leadingtoday.org

Leadership Tip of the Month

June 2004

Copyright 2004ã weLEAD, Inc.

Discovering Your Core Competencies

Organizations have the special capability and knowledge to perform a certain type of activity very well. It is a leader’s role to discover and define exactly what this capability really is! This is what is known as a core competency and this is what the company should leverage. It typically involves the blending of certain technical and applications skills. Researchers Hamel and Prahalid define the core competency as “the collective learning in the organization, especially [knowing] how to coordinate diverse production skills and integrate multiple streams of technologies.”

However, there is an important difference between the tangible resources of a company and its core competency! Tangible resources are depleted as they are used, whereas core competencies tend to increase when used correctly. Why is this important? Knowing and exploiting your core competencies can give you an ongoing competitive advantage if used to provide high-quality services or products that can’t be quickly duplicated or copied by competitors. But this can’t happen if the organization’s leadership does not correctly identify and build a strategy around it’s own core competencies.

Here is what truly understanding your core competencies can accomplish…

1. Discovering this special capability can help the organization to focus on what it really does well and avoid diluting its resources on a poor strategy.

2. If your organization is already prosperous, it can help you to remain competitive and guide you on the right kinds of businesses to diversify into.

3. If your organization is in decline it can revitalize itself by discovering and focusing on its core competencies. This often means shedding the business of markets, products or services that are not a part of the new strategy.

Great care must be taken not to poorly define the organization’s core competencies and here are a couple of examples. Circuit City has a demonstrated core competency selling electronics to the retail market in its many megastores. However, in 1993 it entered the used car market and eventually opened 23 CarMax stores in seven states. By 1998 they accepted the fact that this decision was a large mistake, as CarMax’s losses were pulling down Circuit City’s results. Perhaps a strategy had been built upon a misguided core competency like the “operation of super efficient megastores with sophisticated distribution systems”. Whatever the reason, the core competency of Circuit City had been defined improperly and this was a costly error.

Starbucks is a highly successful company roasting and selling specialty coffee to the retail market in its many convenient locations. Recently they attempted to sell prepackaged sandwiches made each morning at a central location and then sent to stores to sell throughout the day. But the attempt failed for two reasons. Starbucks isn’t structured to sell sandwiches and customers wanted fresh sandwiches which would require additional space, storage and training. Founder Howard Schultz opined, “We recognize more than ever that our core competency is roasting and selling the best coffee in the world”.

For weLEAD, this is Greg Thomas reminding you that it was Eric Hoffer who wrote, “Our greatest weariness comes from work not done”.

References:

C.K. Prahalad and Gary Hamel, “The Core Competence of a Corporation,” Harvard Business Review, May-June 1990, p. 82.