Core Competences
Business: AQA A Level (2023 Specification), topic 7.3.2
Core Competences
Core competences refer to a business’ ability to combine its skills, knowledge, and processes to provide it with an advantage over competitors, known as competitive advantage.
Competitive advantage
- A business’ combination of skills, knowledge and processes will often deliver a unique selling point which is difficult to imitate by competitors.
Advantages of core competences
- Core competences allow businesses to attract and retain customers, even in a competitive market.
- Core competences allow businesses to add value throughout their production process.
- For example, Apple’s reputation as an innovative technology manufacturer allows it to add value to the products it creates, as customers are usually happy to pay a higher price for a product associated with the brand.
Disadvantages of outsourcing non-core competences
- Outsourcing products can lead to quality issues as some production processes are passed to third parties who may seek to cut costs during production at the expense of quality.
Hamel & Prahalad (1990)
- The term 'core competence' was first used by Hamel & Prahalad's 1990 paper.
- They argued that big businesses should be viewed as a collection of core competences (ability to do stuff), rather than a group of businesses or industries.
- Rumelt (1974) had previously argued that diversified businesses who operated in lots of industries performed better if the same core competences or core activities were shared across all the industries.