Core Competence and Competitive Advantage

Some types of competitive advantage, such as those associated with the economics of scale and scope, are rooted in market positions. Others are rooted in business models; still others in the processes or competencies of organizations. Although the value of market positions and the relevance of business models can wax and wane, “tacit” competencies - internal processes - have been thought to be more enduring because they are harder to copy. Nevertheless, it turns out that competence residing in proprietary processes is also built upon temporary underpinnings.

DuPont, for example, enjoyed years of unparalleled capability to formulate new organic compounds. Its scientists did their work through collaborative trial and error. A scientist would mix and heat things in a beaker, draw a fiber out and then consult with colleagues who had expertise in various dimensions of organic chemistry about what the material might do, and how it could be improved. Over time, however, DuPont’s strength, which had resided in the patterns of interaction and collaboration among its scientists, came to be embodied in quantum theory. Now that the science of how atoms combine in molecular structures to create materials with particular properties is well defined, success is open to all. Any company can specify the properties needed in a material and then use theory-based algorithms to determine which atoms need to bond with which atoms in which patterns.

Similarly, a company such as BMW might say that its competitive advantage resides in its internal processes for designing unique automobiles. Indeed, there has been a “BMW-ness” to its designs that other companies’ processes have not successfully replicated. The process of designing a new automobile is fixed cost intensive and historically has entailed extensive interaction and collaboration among large groups of engineers. However, in order to reduce costs and improve its ability to design safe automobiles, BMW recently has created a system that enables its engineers to use computer simulations to crash-test the cars they design - before physical models are built. The simulations enable BMW’s engineers to observe the crashes carefully and to improve designs - a wonderful system. But a capability that formerly resided in the interaction among the company’s engineers is now embodied in algorithms - which not only flatten the scale economics associated with product design, but could make BMW’s core competence more broadly available. In general, scientific progress that results in deeper, more fundamental understanding transforms into explicit, codified and replicable knowledge many things that once were accomplished only through proprietary problem-solving routines.

By Clayton M Christensen (2001) Via MIT Sloan Management Review ; Winter 2001 (The Past and Future of Competitive Advantage)

Tags: BMW, Clayton Christensen, competency of organization, competitive advantage, DuPont, internal process, MIT Sloan Management Review, tacit competency