Core Competencies & Capabilities

Those skills present or creatable upon which the organization bases its operations and services and from which it creates its desired future. It defines the resources and skill-sets that differentiate the corporation from its competitors and in the marketplace. Core competencies also relate to specific differentiators such as geographic locations, patents/copyrights, technology strategies, etc. They are substantially unique, and they typically lead the company into new products and/or markets. A core competency has 3 identifying elements: it makes a contribution to perceived customer benefits; it is difficult for competitors to imitate; and it can be leveraged to a wide variety of markets Identifying, nurturing and capitalizing on a firms core competencies and capabilities are key elements in the development of a strategic posture likely to lead to superior performance. If you were to imagine taking away this capability from a business it would drastically change the direction of your business and the nature of the service delivered to your client. For example, an accounting firm could have auditing, business valuation, financial reporting and human resources as their capabilities. If they were to outsource auditing and no longer provide it as a service to their clients it would significantly impact their service offering and is consequently a core competency. If, however, they were to outsource their HR there would be no impact on their business direction or service offering and it could be concluded that this function is not a core competency for this business. Medium sized companies are likely to have few things which meet these criteria; but in fact, few are needed as many competitors will be found totally lacking in this area. High performance companies will have clearly understood core competencies, medium to low performers either will not have such competencies, or will fail to recognize and capitalize upon them. top executives will be judged by their ability to identify, cultivate, and exploit core competencies that make growth possible. They will have to rethink the concept of the corporation itself. The critical task for management is to create an organization capable of infusing products with irresistible functionality or creating products that customer need but have not yet imagined. Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies. C. K. Prahalad, and Gary Hamel, Harvard Business Review; May/Jun 1990;

What companies look like that focus on operational excellence, product leadership, or customer intimacy.
Focus on Operational Excellence Focus on Product Leadership means... means... End-to-end supply and basic service A focus on the core processes of invention, product processes that are optimized to development, and market exploitation. minimize cost and hassle. Focus on Customer Intimacy means...

Obsession with the core processes of solution development (i.e., helping the customer understand exactly what's needed), results management (i.e., ensuring that solutions get implemented properly), and relationship management. Standarized and simplified A business structure that is loosely knit, ad hoc, and A business structure that delegates decisionoperations that are tightly controlled ever-changing to adjust to the entrepreneurial initiatives making to employees who are close to the and centrally planned, leaving few and redirection that characterize working in unexplored customer, and that gives them authority to act decisions to the discretion of the territory. and follow up on their decisions. rank-and-file employees. Management systems that are results-driven, that Management systems that are geared toward Management systems that focus on measure and reward new product success, and don't creating results for their carefully selected and integrated, reliable, high-speed punish the experimentation needed to get there. nurtured clients. transactions and compliance to A culture that encourages individual imagination and A culture that embraces specific rather than norms. accomplishment, as well as out-of-the-box thinking, and general solutions, that thrives on deep and A culture that abhors waste and a mindset driven by the desire to create the future. lasting client relationships. rewards efficiency. What they look like from the outside Lowest price. Limited product Breakthrough product capabilities. High price, but Superb understanding of customer's business. variety. Products without the lastest worth it. Product features with major benefits. Limited Products without the latest features. Expertise features. Basic service convenience help in selecting and applying the product. Big-bang in areas of customer need. Tailored basic and reliability. Rigidity of service product launches and events. Lots of basic service service. Some service glitches. Never the approach. Little direct contact. snags. product innovator, but a quick follower. Sales Superb service error recovery. Lots reps that make things happen. More of advertising. expensive, but worth it.
Adapted from The Discipline of Market Leaders, by Micheal Treacy and Fred Wiersema, Addison-Wesley Publishing Co. Reading, PA 1995.

WHY IS MISSION STATEMENT IMPORTANT Case Study Fred's Grocery As an example of how a company mission statement can serve as a focus for improvement in your business's performance, consider the case of Fred's Grocery, a small one-store business, which suffered sales declines when a large chain supermarket opened a store in the neighborhood. Fred initially considered lowering prices and adding many new items to compete, at great expense and lower margins. However, a family discussion about the "mission" of Fred's Grocery caused Fred to respond in a less direct, less costly, less risky manner. Fred and his family realized that their mission was to serve the convenience needs of local, upscale neighborhood shoppers for specialty items and "fill-in" grocery items that they needed. The majority of Fred's shoppers spent an average of only $12 ($5-$25 per visit), considerably less than at the larger chain store. Fred and his family decided they would offer more services and specialty items than the larger chain store. Their array of specialty goods, prices, and services also separated them from convenience store chains like 7-11. Fred's carried all groceries to the shoppers' cars and apartments and delivered gift baskets/flowers, at no extra charge within a five-block radius of the store. They also added specialty items to their store, putting in an espresso coffee bar, wine kiosk, and food/flower gift assortments. They upgraded and limited the amount of fruits and fresh vegetable selections and added fresh, warm breads and cookies. After one year, Fred's Grocery realized its best year ever and increased both shopper traffic and average sale by 100 percent to an average of over $25 per shopper. Fred felt the new chain store was the best thing that ever happened to his business, thanks to the time he took to discuss and refine his mission statement!