They consist of business processes and routinesthat manage the interaction among resources to turn inputs into outputs. For example, a company’smarketing 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 aparticular function. Thus, there are marketing capabilities, manufacturing capabilities, and humanresource management capabilities. When these capabilities are constantly being changedand reconfigured to make them more adaptive to an uncertain environment, they are calleddynamic 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 corporationmay be the consequence of integrating management of information systems (MIS)capabilities, marketing capabilities, R&D capabilities, and production capabilities within thedivision. 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 exceedinglywell. Thus, new product development is a core competency if it goes beyond onedivision.4 For example, a core competency of Avon Products is its expertise in door-to-doorselling. 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 acore rigidity or deficiency, that is, a strength that over time matures and may become a weakness.5Although it is typically not an asset in the accounting sense, a core competency is a veryvaluable resource—it does not “wear out” with use. In general, the more core competenciesare used, the more refined they get, and the more valuable they become. When core competenciesare superior to those of the competition, they are called distinctive competencies. Forexample, General Electric is well known for its distinctive competency in management development.Its executives are sought out by other companies hiring top managers.6Barney, in his VRIO framework of analysis, proposes four questions to evaluate a firm’scompetencies:1. Value: Does it provide customer value and competitive advantage?2. Rareness: Do no other competitors possess it?3. Imitability: Is it costly for others to imitate?4. Organization: Is the firm organized to exploit the resource?
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