How does a business stand out in a crowded marketplace? For many seasoned business leaders, the answer is simple: Lean into your strengths.
If your company does something really well, you can embrace that and build your brand identity around it. Maybe you offer the highest quality products. Maybe your customer service is second to none. Figure out what you do better than anyone else, and let the world know about it.
A business’s strengths are sometimes called its core competencies—a figurative north star that guides a company’s leaders as they seek to distinguish themselves from competitors. Here’s an explanation of core competencies, with tips for zeroing in on the core competencies your own business possesses.
Core competencies are the unique strengths, skills, and capabilities that give a business strategic advantages in the marketplace. Business leaders like CEOs and department heads strive to identify their company’s core competencies and embrace them for long-term success.
The term “core competencies” was popularized in 1990 by management theorists C.K. Prahalad and Gary Hamel in their influential Harvard Business Review article, “The Core Competence of the Corporation.” Prahalad and Hamel posit companies should focus on unique internal capabilities that deliver superior value. Such core capabilities might include the ability to make innovative products, a strong company culture, and existing brand recognition among target customers. The authors give Sony as an example: “Among Sony’s competencies is miniaturization. To bring miniaturization to its products, Sony must ensure that technologists, engineers, and marketers have a shared understanding of customer needs and of technological possibilities.”
In an individual context, personal core competencies refer to a person’s standout abilities that support career growth or job performance. Examples include leadership, critical thinking, adaptability, and the ability to build strong relationships among colleagues. Many workers strive to develop core competencies to make themselves more attractive to hiring managers and supervisors at their existing jobs. From a management perspective, helping employees’ professional growth can improve the core competencies of the overall business.
For Zach Miller and Skyler Hallgren, founders of emergency preparedness brand Redfora, supplementing their personal core competencies with strategic hires proved critical to success. On an episode of the Shopify Masters podcast, Zach describes how the growth of their company highlighted the need for additional skills: “As demand came in, we realized, ‘What are our core competencies? What are we actually good at? What is a really important part of the business that maybe is not our core competency?’ The first hire that we brought in was our customer success manager.” By hiring someone with a core competency outside Zach and Skyler’s own areas of expertise, they were able to provide far better customer service.
According to the management theory laid out in Prahalad and Hamel’s HBR article, a company’s core competencies must have three distinguishing qualities:
Your company’s core products and services provide legitimate value to customers. The specific products that you sell should help buyers solve problems and unlock new capabilities. For example, if your company sells ethically sourced skin care products, you can allow customers to feel beautiful while staying true to their values.
It’s critical that your core competencies lead to more sales and improved financial health. This means they should be applicable across different product lines or business segments. For example, if your core competencies include innovation and creative design, you should direct those capabilities toward everything you make. If you make an ergonomically advanced video camera, make sure that your still-image cameras share those features.
Core competencies help your brand stand out in its industry. The products and services you offer should not be easily copied by your competitors. However, your core competencies can go beyond the things you sell. You can stand out from the pack via your company’s values or your team performance management, and that means investing in great leaders who can guide your business and shepherd every employee who walks through your doors. A great corporate culture can be just as hard to imitate as brilliant products.
One of your duties as a business leader is to identify core competencies within your organization. Here’s a five-step approach for doing so:
Gather candid feedback from your customers using surveys, interviews, and focus groups. What do they value most about your products or services? Why do they choose you over competitors? Is it your exceptional customer service, product quality, speed of delivery, specific features, or pricing?
Once you’ve solicited opinions, process the customer responses. They will give you clues about your core competencies and unique value proposition. For instance, if your customers consistently praise your responsiveness and personalized attention, you might flag “exceptional customer relationships” as a core competency.
You hinted at your business’s core competencies when you drafted its mission statement. Your mission statement articulates your guiding principles as a business owner or manager. Revisit that document for insight into the fundamental strengths you originally envisioned for your business.
For example, if your mission is “to provide the freshest, ethically harvested coffee through sustainable practices,” your core competencies might revolve around strong supplier networks, efficient logistics, and real-world experience with sustainable agriculture.
A SWOT analysis (strengths, weaknesses, opportunities, threats) is an excellent tool for auditing your business’s core competencies, as well as its weaknesses. Focus first on the “strengths” component to isolate your company’s core competencies.
For example, if you manufacture your own products, you may see a strength in your proprietary, highly automated production processes. Perhaps your methods significantly reduce costs and increase speed compared to competitors. This means your company’s operational efficiency could be a core competency.
Use market analysis to see how your offerings compare to those of your competitors. Look at their products, processes, marketing, and customer interactions. Figure out what makes you different.
Perhaps your business enjoys a highly reliable network of suppliers that can get you raw materials at very reasonable rates. Perhaps, upon assessing your competition, you discover they don’t have access to the same affordable, high-quality ingredients. With this knowledge in mind, you might decide that two of your core competencies are controlling resources and offering low prices.
You will need to consistently monitor your core competencies to make sure they hold up over time. Staying ahead of the pack can require refinement. For example, if a new business enters your market sector offering robust AI integrations, this could threaten your core competency of being at the vanguard of new technology. To address this, you might ask your employees to take courses focused on AI skills.
You can also let your workers inform decisions related to core competencies. For instance, your human resources might report challenges in aligning workers around shared goals. If you consider teamwork to be a core competency, you may need to brainstorm new ways to get your staff to work as a cohesive unit. Resting on your laurels puts your business at risk of falling behind; the most enduring businesses make a steadfast commitment to excellence and success.
Understanding common core competencies will help you determine which ones your business has. Consider the following:
Innovation. Innovation is the ability to develop and bring valuable products, services, or processes to the market.
Quality. This is the ability to consistently produce superior products or services.
Customer service. Brands aren’t just built on products and prices; they can also rise and fall on customer service.
Agility. An agile business can evaluate the marketplace and pivot as needed.
Data analytics. This core competency involves leveraging customer data to improve the sales funnel and even create new product lines.
Buying power. Companies with this core competency can negotiate highly favorable terms with suppliers due to bulk purchasing or exceptionally strong, long-standing relationships.
Social change. Businesses that genuinely drive social change can attract a dedicated customer base, ethical investors, and top talent who align with their values. This opens up new market segments focused on conscious consumption.
Brand equity. Some brands are nearly synonymous with the products they make, giving them a built-in edge on the competition.
Business leaders often look to things like innovation, pricing, agility, data analytics, buying power, customer service, social change, and a strong workplace environment when developing their core competencies.
Core competencies are important because they help your company appeal to consumers, deliver value, and make your business hard to imitate.
You can identify your core competencies by conducting a SWOT analysis, interviewing your customers, comparing your company to its competitors, and returning to your mission statement for guidance.
