They consist of business processes

They consist of business processes and routines
that manage the interaction among resources to turn inputs into outputs. For example, a company’s
marketing capability can be based on the interaction among its marketing specialists,
distribution channels, and sales people. A capability is functionally based and is resident in a
particular function. Thus, there are marketing capabilities, manufacturing capabilities, and human
resource management capabilities. When these capabilities are constantly being changed
and reconfigured to make them more adaptive to an uncertain environment, they are called
dynamic capabilities.3 A competency is a cross-functional integration and coordination of capabilities.
For example, a competency in new product development in one division of a corporation
may be the consequence of integrating management of information systems (MIS)
capabilities, marketing capabilities, R&D capabilities, and production capabilities within the
division. A core competency is a collection of competencies that crosses divisional boundaries,
is widespread within the corporation, and is something that the corporation can do exceedingly
well. Thus, new product development is a core competency if it goes beyond one
division.4 For example, a core competency of Avon Products is its expertise in door-to-door
selling. FedEx has a core competency in its application of information technology to all its operations.
A company must continually reinvest in a core competency or risk its becoming a
core rigidity or deficiency, that is, a strength that over time matures and may become a weakness.5
Although it is typically not an asset in the accounting sense, a core competency is a very
valuable resource—it does not “wear out” with use. In general, the more core competencies
are used, the more refined they get, and the more valuable they become. When core competencies
are superior to those of the competition, they are called distinctive competencies. For
example, General Electric is well known for its distinctive competency in management development.
Its executives are sought out by other companies hiring top managers.6
Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’s