Core Competency Test

I recently went through a re-read of the much acclaimed work of C.K.Prahalad and Gary Hamel "Competing for Future", thought would pen down some of their thoughts through my words and experience!!

Prahalad and Hamel (1990) suggest that the roots of competitve advantantage can be found in the core competencies(dubbed as C2 by practitioners) of a firm. These can be equated to deeply rooted abilities which lie behind the products that a firm produces and which enable the firm to diversify into new markets, by reapplying what the firm does best. Because these competencies are "latent" they are difficult to imitate and they should be seen by management as an integral part of the firm's resources. The authors view core competencies as the culmination of the collective learning of the organisation; in particular, that involving the coordination of different production skills and the integration of multiple streams of technology, which involves a commitment to working effectively across organisational boundaries.

It is always difficult to differentiate core competencies from the rest, hence @SMR we have come up with a much more easier and practical way: The VGD(Value, Gateway,Differentiation) Test. A competency that passes the VGD test could be a "Core Competency" for a given firm.

Ask yourself for a given firm:

Value - Does this competency Produce Significant value to customers?

Gateway - Does this competency acts as a Gateway for survival and future of the organisation?

Differentiation - Does this competency differentiates the organisation from its competitors?

A competency must satisfy all the 3 conditions, to be designated as C2.

Example: Microsoft

Microsoft claims "Innovation" is their core competence(Anti MSFT people take note!!). When we apply VGD Test in this case, by boxing all kinds of innovation on top of its windows platform Microsoft creates immense value for it customers, and this rapid innovation pace(Which some times baffle customers) is definitely the gateway for Microsoft's survival in the cut throat IT industry. Finally the only differentiating factor between Microsoft and its competitors is it s ability to innovate faster. Microsoft spends some thing like USD 6.8 billion a year on its research efforts to be position itself on the frontiers of innovation. Bill Gates once rightly remarked "Microsoft is always 18 months away from going out of business", that is the speed they need to innovate.

Example: Sony

The next example that comes to my mind immediately is Sony Corporation. Just try to think what Sony's core competence is?? After a while you will conclude that it is "Miniaturization" anything and everything that sony does it tries to make it as small , sleek and stylish for us. When bulky radios ruled the world sony has come up with a revolutionary product called as "WalkMan" which swept the world. You can see anything ranging from Cameras to Playstations sony does is relatively small, sleek and stylish than any of its competitive products, that is core competence and that allows sony to pitch its price up than its competitors. You can apply VGD conditions and can see they perfectly pass "Miniaturization" as sony's core competence.

Quite Amusing isn't it, C2 is so hidden in to the firm, so hidden that you cant figure it out or imitate it(atleast immediately) to rip the firm of its competitive advantage.

Will write more regularly in the future!!!