Core Competencies and Areas of Competitive Advantage
Posted by Hemant Puthli on July 14, 2012
Quite often, people confuse core competencies with areas of competitive advantage. Here’s a simple clarification that, hopefully, people find useful:
- Core competencies are those that an individual or an organization excels at, when compared to their other competencies (purely “internal” comparison)
- Areas of competitive advantage are those where an individual or organization excels, when compared to others in the environment who do that same specific thing (purely “external” comparison)
Here’s an illustration: let’s say I’m a sports nut, and like to play many different games. Of those many different games, let’s say I play two games with a certain degree of proficiency — basketball and soccer. Of these two games, let’s say I am far better at basketball than I am at soccer. So in this case, my core competency is basketball. If I go to a place where everybody else plays great basketball, but very few people play soccer of any standard, then I would really excel as a soccer player and would probably quickly become famous as such. The same people may not think much of me as a basketball player, though I may have a pretty high opinion of my own basketball game. Basketball may be my core competency, but my competitive advantage comes from my soccer game.
This difference is important to remember in strategy formulation — especially when it comes to outsourcing strategy. Mistakes are often made by those who confuse one for the other, and such mistakes could be very costly and at times irreversible. You may outsource your core competency (just because you’re better at it than you are at other things doesn’t mean that someone else isn’t better at it than you), but not your areas of competitive advantage (this is what you do better than others who do the same thing, though it may not be the best thing you do, of all the things you do).