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  • The term core competence gets thrown around a lot,

  • but it has a specific meaning, one

  • that's especially important for strategists and companies

  • with multiple business units or product lines.

  • CK Prahalad and Gary Hamel, who introduced the concept,

  • described the diversified corporation as a large tree.

  • The core products are the trunk and major limbs.

  • The business units are smaller branches,

  • and the end products are the leaves.

  • The core competence is the root system

  • that provides nourishment and stability.

  • It's essentially what your organization

  • knows about coordinating production and technology.

  • If you only compare end products,

  • you'll miss the real strength of your company.

  • To figure that out, start by identifying specific core competencies,

  • the five or six things at most that your company does better than anyone else.

  • These meet three requirements.

  • First, they provide access to a wide variety of markets.

  • Consider what Honda knows about engines.

  • It gives them a distinctive advantage in cars, lawnmowers, and generators.

  • Second, core competencies contribute

  • to the benefits of the product as perceived by the customer.

  • Clearly Honda's expertise in engines fits the bill here too.

  • Finally, core competencies are hard for competitors to imitate.

  • It's been tough for Honda's competitors

  • to match their engine design and development skills even

  • with bigger R&D budgets.

  • Competencies not only bind existing businesses together.

  • They also nourish new lines of business.

  • For instance, when Honda first decided to make cars,

  • they knew they were capitalizing on what they'd learned about engines

  • from years of making motorcycles.

  • Understanding your competencies can prevent you

  • from making disastrous outsourcing mistakes.

  • Chrysler, for example, considered engines an expensive commodity

  • and outsourced them to Mitsubishi and Hyundai.

  • That didn't work out so well for Chrysler.

  • Knowledge fades if it's not used.

  • In a world of intense global competition,

  • understanding core competence helps

  • you figure out how to create sustainable advantage

  • that's more than just the sum of your current products.

The term core competence gets thrown around a lot,

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The Explainer: Finding Your Company's Core Competencies

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    jbsatvtac1 posted on 2019/08/16
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