The term “core competencies” was coined by academic researchers C.K. Prahalad and G. Hamel in an article published in the Harvard Business Review in 1990. Core competencies are the skills and processes that are used to develop a company's core products and services -- those products and services that give the business a competitive advantage over other businesses and are important for the long-term growth of the company.
Prahad and Hamel argue in their paper that the ability to identify and exploit core competencies is the key to a corporations' growth. Core competencies create value and cause a customer to chose your company's products over another. These competencies are most likely to be in core areas of the company. For example, for a software company, a core competency could be producing high-quality code, or code that is simple to use. For an electronics company, a core competency could be in designing high-quality electronic components. These can then be used in all of the companies' products to add value.
Core competencies are generally not a single process but a combination of processes, technologies and skills. Core competency arises from the integration of different parts of the business, such as design with technological innovation. For example, Apple's sleek design, coupled with innovative products, and Sony's ability to miniaturize electronics are core competencies for those companies. A core competency should assist the company in gaining access to a wide variety of markets; contribute to the benefits of the end-product; and be difficult to imitate.
Core competencies are used to develop core products. These products may not be sold directly to consumers but are used in products that are sold to consumers. For example, Microsoft's operating system may be considered a core product. It is used in personal computers and may be one reason why people chose to buy a particular computer. Honda has a reputation for building high-quality gasoline motors; this is a core competency for the company. These are used in cars, lawnmowers and motorcycles. People who like Honda motors will be more likely to choose these products.
A company's core competencies are not fixed. They change over time as a company adapts and changes to a changing business climate. Core competencies should enable a company to create new products and services. For example, the Houston Advanced Research Center is a nonprofit organization that develops technology that supports sustainability. Its core competencies of technological development, policy research and project management skills make it possible for the HARC to develop new technologies and gain the support of state government.
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