There is a close relationship between core competence and competitive advantage because both of these provide an edge to the company over other companies in their field by distinguishing them from their competitors. There are several areas that companies can focus on to get an advantage over their competitors. Companies can stand out from the rest when they possess unique characteristics because of which they are considered better than their competitors. Core competencies refers to these unique qualities of a company, which may be in the form of skills or resources because of which a company gains a competitive advantage. When companies are successful at developing their core competencies, they are more likely to get past the competition and acquire benefits like higher market share, increased profits, and customer satisfaction and loyalty.
For example, the core competency of a technology company could be the design of high-speed microprocessors or efficient Internet search algorithms, both of which are difficult to replicate. Businesses can develop core competencies by identifying key internal strengths and investing in the capabilities valued by their customers.
Identify which of competencies are core. Prahalad and Hamel provide us with these questions to get us started:
- How long could we dominate our business if we did not control this competency?
- What future opportunities would we lose without it?
- Does it provide access to multiple markets?
- Do customer benefits revolve around it?
- Ability to design and write complex software that’s easy to use, think of Apple again
- High-quality optics, think of Nikon or Canon
- 3M has a few widely shared core competencies like substrates, coatings and adhesives and leverages them to create a wealth of new products each year.
How to Test Core Competencies:
- Provide potential access to a wide variety of markets and give you the ability to leverage the full potential of the capability on a large scale
- Should make a significant contribution to the perceived customer benefits of the product and provide value not easily found elsewhere
- Difficult to imitate by competitors
A competitive advantage distinguishes a company from its competitors. It contributes to higher prices, more customers, and brand loyalty. Establishing such an advantage is one of the most important goals of any company. In today’s world, it is essential to business success.
Examples of Competitive Advantage
- Access to natural resources that are restricted to competitors
- Highly skilled labor
- A unique geographic location
- Access to new or proprietary technology
- Ability to manufacture products at the lowest cost
- Brand image recognition
Competitive Advantage in the Marketplace
Three great examples include:
- McDonald’s: McDonald’s main competitive advantage relies on a cost leadership strategy. The company is able to utilize economies of scale and produce products at a low cost and as a result, offer products at a lower selling price than that of its competitors.
- Louis Vuitton: Louis Vuitton’s advantage relies on both differentiation and a differentiation-focus strategy. The company is able to be a leader in the luxury market and command premium prices through product uniqueness.
- Walmart: Walmart’s advantage relies on a cost leadership strategy. Walmart is able to offer ‘everyday low prices’ through economies of scale.