’s how to identify core competencies in five simple steps.

1. Revisit your mission statement

Your company’s mission statement is what guides its daily functions and goals, making it a good place to start looking for core competencies. The mission statement should paint a clear picture of your company’s values, whether it’s designing innovative products or using your influence to enact social change. Take a closer look at this statement to see which values stand out as core competencies.

2. Find out what makes your company important

Why do your customers keep coming back? Is it because of your customer service? Or maybe it’s the innovation in your product line. Find out where your current success has come from and you’ll find out how to build on it.

3. Consider your current competencies

You’ve figured out what makes your customers so happy. But what about your employees? As your internal team what the company is doing so well, and see which factors stand out in their answers.

4. Measure your competencies against the criteria

Remember, all core competencies should be:

1. Rare
2. Challenging for competitors to imitate
3. Of superior value to customers

Look at the competencies you’ve selected and measure them against the criteria to see if they can be part of your core group.

5. Focus on your core competencies

Now that you’ve identified your core competencies, use them as a guide that points to where you should invest your time and resources. Whether it’s outsourcing tasks that don’t align or training employees for tasks that do, building on your core competencies can help you maintain a strategic advantage over your competitors.

FAQs about core competencies

Want to know more about your company’s core competencies? Here are answers to some of the most frequently asked questions.

Are core competencies valued the same across industries?

What works for one industry may not work as well for another. For example, excellence in medical specializations and patient care is probably more valuable in a clinic than in a marketing company. Choosing core competencies that align with your industry is one way to create a strong foundation for growth.

How many core competencies should a company have?

There is no limit to the number of core competencies a company may have. However, the more your company has, the more likely you’ll set yourself apart from competitors.

How do core competencies differ from a company’s brand?

While good branding can also make your business unique, it is more focused on building an identity for customers to recognize and respond to. Plus, core competencies guide decision-making for other company strategies, including branding.

Can a company change its core competencies?

It’s important to choose core competencies that reflect your company’s inherent strengths. That being said, they aren’t set in stone. As your business grows it’s helpful to reevaluate your core competencies, adding new ones or adjusting existing ones as needed.

What’s the difference between core competencies and core values?

Core competencies are the skills and motivations that guide an organization’s behavior. On the other hand, core values are the beliefs or ideas that all members of the organization use to define their overall purpose.