In reality, the concept of core competencies is directly related to the theory of strategy that, in turn, prescribes the steps the firms need to take for gaining competitive advantage in the marketplace. This concept is pretty simple and straightforward. According to it, organizations need to play according to their strengths. They need to focus on functions and areas in which their strengths are based. The theory of core competencies will clearly define what forms a competency and how difficult it is going to be for the competition to emulate it in any way.
When organizations develop core competencies, they can use them across the markets in which they operate. Also, through these competencies, they are able to pass on the direct benefits to their customers. Therefore, companies must try hard to develop strategies and use them to tap into core competencies and thereby provide value to their firm.
Businesses that are small, generally have core competencies surrounding a few business functions, like manufacturing or marketing. Interestingly, the development of core competencies for an organization can be a result of many factors, like the way organization responds or reacts to various market conditions or the personal experiences of the business owner. For example, a particular business that may not have enough experience in tax accounting may have the ability and experience in producing products efficiently and of fine quality. Similarly, there may be other companies that may not have much experience and expertise in manufacturing but are well-versed in tax accounting and so on.
It was Gary Hamel and C K Prahalad who coined the term core competency and defined it for all organizations to follow. The concept of core competencies that companies employ will, in all probability, include processes that are totally different from their competitors, its customer relationship management, and its technical superiority. In simple terms, it means that each company will have areas in which they have a distinct advantage over their competitors. It is this strength of the company that provides value to customers after buying products or services from them. The concept is, therefore, all about leveraging the company’s core strengths and working on them for their benefit.
One of the most important part of a lean business philosophy is outsourcing. The thing that separates lean businesses from others is their ability to focus on core competencies while leaving non-essential business functions under the care of trusted third-party service providers. Businesses opt for outsourcing these days because it helps them reduce costs and save time. These businesses can always avoid hiring extra staff to get the job done. Instead, the non-core business functions can be outsourced to companies that can do a better job at it. You can outsource work both at personal and organizational level. In the above example, the manufacturing company can consider availing the services of a public accountant to help them handle tax requirements efficiently. Similarly, the financier may consult a marketing expert to get his company going.