Distinctive Competence (Encyclopedia of Business)
Distinctive competence is a set of unique capabilities that certain firms possess allowing them to make inroads into desired markets and to gain advantage over the competition; generally, it is an activity that a firm performs better than its competition. To define a firm's distinctive competence, management must complete an assessment of both internal and external corporate environments. When management finds an internal strength that both meets market needs and gives the firm a comparative advantage in the marketplace, that strength is the firm's distinctive competence. Taking advantage of an existing distinctive competence is essential to business strategy development. Firms can possess distinctive competence in a wide variety of areas, including technology, marketing, and management.
From 1949 to 1957, Philip Selznick studied vastly differing organizations, from the Communist Party to the Tennessee Valley Authority. He noticed that as these institutions developed, there was a gradual emergence of special strengths and weaknesses in each one of them. Thus, he coined the term "distinctive competence" in 1957. Kenneth R. Andrews elaborated on this concept in 1971, when he posited that distinctive competence included more than just the strengths of an organization. In his view, distinctive competence was the set of activities that an organization could perform especially well in relation to its competitors. In 1976, Howard H. Stevenson released a study that examined the strategic planning of six companies. He found that top managers had a wide variation in perception of their own organization's strengths and weaknesses, and not surprisingly, in their distinctive competencies as well.
Strategy can be defined as the tool managers use to adjust their firms to ever-changing environmental conditions. Unless a firm produces only one type of merchandise or service, it must devise strategies at both the corporate and business levels. Corporate strategy defines the underlying businesses and determines the best methods of coordinating them. At the business level, strategy outlines the ways that a business will compete in a given market. Strategic planning is often closely tied to the development and use of distinctive competencies, and having an area of distinctive competence can present a major strategic advantage to any firm.
To devise corporate strategy, firm managers must consider a host of influences in their surrounding environment that can affect the firm's ongoing operations as well as the internal strengths and weaknesses that characterize the firm. When assessing the external business environment, management must analyze the given situation, forecast potential changes to it, and either try to change the situation or adapt to it. The assessment must include an evaluation of current and projected market needs and an evaluation of any existing comparative advantage over competitors.
Moreover, to determine the best strategy for their firm, managers must realistically assess their own firm's status. A firm's internal strengths and weaknesses make it better suited to pursue some strategic paths than others. When looking for a match between opportunities and capabilities, managers must try to build upon the strongest qualities of the firm and avoid activities that rely on more vulnerable areas or are adverse to the firm's existing corporate culture. Further, it is important for managers to account for potential problems involved in carrying out a strategy before they embark upon it. Thus, managers should examine potential strategies, while keeping in mind their firm's history, its culture and experiences, and its basic proficiencies. Once this assessment is complete, management must decide which opportunities in the business environment to pursue and which ones to pass up. Even if a firm does not have a distinctive competence, as is the case for many, it must devise its overall strategy to build upon its strengths and best use its resources.
Obviously, many successful business strategies are built around a determined distinctive competence. To truly succeed, a firm will have a competitive advantage over its rivals, giving it some sort of strategic advantage. Logically, strengthening a competitive position is made a great deal easier for a firm with one or more distinctive competencies. Having a distinctive competence can allow a firm to follow a different path than rival firms, utilize a strategy difficult for them to imitate, and end up in a better position over the long term. If other firms in the marketplace do not have a similar or countervailing competence, they will have a very difficult time remaining competitive.
DEFINING AND BUILDING DISTINCTIVE COMPETENCE
To define a company's distinctive competence, managers often follow a particular process. First, they identify the strengths and weaknesses of their firm. Next, they determine the strategic importance of these strengths and weaknesses in the given marketplace. Then, they analyze specific market needs and look for comparative advantages that they have over the competition. Importantly, while managers generally follow this process, they often undertake more than one step simultaneously.
Distinctive competence can be built in a number of ways. Firms can hire more qualified professionals than those employed by competitors; they can find and exploit previously neglected market niches; and they can be especially innovative or can gain advantage over competitors through sheer strength of management. There are numerous areas in which a firm can have a distinctive competence. Some companies have distinctive competence because they manufacture a product with superior quality. Other firms excel in technological innovation, research and development, or new product introduction. Still other firms have advantages in low-cost production, customer support, or creative advertising. For example, McDonald's distinctive competence is its system of controls for operating its fast-food restaurant franchises, which gives the company an unusually high profit margin.
PREDICTING FUTURE DISTINCTIVE COMPETENCE
Since business environments and marketplaces are always changing, the challenge for strategists is to maintain the firm's distinctive competence. As defined earlier, distinctive competencies are distinctive skills and capabilities firms can use to achieve an unusual market position or to gain an advantage over the competition. Thus, a firm's advantage comes largely from the fact that it has differentiated itself from its competition. It follows that if the environment changes such that numerous rivals have obtained competencies identical to those characterizing a particular firm, the firm is in a very poor position and would do well to reconsider its strategy.
Future strategic success requires that firms keep their distinct advantages over their rivals. Thus, firms must continuously assess their surrounding environments. They must be aware of potential shifts in industrial standings and must realistically evaluate whether the distinctive competency continues to yield an advantage. They should also look to new markets and evaluate the potential use of their distinctive competencies in those markets.
As business conditions and markets change, many of the strengths and weaknesses that characterize a firm will also change. Through strategic planning and leadership, management will be able to determine how the basis for competition may be changing and whether the firm's distinctive competencies need to be realigned. Indeed, some vulnerabilities and strengths will be exaggerated, while others will be eliminated. Success in these changing conditions can only come from taking advantage of opportunities highlighted by close scrutiny of a firm's internal and external environment. The most successful firms will be those that are able to locate and use distinctive competencies found in these assessments.
SEE ALSO: Strategy; Strategy Formulation
updated by David P Bianco]
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