Identifying Business Core Competencies

Knowing your company’s core competencies can play a vital role in how you do business while differentiating yourself from competitors. They’re important for better understanding how your business should be marketed, including ways in which it can grow.
 
Here we will explore what core competencies are, examples of common business core competencies and the steps you can take to determine them for your company.
 
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What are the core competencies of a business?

Core competencies are the factors that separate your business from your competitors. These competencies are most often related to a capability or advantage your company has over similar companies in your field or industry.
 

In an article written by C.K. Prahalad and Gary Hamel, core competencies are defined as activities that:
 

  • Are rare
  • Are challenging for competitors to imitate
  • Offer superior value to customers

These may be measured using the Value, Rarity, Inimitability and Organization (VRIO) framework.
 

Most businesses have more than one core competency. However, your company may have a primary core competency that supersedes the rest and is the defining factor that sets it apart.
 

Related: How to Grow Your Business
 

Examples of core competencies

The following are examples of core competencies as they relate to business:
 

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

While some companies may have many of these abilities, a company must be exceptional in a particular category for it to be considered a core competency. Consider these core competencies examples for business and how they have managed to become globally successful brands:
 

Netflix

In assessing Netflix through the VRIO framework, the company’s core competencies include:
 

  • Innovation: Its focus is one continuous improvement, and that includes its recommendation systems that create user engagement.
  • Brand equity: Netflix has strong brand recognition and word-of-mouth marketing that’s been its base for years. This is why it enjoys great penetration across numerous markets.
  • Product mix: The company’s large user base is actively engaged in watching close to 15,000 titles that are available in 30 languages across several different segments. It’s also heavily invested in producing original content for both eastern and western audiences.

McDonald’s

McDonald’s maintained its competitive advantages because of global brand awareness and positive brand image, which can’t be substituted. Then there is its portfolio of trademarks that are legally protected and have been effective in saturating many worldwide markets.
 

Target

Target’s core competencies are numerous and include its high brand recognition and strong social responsibility tied into the company’s business and strategic goals. It’s also strong in research and development because it knows that strong innovation leads to better financial performance. Target focuses heavily on optimizing its internal processes for better performance management.
 

Starbucks

Starbucks’ core competencies include:
 

  • Product mix: Top-quality premium products and product differentiation strategies have developed its unique culture.
  • Customer service: Not only does this include maintaining clean facilities, but it also includes its unique Starbucks Experience, which has led to a growing cult following.
  • Strong values: Its value of human resources helped it build strong relationships with international suppliers and vendors in ways that align with its business strategy.

Related: Gaining Competitive Edge: Strategies for Small Businesses
 

Importance of core competencies

Identifying and expanding on your business core competencies is important because it:
 

  • Allows you to determine how to best allocate your resources in the most productive and beneficial way
  • Enables you to identify the best projects and opportunities to pursue that align with your core competencies
  • Gives you an idea of where you should provide training to enhance your employees’ ability to maximize your company’s core competencies
  • Provides you with information regarding what services or tasks you can outsource to save time and resources in-house
  • Acts as a foundation for how you should go about marketing and branding your company

How to identify core competencies for your business

You can use the following steps when identifying the core competencies for your business:
 

1. Revisit your company’s mission statement

The mission and/or vision statement for your business is a good place to start when identifying core competencies. It provides a clear idea of what’s important and where you want to go in your business. Try to use these statements to guide the core competencies you choose to focus on.
 

Related: 7 Company Mission Statement Examples

 

2. Brainstorm why your company is important to customers

Take some time to identify why your customers choose your company. Do you have excellent customer service? Is the quality of your product unmatched in your industry? Why customers buy your products or services over other companies can shed light on what competencies you have.
 

3. Consider your current competencies

In addition to your customers, you should also survey your employees and yourself as to what your company’s core competencies are to see if there is a common theme. What do you believe your company does well? What sets you apart from the competition?
 

4. Compare each competency against the three criteria for core competencies

Once you have established your company’s competencies, compare them against the three criteria mentioned earlier. If a competency you identified meets these three criteria (they are rare, hard to imitate and offer superior value), you should consider it a core competency for your business.
 

5. Write down the core competencies you come up with for your company

After determining which core competencies your business has and wants to work on, write them down in detail. Use them to guide you when deciding where you should further develop your business and focus your resources.
 

6. Identify areas that may need to be outsourced to allow you to better focus on your core competencies

If you spend excess time and resources on an area in your business that does not further the development of your competencies, consider outsourcing certain tasks to free up employee time to focus on core competencies.
 

Frequently asked questions about business core competencies

Here are the answers to a few frequently asked questions related to the core competencies of a business:
 

What can contribute to a company’s core competencies?

Several factors can contribute to the identification and development of core competencies. These factors include:
 

  • Patents
  • Equity
  • Internal talent
  • Physical assets

Are certain core competencies valued the same across industries?

Core competencies will vary greatly from industry to industry. For example, a company in the health care industry will likely focus on excellence in medical specializations and quality patient care. A marketing company may focus on honing the core competencies of customer targeting and brand recognition.
 

How many core competencies should a company have?

There’s neither a limit on how many core competencies a business should have nor restrictions on the number of core competencies. The more core competencies a company has, the more likely it is to stand apart from its competitors.
 

What is the difference between core competencies and core values?

Core competencies are the skills, knowledge and motivations that dictate an organization’s or individual’s behavior. These are the demonstrated values and strengths that result in success. Core values are the beliefs and ideas shared by all employees in an organization that define its moral compass and overall purpose.

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