Santosh Rathod

A core competence is the result of a specific unique set of skills or production techniques that deliver value to the customer. Such competences give an organization access to a wide variety of markets. Hamel and Prahalad (1990) refer to a number of organizations and their products to support their concept including NEC, Honda and Canon.

Core competences are interesting from a traditional marketing point of view since it could be argued that they take a product or production orientation rather than a market orientation. If you focus on production techniques and skills then aren’t you looking at your business from an internal point of view? The answer is yes. However, the core competences give a business a competitive advantage in a number of markets, markets where customers perceive a benefit from the product. So if needs are being met better than the competition, there is an argument that core competences are indeed market-oriented. There are at least three tests of a core competence.

Three tests of core competence.

• Provides potential access to a wide variety of markets.
• Should make a significant contribution to the perceived customer benefits of the end product.
• Should be difficult for competitors to imitate.

For example, Microsoft has expertise in many IT-based innovations and technologies. Customers perceive many benefits in relation to Microsoft’s products. For a variety of reasons including unique skills, it is difficult for competitors to imitate Microsoft’s core competences.

When trying to identify a core competence, it is often easy to mistake them for scarce or unique resources i.e. resources rather than skills or production technologies. Also often skills and production technologies do not amount to a core competence or resource because they do not comply with one or more of the three tests. They are the thresholdsthat the organization must achieve to remain competitive. Threshold competences andscarce resources may not provide access to a variety of markets, may not be so significant to customers and may be less difficult to imitate.

In summary there are core competences and scarce resources, and threshold competences and threshold resources.

In order to be competitive an organization needs material resources such as premises, a factory or offices - depending on the nature of business of course. Material resources tend to be the most straightforward to achieve. Then an organization needs to achieve the right balance between Human Resources, training and recruitment. This state is more difficult to achieve. Intangible resources, including core competences are the most difficult and challenging to achieve. This is depicted in the diagram above. In fact they drive competitive advantage.

References.

Prahalad, C.K. and Hamel, G (1990) The Core Competence of the Corporation, Harvard Business Review, May/June.

Stalk, G, Evans, P and Shulman, L, Competing on Capabilities, Harvard Business Review, March/April.

A common question among people starting a business whether or not they should incorporate. Incorporation means that your company is a separate legal and financial entity from yourself. Legally a corporation is treated as a citizen. It even has its own social security number for tax purposes, called a Federal Tax ID.

Most people incorporate to limit their personal liability so that they shield their personal assets. For instance, if your incorporated business was sued and found liable for damages, the winner could not take your personal car or home. Furthermore, incorporating creates a more professional image, and often helps with your taxes. If you plan to receive outside investment to grow your business corporation is the way to go. Incorporation protects you in many regards, but it does not protect you from any criminal charges by you or the corporation. You can’t hide behind your corporation to commit illegal acts and expect to be free from liability.

By investing cash or other property in your corporation you become an owner of an interest. In exchange for your personal investment you are issued stock in the corporation. A person with that ownership interest is called a stockholder or shareholder. Once you become a shareholder your liability is normally limited to the value of the cash or other property you have contributed to the corporation in exchange for stock.

As a general rule, the shareholder’s assets not invested in the corporation are safe from the corporation’s creditors. A shareholder may become personally liable for corporate debts if the corporation is not formed in compliance with or it operates in violation of applicable statutes, or if the corporation is functioning as a mere front for its shareholders rather than for corporate purposes. In other words, if you are simply creating a corporation to avoid liability, may become personally liable.

Under certain circumstances, corporate officers may be held personally liable for the corporation’s failure to pay state and federal income tax withholdings. Additionally, a shareholder may be required to personally guarantee a loan of the corporation in order to satisfy a lender. If a shareholder does so, his liability is no longer limited to the value of his investment in the corporation.

The business affairs of your corporation are managed by the board of directors and officers. The directors are elected by the shareholders. For this reason, while shareholders have the ultimate control of a corporation because of their stock ownership, the every day management lies with the board of directors through its officers. In small corporations the shareholders, directors and officers are often the same persons.