Flevy.com - Core Competencies Analysis
- 1. Core Competencies Analysis Business Strategy Framework May 24, 2012
- 2. Contents • Overview - Executive Summary - Core Competencies Tree Diagram - Key Definitions - Benefits & Limitations • Approach - Phase 1 - Phase 2 - Phase 3 - Phase 4 - Phase 5 3
- 3. Core competencies are generalized capabilities based on the company’s specific, unique set of skills and technologies Overview – Executive Summary (2 of 2) • Core competencies are the unique skills and technologies of a firm • A company derives these core competencies from its proprietary assets, people, and processes • By its definition, no two companies can have the same exact set of core competencies • The unique nature of core competencies enables companies to develop competitive advantages in the market • Core competencies are generalized capabilities based on the company’s specific skills and technologies • These generalized capabilities help the business produce, market, and sell its products or services • One core competency can support several end products—i.e., one end product can be the result of several core competencies • The competencies that are “core” to the success of the firm are those generalized capabilities that span across several end products • The relationship between core competencies and end products is best illustrated using the Core Competencies Tree Diagram 5
- 4. Three key terms need to be defined first, which provide the context for this framework Key Definitions The definitions required to understand use Core Competencies Analysis are tabulated below: KEY DEFINITIONS Core Product The tangible link between identified core competencies and end products A set of differentiating, hard-to-duplicate business processes that allow the Core Capability company to deploy core competencies—that drive its competitive advantages A distinctive set of expertise that provides access to a wide variety of Core Competency markets and contributes to the perceived customer benefits of the end product 7
- 5. Contents • Overview - Executive Summary - Core Competencies Tree Diagram - Key Definitions - Benefits & Limitations • Approach - Phase 1 - Phase 2 - Phase 3 - Phase 4 - Phase 5 9
- 6. Phase 1. Identify the company’s end products 1 2 3 4 5 Core Competencies Analysis – Phase 1 Identify the company’s end Group the end products into Identify the company’s core Identify the company’s core Determine the implications of the identified core products businesses products competencies competencies DESCRIPTION CORE COMPETENCIES TREE • We identify the products and services delivered to the end End End End End End End consumer of the company through facilitated sessions (with Product Product Product Product Product Product key management personnel, key stakeholders, and subject 1 2 3 4 5 6 matter specialists) • Note the end consumer is not necessarily the end consumer of the entire supply chain Business 1 Business 2 Business 3 Business 4 • Use discretion to ensure that only truly unique SKUs or product variations are listed as separate products—this will help decrease the effort in analysis, as well Core Product 1 Core Product 2 Core Product 3 Competency Competency Competency Competency 1 2 3 4 11
- 7. Phase 3. Identify core products 1 2 3 4 5 Core Competencies Analysis – Phase 3 Identify the company’s end Group the end products into Identify the company’s core Identify the company’s core Determine the implications of the identified core products businesses products competencies competencies DESCRIPTION CORE COMPETENCIES TREE • To identify your core products, find links among common End End End End End End products or services that is part of each end product Product Product Product Product Product Product 1 2 3 4 5 6 • Examples can be microprocessor chips, creative design, motors, lenses, etc. • You can also form a core product by grouping end products Business 1 Business 2 Business 3 Business 4 directly—in other words, skip the “business” entirely Core Product 1 Core Product 2 Core Product 3 Competency Competency Competency Competency 1 2 3 4 13
- 8. A Strengths-Weaknesses Matrix helps identify core capabilities 1 2 3 4 5 Core Competencies Analysis – Phase 4 Identify the company’s end Group the end products into Identify the company’s core Identify the company’s core Determine the implications of the identified core (Strengths-Weaknesses Matrix) products businesses products competencies competencies Rating Details • The Strengths-Weaknesses Matrix helps identify those capabilities where the Capability A + company has a strength or weakness Your capabilities Capability B – relative to competitors (i.e. critical success factors) Capability C 0 • The matrix ranks company performance are listed along Capability D versus primary competitors on each + the vertical critical success factor in the market access of the Capability E + matrix Capability F 0 … The rating assesses the company’s strength relative to that of competitors—the rating scheme used should be “+” (better than competitors), “-” (worse than competitors), or “0” (same as competitors) The level of analytical detail pursues when completing this matrix is dependent on the time and resources available. 15
- 9. Phase 5. Determine the implications of the identified core competences 1 2 3 4 5 Core Competencies Analysis – Phase 5 Identify the company’s end Group the end products into Identify the company’s core Identify the company’s core Determine the implications of the identified core products businesses products competencies competencies • The final step is to determine what the strategic implications of these core competencies are—i.e. what does knowing our core competencies mean to our company? • The result should drive strategic hypotheses based on the desired positioning of the company’s core capabilities in relation to the potential business impact of those core capabilities • Strategies can be developed to achieve any of the following goals: • Maintain leadership in current core competencies • Improve critical deficiencies • Decide on whether to invest or divest in struggling capabilities Identification of core competencies drives business strategy directly—therefore, it is critical that we accurately identify true core competencies. 17