Core Competency

Buzz words are the most abused! “Core Competence” is not unlike any other buzz word ever since Prahalad and Hamel introduced it in The Core Competence of the Corporation, Harvard Business Review, May/Jun90, Vol. 68 Issue 3, p79, 13p. Igor Ansoff made early contributions to this theory in a book from 1965 McGraw Hill publication, “Corporate Strategy: An Analytic Approach to Business policy for Growth and Expansion”. That was not the point of this article though. This is my attempt to translate the idea of core competence into a line and staff management concept.

In my mind core competence is an asset that differentiates an organization from its competition and create a sustainable edge. Various functions constitute an organization. All the way from Marketing, Finance, Information Technology, Operations, Logistics, External relations, etc. each of these add a unique value through the services they render to the organization. These organizations have their own overheads.

In today’s world almost everything is expansible. About 25 years ago corporations did everything from making, packing, advertising, shipping and in some cases even sourced their own raw materials. Our ability to better understand and control the right performance measures has made it possible to outsource and collaborate with partners through the process of making, packing, advertising and shipping. Inspite of this business enlightenment we continue to hold certain functions and activities within the corporation.

The ratio of overhead dollars of a particular function to revenues as the headcount in the function varies is an interesting plot. A comparison of these curves simultaneously for multiple functions is an interesting exercise. Staff organizations typically end up with curves that have positive slopes, the line organizations end up with a 0 or negative slopes. Core competencies will have potential discontinuities and sharp piecewise negative slopes.

Let the slope be the driver!