How to build sustainable competitive advantage through core competencies of enterprises

In the global business environment of the 21st century, competition among enterprises has become unprecedentedly fierce. Especially with the development of information technology, accelerated globalization, and rapid changes in market demand, enterprises face significantly increased uncertainty and complexity. According to McKinsey’s Global Competitiveness Report, over 60% of companies believe that traditional competitive methods such as price wars and marketing alone are no longer sufficient to maintain a sustained competitive advantage. So, how can companies break through this dilemma? The answer is to establish a sustainable competitive advantage based on the core competencies of the enterprise. This is not only a consensus among leading enterprises, but also an effective method repeatedly verified by the strategic management academic community.

The concept of “core competencies of enterprises” was first proposed by C.K. Prahalad and Gary Hamel in 1990. At that time, they published an article titled “Core Competence of Companies” in the Harvard Business Review, emphasizing that companies cannot rely solely on product competition, but must rely on their internal “hidden abilities” that are difficult to replicate to win the market. It is precisely because core competencies are scarce and unique that enterprises can maintain a long-term leading position in fierce competition.

The purpose of this article is to provide a systematic methodology for business managers, strategic decision-makers, and industry researchers, clarifying what core competencies are, why they are the key to sustainable competitive advantage, and how to explore, cultivate, and utilize core competencies in practice to achieve long-term strategic goals for enterprises.

1、The Connotation and Characteristics of Enterprise Core Competence

1.Definition of core competencies

Core competencies of an enterprise refer to the unique knowledge system, technological capabilities, management methods, and organizational culture that an organization possesses through long-term accumulation and integration. These abilities combined enable businesses to create unique customer value in the market.

What: What are core competencies? It is not a single skill, but the result of the collaborative integration of multiple abilities.

Who: Who possesses or masters these abilities? Usually held within the key teams, technical backbones, or senior management of the enterprise.

When: When was it formed? Most of them gradually accumulate through long-term strategic investments, organizational learning, and market trials in enterprises.

Where: In what aspects is it reflected? Reflected in multiple dimensions such as enterprise products, services, brand reputation, technology patents, and operational processes.

Why: Why is it important? It determines the core competitiveness and market survival ability of the enterprise, and is the foundation for sustained growth.

2.Characteristics of core competencies

① Difficult to imitate

Core competencies are typically based on unique historical paths, proprietary technologies, corporate culture, or complex business systems that are difficult for competitors to replicate. For example, Coca Cola’s formula and brand culture have become one of its core competencies.

② Can create unique value for customers

Core competencies enable enterprises to design and provide products or services with unique competitiveness in the market, meeting the key needs of customers. Core competencies help businesses meet specific customer needs, create irreplaceable products or services, and strengthen customer loyalty. Taking Apple as an example, its design capabilities and user experience innovation have become the core sources of consumer loyalty.

③ Can be expanded to diverse markets

Excellent core competencies can be applied across industries and regions, supporting enterprises in exploring new business areas and market spaces. Excellent core competencies are not limited to a single market, but have transferability. For example, Amazon initially started as an online bookstore, but expanded into multiple industries such as cloud computing (AWS) and logistics through its supply chain and platform capabilities.

3.The difference between core competencies and general competencies

Strategic vs Tactical: Core competencies are usually directly related to corporate strategy, determining its competitive position in the market; And general abilities are often only related to daily business operations or tactical execution.

Long term competitiveness vs Short term response capability: Core capability is the foundation for enterprises to achieve long-term sustainable competitive advantage, while general capability can only solve short-term operational problems and cannot support the long-term development of enterprises.

Strategic core competencies are key resources that determine the long-term success or failure of a company; And general ability is the basic ability for the daily operation of enterprises.

Core competencies support enterprises in building long-term competitiveness, while general competencies address more short-term efficiency or effectiveness issues.

For example, JD’s logistics and delivery capabilities are its core capabilities, while customer service is its general capability.

2、Identification and evaluation of core competencies of enterprises

1.Path for identifying core competencies of enterprises

Step 1: Resource Based View (RBV) Analysis

The resource-based view theory holds that the scarce resources and capabilities possessed within a company are the fundamental basis for sustained competitive advantage. Specific steps:

List the tangible resources (equipment, funds) and intangible resources (brand, technology patents) currently owned by the enterprise.

Analyze which resources are scarce, unique, and difficult to replace.

Step 2: Value Chain Analysis

Professor Porter’s value chain theory can help companies identify where they have created the highest customer value in their business processes. The process is as follows:

Draw a complete value chain diagram of the enterprise from research and development, procurement, production to sales and services.

Analyze step by step which activities can most enhance the value of the product or service.

Step 3: Dynamic Capability Framework

Emphasizing the ability of enterprises to identify, develop, and restructure resources and capabilities in a dynamically changing environment is an important method for maintaining the sustained competitiveness of core competencies. Dynamic capability emphasizes that enterprises need to constantly adapt to market changes, restructure and optimize resources. How to operate?

Regularly conduct external environment scans (technology trends, competitive dynamics).

Internal reflection on enterprise resource allocation, timely adjustment of products, technologies, and market strategies.

2.Evaluation criteria: VRIO model

How to determine if an ability is a core ability? It can be verified through the VRIO model.

① Value

Can this ability help businesses seize market opportunities or resist market threats, and create customer value? For example, Adidas’ brand influence and design innovation can continuously increase product premiums.

