What is a Core Competency?
The Core Competency of an organization is that single, unique activity that defines it. It takes the form of very few words, such as: “At Molson’s, we make beer”. For the good folks at RANA, we define our core competency as “Process Intervention”, which means that we help organizations with the business transformation that they wish to achieve.
Why should you have a Core Competency?
Every organization needs to focus on the single thing that it does well and avoid getting distracted by activity that is off-side. A focus on the organization’s Core Competency allows its people to concentrate on what is the most important: the delivery of the organization’s key product or service. Some organizations have diversified to the point of not having the necessary skills or experience to do a good job in the new field of endeavour; this has meant inevitable failure and in most cases a huge financial loss.
What about Vertical Integration?
Vertical Integration takes place when an organization takes a basic product and develops it by filling in the input and/or the output end of its production. For example, a farm may produce milk and in order to maximize profit, may decide to grow grain to feed the milk cattle and install a yogurt production facility to make use of the primary product. Vertical Integration is compatible with a Core Competency focus, because it actually highlights the key product of the farm, which is milk. The farm now owns both the supply and distribution of its product.
And what about Value Adding?
Value adding is somewhat similar to Vertical Integration and it means the enhancement a business gives its product or service before offering it to its customers. So, one might argue that the current trend for large distribution or “box” stores to sell a greater range of products and services is value adding. For example, automobile dealerships commonly offer value-added products and services such as service contracts and extended warranties or again, vehicle accessories or engine enhancements.
What happens when you lose your Core Competency?
An organization needs to be very careful in how much it vertically integrates or adds values to its products and services so that it doesn’t dilute its Core Competency. Many organizations whose senior executives got afflicted by the mergers and acquisitions virus discovered that not all value adding, or what they thought was value adding, contributed to the bottom line. In fact, some of their organizations suffered spectacular failures. The understanding of the Core Competency of the organization and how to add value to it effectively needs to be a fundamental conversation at the Executive Level of the organization as part of the (at least) annual refit of the Business Plan, supported by factual evidence from a thorough environmental scan of the fiscal environment.