Many small businesses price their goods and services as a mark-up to their production or delivery costs or slightly lower or higher than their competitors. However, identifying and cultivating their business’ core competencies and translating those into competitive advantages allow companies to increase their margins and achieve higher profits. Understanding their businesses’ strengths and weaknesses and how these relate to competencies and advantages can help companies build loyalty, deepen relationships and achieve greater success.
Definitions of Both
A core competency is a capability that a company performs extremely well in furthering its mission and objectives. A core competency enables a business to complete tasks and activities at a superior level. A company that has distinctive competencies typically provides products and services to customers which stand out from those provided by its competitors. Core competencies help companies achieve competitive advantages when the firm’s core competencies are different from those held by competitors. A competitive advantage is a recognizable difference in products, services or similar characteristics that distinguishes a business from its competitors.
Strengths and Weaknesses
Strengths are resources and capabilities that a company has or has developed. Weaknesses are resources and capabilities that a company lacks or does not have enough of. In order to determine its core competencies and translate these into competitive advantages, a company must first assess its strength and weaknesses. Strengths typically provide the basis of a core competency but not always. Sometime companies address their weaknesses and convert these into advantages.
Companies can use a variety of methods to identify and assess their strengths and weaknesses. Owners and managers can conduct an internal SWOT – strength, weaknesses, opportunities and threats – assessment. A SWOT analysis can be time consuming but is also thorough and therefore, can provide insights not previously available. Owners and managers can also do a 360 degree assessment involving internal and external input. Companies craft a survey or set of interview questions and ask suppliers, customers, prospects and employees what they believe the company does well, does poorly and what sets the company apart.
Identifying what a company does well does not automatically make those into strengths. For example, a company’s accounting department bills and collects quickly. However, this is not due to strong policies and procedures but is due to the action of one billing clerk. Until that behavior becomes systemized is not a core competency but the competency of one individual. In addition, if most of the company’s competitors also have the same skill, that skill has no additional competitive value. That skill is required to simply remain competitive.
Typically companies encounter the most success by building and enhancing their strengths to use them to exploit the weaknesses of their competitors. Of course, a company’s competitors can do the same. Therefore, owners and managers must take actions to resolve their most glaring internal weaknesses.
- Business Dictionary: Competitive Advantage [http://www.businessdictionary.com/definition/competitive-advantage.html]
- University of Delaware: Chapter 9 – Core Competencies and Resource Allocation [http://udel.edu/~fdemicco/Resources/Entries/2009/9/4_PowerPoint_Presentations_files/Chapter09_dr_DeMicco.ppt.]