Core Competencies (AQA A Level Business): Revision Note

The importance of core competencies

• Core competencies are the capabilities critical for a business to achieve competitive advantage by delivering real value to customers

• They are comprised of

  • Collective learning, which is the business's knowledge, including assets such as patents and designs as well as industry know-how, built up over time

  • Technical skills, which includes production skills, unique processes and applications of technology

• The combination of collective learning and technical skills create a unique package which forms the basis of a business's core products

The features of core competencies

• A business may have numerous strengths, but they may not be true core competencies

• In order to be considered core competencies, strengths must possess three key features

Features of core competencies

Provide broad market access

• A core competency must apply across a range of products, services or geographic markets, not just one niche

  • Spreading the cost of building that skill or technology over many products makes it more valuable and efficient

  • E.g. Sony’s expertise in miniaturised electronics led to the Walkman, then the Discman and portable radios and finally to compact digital cameras, each product benefiting from the same engineering know-how

Create customer value

• The competency must directly improve something that customers care about, such as performance, reliability, ease of use, brand prestige or cost savings

  • If it doesn’t translate into a clear advantage in the market, such as higher price, greater loyalty or stronger reputation, it won’t drive long-term success

  • E.g. Dyson’s digital motor technology gives its vacuum cleaners consistently higher suction power and energy efficiency, features that customers recognise and will pay a premium for

Be difficult to imitate

• True core competencies are a combination of specific knowledge, unique culture, protected intellectual property or complex processes that rivals can’t copy quickly or cheaply

  • If competitors can replicate strengths overnight, a business loses its advantage

  • E.g. Google’s search-ranking algorithms combine years of data-science research, a huge database of user-behaviour data and enormous server networks, components no newcomer can assemble easily or at low cost

Strengths and limitations of core competencies

The benefits of developing core competencies

Problems with developing core competencies

• Loss of crucial skills through outsourcing

  • Paying other firms to handle key tasks can mean losing in-house know-how needed to fix problems fast

  • E.g. Boeing outsourced large parts of its 787 Dreamliner and then struggled to solve quality issues when they arose

• Becoming outdated as markets change

  • Developing a core competency takes time and money

  • Rapid shifts in technology or tastes can make it useless

• High initial cost with no guaranteed reward

  • Large investments in new technology or processes may never pay off if rivals catch up or demand stays low

• Inflexibility

  • Over-focusing on one core competency can blind a company to new opportunities, making it slow to adapt

  • E.g Nokia stuck with its Symbian phones and was too late to the touchscreen smartphone market