Every business has certain competencies it uses to generate profits. To the extent that those competencies are unique to a particular business, it may fend off competitors and maintain or increase its market share and continue generating profits well into the future. Developing and exploiting competencies is the fundamental means by which all businesses seek to maximize profits.
A competency is anything a business does well, and a business may have numerous competencies. For example, an advertising firm might do a superior job of managing internal talent and developing leaders from within, or a manufacturing company might be extremely successful in keeping its number of defects per thousand units produced extremely low.
A core competency is a competency of the business that is essential or central to its overall performance and success. A manufacturing company with a low defect rate may not rely heavily on this low-defect rate as part of its primary business strategy. If this is the case, this low-defect rate is a core competency. If, on the other hand, this company held itself out to the market as a reliable manufacturer of quality products, this could easily be a core competency, because the ability to consistently provide quality products is a key to its business model.
A distinctive competency is any capability that distinguishes a company from its competitors. While a distinctive competency can be any competency, core or otherwise, it is typically a core competency that truly distinguishes a company from the rest of the competition. For example, one of Google's distinctive competencies is its name recognition and status as the most notable search engine. This competency is difficult for competitors to imitate and sets Google apart from the rest of the market.
When a company possesses distinctive competencies, it can transform these attributes into a competitive advantage. A company's competitive advantage over similar businesses in its market or industry allows it to be more profitable or capture more market share. Competitive advantage is crucial for a company to be successful in the long term. Without sufficient competitive advantages, a company eventually would be overtaken by companies that can compete more efficiently or effectively.