Why do certain consumers choose to watch movies and shows on Netflix rather than Amazon Prime? This not only has to do with customer preferences but also core competencies. Most businesses have a certain characteristic or function that makes them stand out from competitors. This is known as a core competency. Let's find out more!
Core Competency Definition
A core competency is a certain activity or characteristic of a business that makes it stand out from competitors and helps it gain a competitive advantage.
A core competency is unique to the business and provides the business with an advantage in the marketplace. It is something that a business can strategically do well and a way to outperform competitors. A core competency should also be an essential part of the business's operations for generating sales and revenue.
A certain competence that is an essential process to the operations of a business but not unique to the business is NOT considered a core competency.
Some examples of core competencies may include:
Continuously successful innovation
The ability to bring products to market quickly
Good customer service
High-quality products
Great user experience and easy to navigate website
Quick order fulfillment turnover
Features of core competencies
According to Kotler and Keller (2016), a core competency has three characteristics: ¹
It is a source of competitive advantage and makes a significant contribution to perceived customer benefits.
It has applications in a variety of markets.
It is difficult for competitors to imitate .
Sometimes businesses may need to realign themselves to optimize their strategy and core competencies. During this realignment process, businesses may need to redefine their business concept, reshape their scope and reposition their brand identity. This is all part of strategic planning in business. Strategic planning is important for businesses, as setting clear business objectives helps with decision-making. When you have a clear understanding of your core competencies you might be able to come up with and implement your business strategies more effectively.
Core Competencies Example
In this section, we will outline some examples of core competencies that well-known businesses use to create a competitive advantage.
Apple
Apple is a very successful company that operates in the consumer electronics industry. One of their main core competencies is rapid innovation. Apple is constantly innovating new technology for consumer electronics, from both the hardware and software side. For example, the company releases a new iPhone almost every year, which emphasizes the fast pace of innovation on the hardware side of operations.
Another core competency of Apple's is the 'ecosystem of complementary products' that they offer. Due to Apple's compatibility with other Apple devices, the company attempts to encourage consumers to buy only Apple products. Apple products come with features like iTunes or iCloud, which make it very simple to transfer data from one device to another - may it be a phone or a laptop. The usability and connectivity of all Apple devices also make it challenging for competitors to acquire existing Apple customers, strengthening this core competency for Apple
Netflix
Another example of a successful company that has strong core competencies is Netflix. Netflix first built their main core competency by transforming all physical content (namely, DVDs) into digital content and making all of it accessible in one place (their website). This online platform has since become and stayed one of the company's biggest core competencies. The platform is a source of competitive advantage as it is very difficult to imitate by competitors, especially now as Netflix has a selection of original movies and shows.
Another core competency is Netflix's subscriber base. Netflix has around 209 million subscribers globally. Acquiring over 200 million subscribers is also very hard for competitors to imitate. The platform enables the company to ensure its effective value chain and sustain a competitive advantage
Core Competencies Analysis
An effective way of analyzing a company's core competencies is through a SWOT analysis.
SWOT Analysis
A SWOT analysis is a great way of analyzing a business's competitive position. SWOT stands for strengths, weaknesses, opportunities and threats. A company's core competencies would most likely fall into the strengths factor of the SWOT analysis.
When you are conducting a SWOT analysis you can create a SWOT matrix to help you visualize your business's characteristics.
Strengths will include things that your business does really well or in a way that is unique compared to your competitors - including your core competencies. They are internal elements of the business. Strengths are an essential part of your business and can include things like offering a higher quality product for the same price as your competitors or having a quicker production process compared to your competitors. These are departments or aspects where the business has successfully implemented its strategy and reached its objectives.
Weaknesses will include things that your business does not do so well. They are also internal factors of the business. Weaknesses prevent an organization from performing at an optimal level. These are factors, strategy or processes within the business that the business needs to improve on to remain competitive. Weaknesses could include things like low customer service ratings or a weak brand image. These are aspects that the business needs to set objectives for to improve.
Opportunities include factors that are favorable to the organization and could prove to become an opportunity for growth, development and competitiveness. Opportunities are elements in a business's external environment that have the potential to allow the business to formulate new strategies and objectives and help them gain a competitive edge. Opportunities can include things like increasing demand for your product in a new market or positive publicity for your company.
Threats include factors that are not favorable for the business. Threats are also elements in the business’s external environment. Threats are factors that have the possibility of endangering or harming the profitability and competitiveness of the business. Threats may include things like an increase in the number of competitors in the industry or changes in legislation that prevent the business from performing at an optimal level.
To continue with the previous companies mentioned as core competency examples, Figure 1 below shows a basic SWOT analysis for Apple.
SWOT analysis Apple
Core Competences - Key Takeaways
- A core competency is a certain activity or characteristic of a business that makes them stand out from competitors.
- A core competency has three characteristics: it is a source of competitive advantage and contributes to perceived customer benefits; it is relevant in a variety of markets; and it is hard for competitors to imitate (Kotler & Keller, 2016).
- An example of a core competency would be Apple's ability to innovate rapidly or Netflix's ability to generate a huge subscriber base.
- A business can analyze its core competencies through SWOT analysis.
- Strengths and weaknesses are internal factors to the business and include things your business does really well and needs improvement on.
- Opportunities and threats are external factors to the business and include factors that are favorable to the organization and factors that could potentially harm the organization.
¹ Philip Kotler & Kevin Lane Keller, Marketing Management, 2016.
² Veronica Newton, Apple Inc. VRIO Analysis - Core Competencies & Competitive Advantages, 2021
³ Rimma Kats, Netflix statistics: How many subscribers does Netflix have? Worldwide, US member count and growth, 2021
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