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In the second of his lectures for Saïd Business School, Clayton Christensen gives an insight into the ‘panda’s thumbs’ of management thinking- dated practices that hinder management decision-making and the profitability of companies. He gives the examples of managers focusing too heavily on gross margins rather than net profit and refusing to reduce their production costs as a way of avoiding disruption by smaller companies. He then gives an insight his Job to be Done theory.
Core Competency Analysis – An Overview
A clear identification and thorough understanding of an organization’s core competencies is central to obtaining a competitive advantage and sustaining performance excellence. Understanding core competencies and using them well frequently results in marketplace differentiators which often deliver greater returns on the capital invested in a firm’s operation. Decisions about organizational core competencies are integral to executive decision-making and operational management.
What are Core Competencies?
The term “core competencies” refers to your organization’s areas of greatest expertise. An organization’s core competencies are those strategically important internal capabilities that are central to fulfilling its mission or a distinctive competence that provides a firm a competitive advantage in its industry. Core competencies frequently are challenging for competitors or suppliers and partners to imitate. Absence of a needed core competency may result in a significant strategic challenge or disadvantage in the marketplace.
Core competencies may involve technology expertise, unique service offerings, a marketplace niche, or a particular business acumen (e.g., business acquisitions). Core competencies focus on an organization’s internal capacities and deep proficiencies that enable a company to deliver unique value to customers. Core competencies also contribute substantially to the benefits a company’s products offer customers.
The distinguishing characteristic of an organization’s core competencies are that they develop overtime and represent the continual accomplishment of a firm’s critical success factors. Another distinguishing characteristic of a core competency is that it’s hard for competitors to copy or procure.
Core Competency – An Example, Southwest Airlines
Southwest Airlines enjoys the US Airline industry’s best cost advantage. This advantage is not solely due to its production and efficiencies but also due to many other internal competencies that are distinctive to the company – including the industry’s fastest turnaround time.
Fast Turn Around Time: defined as the time from when a plane lands to when it leaves again. Due, in part, to a variety of factors such as the use of un-congested airports, minimal food service, and early check-in, the company can turn around a plane in less than 30 minutes – compared to the industry average of more than 45 minutes.
Consider the financial impact if this 15 minute advantage –
A carrier with 2,000 flights per day that uses each of its planes for 10 hours per day. The carrier with a 15 minute advantage would save 500 hours per day turning its aircraft. This carrier would need, perhaps, 50 fewer airplanes (500 hours saved/10 hours per day of flying per plane) to offer the same number of Revenue Per Passenger Miles. If each plane costs approximately $50 million, this would translate into a savings of $2.5 billion in assets.
This is an example of how understanding core competencies can allow a company to invest in the strengths that differentiates it in the industry.
To develop core competencies a company must:
- Determine which internal capacities are key strategic factors to creating and sustaining value.
- Conduct an organization wide core competency assessment and isolate strengths and weaknesses.
- Benchmark against other companies with the same capacities to ensure that the firm aims to develop key factors.
- Create an organizational road map that sets goals for competence building.
- Isolate these key factors and hone them into enterprise-wide strengths.
- Encourage involvement in core competency development across the enterprise.
Core Competency Analysis – Rates of Usage and Satisfaction:
Source: Bain Management Tools 2011
Since 1993, core competency analysis and management exists as one of the 25 most popular and pertinent management tools. In a recent Bain & Company survey, core competency analysis and management is a management tool consistently used by more than half to almost 80% of executive respondents, with an overall satisfaction rating range averaging almost 80%. Decision makers achieve better results by championing this method as part of a realistic strategy rather than just viewing it as a tool to simply achieve a strategic goal.
Analyzing Core Competencies:
Though realizing core competencies has its rewards, what is just as important to understand is the other side of the coin – core in-competencies. Whereas core competencies can empower an organization to create and sustain value, core in-competencies can disable an organization’s ability to achieve its mission. Too often core in-competencies and their related dysfunctions are tolerated or swept under the rug. Core in-competencies need to be found, rooted out, and replaced by competent and functional methods for managing an organization’s resources.
TPMG’s multiyear research gathered data and information regarding the most proven methods and best practices in industry. Over time, our research has provided a number of important insights. Among them includes the need for an organization to analyze and build core competencies around the following areas:
- Leadership Effectiveness: leadership analysis is a concise evaluation of how senior leader’s actions guide and sustain a firm. The analysis gives attention to how senior leaders communicate with their workforce, measure organizational performance, what performance indicators they regularly review and how their performance review findings are used to drive improvement.
- Workforce Capability and Engagement: this assessment examines a firm’s systems for engaging and empowering its workforce with the aim of enabling their employees to contribute effectively and to the best of their ability.
- Organizational Systems and Structures: the assessment of organizational systems and structure examines a firm’s work systems, technology, and work process decisions with the aim of creating value for customers and sustaining organizational success.
- Operational Performance: an assessment of how well a company’s core internal functions accomplish their respective missions and strategic objectives. How productively and effectively a company’s internal operations contribute to profit objectives. How efficiently a company’s core operations deliver its value proposition to its customers.
- Customer Satisfaction and Relationships: the extent to which how companies determine customer satisfaction and how they build relationships to retain current business and develop new opportunities.
- Innovation: the assessment of innovation goes directly to a firm’s ability to satisfy the voice of the customer based on its current strategy and long-term plans. This analysis is directly related to the alignment of new additions of a firm’s product portfolio with corporate business strategy as well as the management of the product or service life-cycle.
- TPMG LLC Manual, “The Performance Management Balanced Scorecard, A Practical Guide to Strategic Planning, Strategy Deployment and Performance Management.” TPMG LLC Publications 2010.
- Bain & Company, “Management Tools 2011.” Published by Bain & Company Inc. 2011
- TPMG Educational Services, “Knowledge Space Research Project” Published by TPMG Educational Services 2008 – 2012.
For more information regarding Core Competency Analysis & Consulting Services, contact TPMG LLC at www.helpingmakeithappen.com.