Why Are Competencies Important?

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The online Business Dictionary website defines a competence as “A cluster of related abilities, commitments, knowledge, and skills that enable a person (or an organization) to act effectively in a job or situation.” Competencies within a business provide several benefits to the organization and may allow an organization access to markets not previously accessible, in addition to creating new products. The development of core competencies is a vital element of the evolution and maintenance of a sustainable competitive advantage.

Facts

The term, “core competencies” originated from C.K. Prahalad and Gary Hamel’s 1990 Harvard Business Review article titled, “Core Competence of the Corporation.” It was in this article that Prahalad and Hamel first introduced the idea of focusing a business’ resources on competencies which provide value to the consumer to create a sustainable competitive advantage.

Value Added

Competencies often consist of aspects of a product or service that provide added value not available from the same or similar products offered by a competitor. A desirable brand name or logo is one example of a competence that provides a perceived value for the consumer. Although a competitor’s product--an athletic shoe for example--may provide similar value overall, the addition of a much desired logo to the shoe will often enable one company to charge a premium price simply because of the consumer’s perception that one brand is more desirable than the next. In this example, the well-branded company might focus its resources on maintaining the brand, while the other organization might focus resources on research and development to create a shoe that can provide real value to the consumer.

Sustainable Competitive Advantage

Core competencies, also sometimes referred to as key competencies, consist of those activities and capabilities an organization has that makes it stand out from its competitors. This is an essential element that influences consumers to choose the products and services of one organization over similar products or services offered by a competitor.

Solution

Many businesses choose to outsource activities which do not contribute directly to the development of core competencies. For example, a manufacturing company might choose to outsource payroll activities to an organization specializing in payroll in order to free up resources which are vital to maintaining core competencies. Meanwhile, the payroll company focuses its resources on what it does best, which is payroll. In this example, each organization focuses the majority of its resources on competencies which will allow it to create and maintain a sustainable competitive advantage.

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