How to establish your core competencies and create that competitive edge

I saw a discussion on LinkedIn recently where the question was posed “what areas of a business would be the most beneficial to outsource?” It’s a question being asked by many organizations out there today as they focus on survival in this new economy.  Naturally, the comments were varied. One person who had a bad experience with it stated that nothing should be outsourced. A few others chimed in with their opinion on areas they felt were safe.

This very sensitive subject can be considered from an objective point of view thanks to the instruction of C.K. Prahalad and Gary Hamel and their work on Core Competency. Another thought leader is Michael Porter who instructs on the concept of Competitive Advantage. Naturally, I do not want you to nod off reading this so will try to keep my thoughts concise, understandable and as interesting as possible (given the subject).

In their HBR article titled “The Core Competence of the Corporation,” Prahalad and Hamel state

“The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller branches are business units; the leaves, flowers and fruit are end products. The root system that provides nourishment, sustenance and stability is the core competence. You can miss the strength of competitors by looking at only their end products, in the same way you miss the strength of a tree if you look only at its leaves.” ¹ (chart)

Did you get that? Your organization’s core competency is not the end product/service it delivers but the unique way in which it is delivered-which, in theory, none of your competitor’s can easily duplicate. These are the processes which you want to keep closely guarded. Also, consider keeping customer facing processes close as well. For example, most service companies wouldn’t consider outsourcing their reception staff. More on this below.

 Core competence requires communication and a strong commitment to “working across organizational boundaries.” ¹ Equally important is to include all levels of staff and functions. Once you understand your core competence, you can identify the competitive advantage desired for your organization. “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” ² (Michael Porter is a smart guy. You should consider reading this article.)

A successful example of these concepts is Honda who manufactures cars, lawn mowers and generators. On the periphery, those products look unrelated. However, if you understand that their core competency is “engines and power trains” ¹ then the sky opens up and one has an “Aha” moment.

Three considerations to ponder when identifying core competencies at an organization: ¹

·         “A core competence provides potential access to a wide variety of markets.”

·         “A core competence should make a significant contribution to the perceived customer benefits of the end product.” i.e. Honda and their expertise with engines.

·         “A core competence should be difficult for competitors to imitate.” This is the Golden Egg (so to speak). We all strive for this. The goal is for it to be a “complex harmonization” of specific processes or technologies that are impossible to duplicate.

How can you apply this to your service business though?

Prahad recommends that a corporation compile a list of all perceived strengths and capabilities. ¹ For example, a senior care center may feel their nursing staff is the best in the region. A hotel may feel their guest interaction campaign is unbeatable. These aggregate strengths can then be examined as building blocks. Do you see any missing pieces? If so, what? Record that information also.

Prahad does admonish Western companies for focusing too much on price/performance as a rule for judging competitiveness. This undermines or minimizes the core competency that organization might have. The article offers a technology example. In the mid 80’s, Chrysler became heavily dependent on Mitsubishi and Hyundai to manufacture their engines. ¹ Why? It would save them money. However, the engine is a critical component of a car. As a result of decisions like this from car manufacturers, corporations like Honda (which are not focused solely on price as the main driver) continue to dominate the market.

A thought for the assisted living communities; Alzheimer’s has become an important topic. How many communities in your region offer a specific memory care division? Look at this quote from an article titled Top 10 Trends in Senior Housing in 2012. “The supply of ALZ/dementia care communities is low while the demand is steady and increasing, regardless of the funding issues.” ³ What can you do with that piece of information? Think about it.

In another HBR article focused specifically on service firms and their core competencies, the author Tim Davis discusses a research study from 1990 called SERVQUAL (service quality). Findings from this research offer five attributes of service quality that influence customer satisfaction: ⁴

• Tangibles (appearance of facilities, equipment, personnel, and materials)

• Reliability (ability to perform the service dependably and accurately)

• Responsiveness (willingness to help customers and provide prompt service)

• Assurance (ability to convey knowledge, trust, and confidence)

• Empathy (caring, concern, and individualized attention)

There’s more though. The factors above should be integrated with other strategies such as “product differentiation, price, distribution, and promotion.” ⁴

Taking all of the above into consideration, you can begin to detail out what your business will do to set it apart from your neighbor. Naturally, this is a fluid strategy. One of the best attributes a company can have is the ability to change direction when they realize a path they are taking is not working-or maybe it’s working but not as well as you’d like. I love the term “tweak.” Allow yourself to tweak your plans until it feels right and the results show you’re on the right path.

A few more thoughts/ideas from the Tim Davis article: ⁴

·         Consider rotating staff through the various departments in your organization. This will not only give them a greater understanding of the challenges each unit faces but also could spark some innovative ideas that may result in a big payoff for your company.

·         Even though Wal-Mart hires mainly part-time employees, they incentivize them to stay because they promote from within. Those hourly, non-degreed workers have the opportunity to advance into management. 60% of managers were formerly hourly employees. Additionally, the behemoth corporation offers profit sharing. This encourages loyalty and “concern for profitability.” Read more about employee retention here.

·         Give clients more opportunity to relay feedback. Then communicate this feedback to the employees during appraisals. This allows the management to hold the staff more accountable for their interactions with your guests/residents.

·         Discern between routine activities and “professional knowledge work.” Doctors hire an assistant to answer phones and schedule patients. A nurse is hired to do the preliminary consultation. This frees up the doctor to do what he does best. Diagnose and treat. Question to ask yourself-What are your routine activities? Maintenance? Landscaping? Are linens washed onsite? Do you run to the hardware store to pick up light bulbs or is that ordered online and delivered?  Many routine activities can be outsourced or the process can be examined for better streamlining.

·         Do not isolate your knowledge workers and specialists. Cross departmental communication is hampered. Critical knowledge necessary to assist a guest or resident may be delayed.

·         “Professional employees do not respond well to a command-and-control management style.” In reality, nobody does but respecting your professionals with their specialized knowledge is especially important. Consider managing “in a more collegial and less hierarchical way than other service firms. Decisions should be based on professional expertise rather than one’s level in the chain of command.” This allows for sharing of expertise and expertise trading. Harmony is beautiful!

·         Customers will gravitate to organizations where they feel their opinion is valued and respected.

Are you still with me? I know I said I would keep this short, sweet and concise. This is such an important topic though! The survival of your hospitality business or senior care center rests on your ability to set yourself apart from your competitors. Has your company defined its core competencies and established a competitive edge? Realizing this information is akin to KFC’s secret batter recipe, what experience can you share with your fellow entrepreneurs out there who are struggling to succeed and grow?

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Amy Bair is a Process Improvement Specialist. Her specialty is partnering with hospitality businesses and senior care centers to improve service, increase revenue and reduce expenses. Learn more about the services she offers and download her free report “5 Top Ways Hotels Can Increase Revenue and Improve Customer Satisfaction” at www.bpenow.com.

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1.       http://hbr.org/product/core-competence-of-the-corporation/an/90311-PDF-ENG

2.       http://hbr.org/product/what-is-strategy/an/96608-PDF-ENG

3.       http://seniorhousingnews.com/2012/01/09/top-10-trends-in-senior-housing-for-2012/

4.       http://hbr.org/product/different-service-firms-different-core-competencie/an/BH038-PDF-ENG