② Rarity (scarcity)

Is this ability scarce in the industry and only possessed by a few competitors? For example, TSMC has globally leading semiconductor process technology and is highly scarce.

③ Imitability (difficult to imitate)

Is it difficult for competitors to obtain the same ability through replication or imitation? For example, Disney’s IP resources and content creativity stem from its unique culture and talent, which are difficult to imitate.

④ Organization (Organizational Support Capability)

Does the enterprise have a systematic management mechanism and process to ensure the efficient application of core competencies? Does the enterprise have a reasonable organizational structure and management system to fully utilize this capability? For example, Huawei ensures the continuous output of its technological innovation through a strong research and development system.

3、The Relationship between Enterprise Core Competence and Sustainable Competitive Advantage

1.How to transform core competencies into competitive advantages

Only by effectively applying core competencies to value creation and competitive strategies can enterprises transform into sustainable competitive advantages. Enterprises transform their core competencies into competitive advantages through three steps:

Step 1: Extract a unique value proposition

Based on core competencies, create a unique value proposition. For example, Xiaomi creates a brand image of “technology popularization” through high cost-effectiveness and fan culture.

Step 2: Shaping a moat in market competition

Build competitive barriers through technology, branding, channels, and other means. For example, Tencent utilizes its social ecosystem to create user stickiness.

Step 3: Scale replication and continuous optimization

Copy successful models in multiple markets and continuously iterate and optimize capabilities. For example, Starbucks achieves store replication and brand output through standardized operations and global supply chain optimization.

2.Methods for maintaining and consolidating competitive advantages

Dynamic optimization: Continuously improving core capabilities, such as Nike’s continuous investment in innovative research and development to enhance product performance and design experience.

Continuous innovation: Enterprises should establish a cultural mechanism that encourages innovation and supports cross departmental collaboration and technological innovation.

Organizational learning: Through an internal knowledge management platform, systematically accumulate experience and improve organizational learning capabilities, such as Google’s implementation of the “20% innovation time” policy, which encourages employees to innovate spontaneously.

3.Avoid “core rigidity”

With the evolution of the market and technological environment, the core competencies of enterprises may solidify into “core rigidity”, hindering their transformation and innovation.

Proactively updating ability combinations: avoiding ability rigidity due to path dependence. Nokia lost the market due to its failure to transform into smartphones in a timely manner.

Enhance flexibility and adaptability: For example, Huawei responds to global market changes and achieves breakthroughs through diversified strategies.

4、Strategic Path for Building Sustainable Competitive Advantage

1.Differentiation strategy

By leveraging core competencies to achieve uniqueness in products or services, we aim to enhance customer perceived value and brand premium capabilities.

Step process:

Analyze market pain points and customer needs.

Develop distinctive products or services based on core competencies.

Continuously strengthen brand image and user experience.

For example, Tesla achieves product differentiation and creates brand premium through battery technology and autonomous driving capabilities.

2.Cost leadership strategy

Utilize core competencies to improve operational efficiency, reduce production and management costs, and form cost advantages.

Step process:

Reduce costs through large-scale production and technological optimization.

Optimize supply chain management and compress intermediate links.

Introduce information technology and automation methods to improve operational efficiency.

For example, Wal Mart relies on global procurement and a strong supply chain system to achieve cost leadership.

3.Focus on strategy

Focusing on specific niche markets, utilizing core competencies to deeply explore customer needs, providing customized solutions, and winning customer loyalty.

Step process:

Accurately targeting user groups in segmented markets.

Deeply understand the pain points of the target customers.

Design customized products or services based on core competencies.

For example, Huawei’s enterprise business focuses on government and enterprise customers, providing end-to-end ICT solutions.

4.Ecosystem and Platform Strategy

By building a platform based business and ecosystem, integrating upstream and downstream resources of the industrial chain, and enhancing the overall value creation capability of the enterprise.

Building an enterprise ecosystem based on core competencies: utilizing core competencies to closely connect partners, suppliers, and customers, forming value co creation.

The application of core capabilities of platform based enterprises: For example, Alibaba has established a competitive advantage covering multiple dimensions such as e-commerce, finance, logistics, etc. with its strong digital technology capabilities and business ecosystem construction capabilities.

Step process:

Create platform based products to attract users and third parties to join the ecosystem.

Establish a partnership alliance to achieve resource sharing.

Ensure platform stability and scalability through core competencies.

For example, Alibaba integrates sellers, buyers, payment, logistics and other ecosystems through e-commerce platforms to form a competitive closed loop.

5、Conclusion and Suggestions

Core competence is the strategic cornerstone for enterprises to achieve sustainable competitive advantage. By identifying, evaluating, and dynamically optimizing core competencies, companies can stand out in fierce competition and maintain long-term growth momentum.

Enterprises should attach great importance to the cultivation of core competencies and continue to increase investment in technological innovation, talent introduction, and management optimization.

Establish an organizational learning and knowledge management system to promote capability upgrading and innovative breakthroughs.

Proactively embrace digital and intelligent transformation, and solidify core capabilities with new technologies.

In the era of globalization and digitization, the core competencies of enterprises will become a watershed for the success or failure of market competition. Only by continuously refining and innovating core competencies can enterprises stand invincible in the uncertain business environment of the future.

This article "How to build sustainable competitive advantage through core competencies of enterprises" by AcloudEAR. We focus on business applications such as cloud ERP.

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