Every company I have ever worked with believes it is special. And every company I have worked with does something really well. But is that enough to make it special? Does that make it so unique that it stands head and shoulders above its competition? Usually, the answer is “no.”
That’s because a lot of companies have core competencies, but few have distinctive competencies. Here’s why the difference is important:
Core competencies are things that companies do well, and relates to the core of their business. Typically, a core competency is a specific set of skills or capabilities that provide additional value to the customer. Usually, these core competencies are developed over a period of time as companies go through continuous improvements or refining of their skills. We consider core competencies to be strengths or advantages businesses can use to enhance their position in the marketplace. For example, a law firm that specializes in sports and entertainment, would have a better position in those markets than a firm that provided a broader range of business law. Companies that are exceptionally good at problem solving, reducing defects in production, implementing supply chain strategies, or developing complex algorithms, may all claim to have core competencies.
Many companies that have core competencies think that’s enough to give them a solid competitive advantage. But core competencies are not enough to differentiate a company in a highly competitive market. Companies that rely on their core competencies to position themselves as strong competitors are deluding themselves. Every company has some sort of core competency, so the marketplace is flooded with them. it’s hard to grab a competitive advantage when other companies are claiming similar skills and capabilities.
Distinctive competencies, on the other hand, provide the competitive advantage that companies desire. A distinctive competency provides “uniqueness” and capabilities that exceed a core competency. A core competency can become a distinctive competency when it meets these four tests:
- Uniqueness – It must be unique and superior to what competitors offer. Are your competitors unable to provide it?
- Valuable – It must contribute a disproportionate value to the customer. Does it give the customer a competitive advantage?
- Imitability – It must be difficult or costly for a competitor to develop or implement it. Is it too expensive or too much of an effort for your competition to imitate you?
- Extendability – It must be a skill or capability that allows you to enter new markets or develop new products/services. Can you use it to grow the business?
If you can answer yes to each of these, then you have a distinctive competency, which can be used to generate a substantial competitive advantage. Some distinctive competencies are obvious, for example, a patent is a distinctive competency because it is unique and provides value; and it cannot be replicated or copied by a competitor (during the term of the patent). Others are more subtle, for example, a company may have the unique ability to attract and retain highly trained and competent engineers in a cutthroat technical labor market.
Good companies have core competencies. Great companies have distinctive competencies. In a hypercompetitive environment, every company should be striving to take its core competencies to the next level, achieving sustained competitive advantages through distinctive competencies. Companies that spend the time and money on building distinctive competencies will find themselves in superior positions and able to expand their markets beyond their competitors. As a CEO, you should be identifying your core competencies, and making investments to grow one or more of them into distinctive competencies.