The concept of core competences and how they might be measured

In highly competitive markets core competence is the central concept for corporate strategy.[1] Core competences means particular skill or competence of a company that is fundamental to its business success,[2] for example, McDonald’s probably has a skill in real estate management that allows company to locate their restaurants in the most densely populated areas. Or Lattelecom probably has a core competence in financing and monetizing infrastructure that leads to sustainable competitive advantage.

Core competence means that each company will distinguish their internal strengths to provide more added customer value, strong differentiation and extendibility.[3] By understanding core competence it is possible to focus on what particular company does best and avoid taking challenges that are out of competence and thus more riskier. In other words, company should take only above water line risks that will most likely be in line with their core competence and should avoid underwater risks.

Usually company’s core competence changes over time however changes are not as rapid as changes in the market or product change. But it does not mean that core competence once identified will last forever, according to several authors, companies should work on developing and re-identifying their core competences in order to ensure sustainable competitive advantage.[4]

Core competence, according to author’s opinion, cannot directly be measured as such, as skill in doing something cannot be measured – there is or there is no skill or knowledge, but the outcome of exercising skill or knowledge can be measured. For example, we could say that Lattelecom has particular sills however it would be hard to measure skills skill against others, the basic measurement could be the time required to build a networks or time necessary to do financial calculations. This is a subjective measurement and really do not indicate if company is performing better or worth, true measurement should be financial one or one that can be compared.

A core competence is as a fundament element of competitive advantage and thus related to organizational performance. However competitive advantage and core competence are not necessarily the same but should be closely related to each other. So according to explained relations above, measurement of core competence is possible via competitive advantage and eventually organizational performance. A core competence what is part of corporate strategy, leads to competitive advantage (or disadvantage), in other words, leads to ability to outperform competitors on a financial basis. Competitive advantage will lead to better organizational performance that would result in revenues and positive EBITDA, however disadvantage would mean that company has performed worth than competitors. For example, Lattelecom has chosen few KPIs that are monitored on a regular basis. Those are EBITDA, NPS (Net Promoters Score), amount of broadband connections, amount of TV customers and employee engagement score. Each of these components represents different aspect of the company, EBITDA – financial aspect, NPS – ‘roughly’, company attractiveness to customers and customer satisfaction as well as loyalty, amount of broadband connections and TV customers – number of customers, and employee engagement score – internal environment ‘health’. Each of these KPIs serves as a part of corporate strategy measurement, if KPIs fall it would be true to say that company is losing its competence or business is changing and ‘old’ core competence is not able to meet Today’s business requirements. This is the case of companies like Kodak where core competence remains but it is not relevant to Today’s business.[5]

Conclusions

Each company can have only one or few competencies, however not every skill or knowledge that company has can be considered a core competence. Core competence allows company to have competitive advantage and better organizational performance. Core competencies changes over time and should be developed and re-identified continuously. Core competences cannot be measured directly, as skills or knowledge they are intangible and should be tacit thus cannot be really expressed in financial terms or KPIs so it is true to say that core competence can be measured only as a part of competitive advantage and organizational performance.


[1] Effect of Core Competence on Competitive Advantage and Organizational Performance, Sabah Agha, Laith Alrubaiee, Manar Jamhour, January 1, 2012, EBSCO database, page 192 (last visited June 23, 2013)

[2] Understanding, finding and Applying Core Competencies: A Framework, Guide and Description for Corporate Managers and Research Professionals, William B. Edgar, Academy of Strategic Management Journal, Volume 10, Number 2, 2011, EBSCO database, page 61 (last visited June 23, 2013)

[3] Effect of Core Competence on Competitive Advantage and Organizational Performance, Sabah Agha, Laith Alrubaiee, Manar Jamhour, January 1, 2012, EBSCO database, page 192 (last visited June 23, 2013)

[4] Effect of Core Competence on Competitive Advantage and Organizational Performance, Sabah Agha, Laith Alrubaiee, Manar Jamhour, January 1, 2012, EBSCO database, page 193 (last visited June 23, 2013)

[5] Is Your Core Competence Still Relevant? Ram Charan, Forbes, March 19, 2013, available on the Internet http://www.forbes.com/sites/ramcharan/2013/03/19/is-your-core-competence-still-relevant/ (last visited June 23, 2013)

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