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Core Competencies

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Business Studies

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

  1. It is a source of competitive advantage and makes a significant contribution to perceived customer benefits.

  2. It has applications in a variety of markets.

  3. 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.

Core competency, Apple SWOT analysis, StudySmarterFigure 1. SWOT Analysis Apple, StudySmarter

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

Core Competencies

A core competency is a certain activity or characteristic of a business that makes them stand out from competitors. 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 outperform its competitors on, as it is difficult for competitors to imitate. A core competency should also be essential for the business to generate sales and revenue. 

An example of a core competency would be Apple's ability to innovate rapidly. 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 example of a core competency would be Netflix's vast platform of digital content or large subscriber base. These qualities are unique to the company and difficult for competitors to imitate. 

Core competencies are important in businesses because they help businesses sustain a competitive advantage. Core competencies are unique to the business and hard for competitors to imitate, giving the business a competitive edge. This is important from a strategy point of view, as it helps businesses remain operational and competitive. 

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). 

Final Core Competencies Quiz

Question

What is a core competency?

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Answer

A core competency is a certain activity or characteristic of a business that makes them stand out from competitors.

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Question

Name two examples of a core competency. 


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Answer

  • Quick order fulfillment 

  • Good customer service

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Question

Which of the following is not a core competency? 

  1. Great customer service. 

  2. Large customer base.

  3. Rapid innovation. 

  4. A broad strategy.

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Answer

D.

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Question

What are the three main characteristics of core competencies?


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Answer

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).

Show question

Question

What would a business have to do to realign itself and strengthen its core competencies?


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Answer

Redefine the business concept, reshape their scope and reposition their brand identity.

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Question

Name an example of a company and define two of its core competencies. 


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Answer

Example: Apple and its rapid innovation and the 'ecosystem of complementary products'.

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Question

Name one of Netflix's core competencies.


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Answer

Their platform or their large subscriber base.

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Question

Which framework would you use to analyze a business's core competencies?

  1. SWOT 

  2. PESTLE

  3. Ansoff matrix 

  4. None of the above. 

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Answer

A.

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What does the 'S' stand for in SWOT analysis?

  1. Scope 

  2. Strengths 

  3. Strategy 

  4. Social factors

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Answer

B.

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Question

How would you use a SWOT analysis to explore a business's core competencies?


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Answer

A SWOT analysis is useful for analyzing the strengths, weaknesses, opportunities and threats of the business and its environment. SWOT analysis can help strengthen the core competencies of the business and help define objectives and strategies to help the business with its weaknesses.

Show question

Question

Strengths include anything that your business does really well or in a way that is unique compared to your competitors.

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True

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Strengths and weaknesses are internal elements of the business whereas opportunities and threats are external elements of the business. 

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True

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Factors that are avorable to the organization and could prove to become an opportunity for growth, development and competitiveness are called...

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Answer

Strengths

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Factors that have the possibility of endangering or harming the profitability and competitiveness of the business are called...


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Answer

Threats

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Strengths of a business include its core competencies. 

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Answer

True

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Question

High quality product is an example of a business's

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Answer

strength

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Changes in legislation that prevent the business from performing at an optimal level is a ... to the business. 

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Answer

threat

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Technological advancement can be ... to a business.

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a threat

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Software incompatibility is an example of a business's

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strength

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Components of SWOT analysis that the business does not have direct control over are ...

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threats and opportunities

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Components of SWOT analysis that the business have a direct control over are ...

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strengths and weaknesses

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During this realignment process, businesses may need to ... their business concept, reshape their scope and ... their brand identity 

Show answer

Answer

redefine, reposition

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Question

What is not a correct statement about 'Strengths' in SWOT analysis?

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Answer

Strengths are external elements of a business.

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Question

Businesses can work on its weaknesses to improve future performance. 

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Answer

True

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Question

A core competency does not have to be an essential part of business operations. 

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True

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Question

If a certain competence is essential to a business's operations but is not unique in the industry, is it considered a core competency of the business?

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Answer

No

Show question

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