One of the most misunderstood management concepts is that of core competency. The following three features define a core competency:
- It is a source of competitive advantage
- It cannot be easily replicated by competitors
- It is applicable across a wide range of fields
The concept of core competency does not tell companies not t diversify. Instead, it gives companies a framework to aid in rational diversification. Several companies have used this concept to diversify meaningfully. Honda defined its core competency as its ability to make great engines and it has used this rationale to get into new businesses like generator sets, lawn mowers, outboard motors, etc. ITC has defined its core competency as its distribution reach and has used it to expand into other FMCGs like mints, salty snacks, biscuits, etc. 3M has defined its ability to innovate as its core competency and its product range is consequently mindboggling.
Several other companies have also expanded successfully by using other rationale to map out their growth. Reliance has used the concept of backward and forward integration. Telco has expanded their passenger car business to offset the cyclical risk they face in their business of commercial vehicles.
It is important to note that not all businesses need to have a core competency. It is not strange for a successful company to have no core competencies. Similarly, a given company may have more than one core competency.
‘Core competency’ does not say that you should stick to your original business and not expand. Instead the message is to find out:
- What is it that you do better than others that makes you successful in what you do
- In which other sector will it also help you to be successful
Now you have a valid reason to expand.
So Coco Cola is not an example of a company that is sticking to its core competency. At best it is an example of a company that either failed to identify its core competency or one that is cautious in its expansion plans.
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