1.The origins of key competence.

In the early 1990s, the debate and the search for factors of competitiveness has intensified. There was a point of view that success is guaranteed to all those who know how to shape the market of the future and dominate them. An innovative concept based on this point of view was first put forward by Gary Hamel and K. K. Prahalad. They concluded that the real sources of competitive advantage lie not in successful investments in attractive projects, but in the ability to consolidate resources into key advantages, thereby giving individual industries the potential to adapt to changing market conditions [1].

Core competence, according to scientists, plays an important role in competitive advantages of the company. Core competence is an original, highly effective combination of rare and unique resources that the organization will be able to use more skillfully than it’s competitors. Competence is most often formed within the organization, but can also be acquired from the outside, through cooperation with suppliers, intermediaries and buyers .

For example, the core competence of Honda is a unique experience in the development and production of compact gasoline engines. Intel’s core competence is the development of microprocessors for personal computers.  The core competence of Sony is the development of electronic technologies and innovative products (game consoles, miniature radios and camcorders, TVs and DVD players, PCs). 

2.The main characteristics of the core competence.

Prahalad and Hamel focus on the three conditions that a core competency must meet. It must:

1) provide consumers with clear benefits;

2) have unique features that can not be copied by other firms;

3) provide the company with access to new markets in the future.

A prime example of core competence is Apple Inc. In fact, if Apple were a country and its market capitalization (total value) was converted to GDP, it would be the 20th largest country in the world. It has more than 100,000 employees worldwide and generated revenue of $ 233 billion in 2015. Apple has very strong core competence:

1. Innovation. Apple has a long history of developing unique and innovative technologies, including the Mac, iPod, iPhone, iPad, Apple TV, and Apple Watch. Apple founders Steve Jobs and Steve Wozniak developed the Apple 1 in 1976 and went on to develop the Apple Macintosh and other revolutionary technical devices. Even when it’s not the first company to develop the particular product, it can design it in a new unique way, and make a huge commercial success (for example, the release of the iPhone almost killed sales of Blackberry devices for several years).
2. Brand recognition. Fans of Apple products tend to be very loyal to the brand. According to a 2014 Morgan Stanley Research study, Apple’s iPhone has a 90% brand retention rate compared to Samsung, LG, etc. Apple has the brand loyalty that can be envied by corporations around the world.

Hamel and Prahalad became an example for other researchers. A number of new definitions and possible approaches emerge. Having analyzed other works of foreign researchers, we can distinguish the following characteristics of the key competence：

1. Singularity or uniqueness. Even a small change can be a source of another unique resource. This ensures the complexity of reproduction.

2. Value, i.e. adds unique properties to the company’s product and is of strategic importance;

3. Plasticity, the ability to transfer to other products and markets, allows companies to work in several markets at the same time;

4. Cannot be copied. More and more companies are using patent protection to protect their key technologies from imitation.

5. Impossible to replace. Finding available alternatives is another way to emulate an opponent.

6. Dynamic, changes over time. Through organizational training or by other means, core competence can still be copied by competitors. In order to maintain a competitive advantage, it is necessary to constantly develop competence. The change in the external environment also dictates the need to adjust core competence [1].

3.  Approaches and methods to identify key competence.

There are two main approaches to the analysis (assessment) of the core competence of the enterprise in modern economics. The first one analyses core competence at the individual level, the second – at the firm level.

According to the the first approach, the holders of the core competence are individual workers, individuals who are involved in a certain work activity; therefore, the intangible assets of the enterprise are analyzed. Assessment is done through interviews, psychological tests, interviews etc.. The weakness of this approach is excessive subjectivity. It focuses only on personnel competencies, personal and business qualities, but the core competence of an organization is a much bigger concept.

In accordance with the second approach, the assessment of core competence is based on the principles of analysis of all assets of the enterprise. They can be a source of competence formation. The methodology of assessment of key competencies is widely used, in which the analysis of the market and internal business conditions is carried out, competencies are ranked, key competencies are determined and a strategic plan is developed. The advantage of this method is logical structuring, thoroughness in explaining the individual stages and determining the key competence based on the share of consumer value. The disadvantage is the complexity and subjectivity in the formation of matrices.

All methods of identifying core competence can be grouped into four categories: qualitative analysis, semi-quantitative analysis, quantitative analysis and complex analysis.

4. Qualitative methods of the core competence analysis

Some research results can be obtained only by verbal logical reasoning, this method is called a qualitative analysis. The method is easy to use and has scientific significance. Scientists often use a qualitative method in assessing key competencies as well as filling in gaps in their research. Quantitative or semi-quantitative indicators are not used, only text or icons are used to describe core competence.

1) Descriptive method

Hammer and Praharad (1990) analyzed core competence based on three criteria or characteristics that we discussed earlier: first, plasticity, i.e., core competence provides an opportunity to enter a wide market; second, value, and third, it’s uniqueness. Cannon, for example, has a core competency in optics, imaging, and microprocessor control, which makes it dominant in completely different business areas, such as copiers, laser printers, cameras, and image scanners. [1]

Dorothy Leonard-Barton (1992) also used the descriptive method in her research, identifying the core competence of five major American corporations: Ford Motor Company; Chaparralsteel; HP, measurement technologies; Chemicals, silver halides; Electronics, network technologies [2].

2) The skill tree method

The term “skill tree” was first used by Campbell and Gould in 1995. In their opinion, the source of core competence is skills or abilities. With the help of those better goods are produced and the level of service is increased. Each of these core business skills can be further broken down into “components”. Components can be further divided into groups and subgroups, forming a kind of tree. By defining “core business skills, their components and sub-components”, a company can identify and develop core competence to gain a competitive advantage in the market [3].

3) Method of hierarchical analysis

The method of hierarchical analysis is presented in the studies of Klein and Galon, who believed that the enterprise is a complex hierarchical system, the elements of which are interconnected horizontally and vertically. To identify the core competence of the enterprise, it is necessary to divide it into 3 levels: competence at the functional Department level, core competence at the unit level, core competence at the enterprise level, etc. Three levels are analyzed one after another [4].

4) The process analysis method

The process analysis method presented by Yves Doz and others includes many concepts that have been developed in the course of core competence analysis. It was proposed to analyze core competence in accordance with the process of it’s development: origin, distribution, concentration, manifestation, renewal [5].

5.  Methods of quantitative and semi-quantitative analysis

The quantitative method uses only strictly measured indicators. One of the main representatives is Patel et al.. In their research, they look at core competencies in terms of the technical capabilities of the organization. A numerical study of more than 400 large companies in the world was conducted, according to patents issued by the US patent office in the years 1960-1990. The quantitative analysis method is a method of analyzing core competence based on complete accurate data and proven models. However, the study of key competence on the basis of this method is quite a difficult task [6].

The method of semi-quantitative analysis builds a system of indicators at first, and then using the subjective judgment of specialists, evaluates the indicators and calculates the level of core competence.

Mayer [7] evaluates the company’s core capabilities in four categories: product technology, understanding of user needs, distribution channels, and manufacturing capabilities in the context of a product group characterized by similar characteristics. The evaluation process is as follows: first, a group of products is determined, information about the history of goods and documentation is collected, and attention is drawn to the main competitors. Next, technologies, main consumers, distribution channels, key production processes are analyzed. These are the core competencies inherent in the product group. This is followed by core competence assessment on a five-point system. By averaging the values of these four categories (weighted by importance or simple averages), we obtain common core competencies. Henderson uses a similar method in his study [8].

Yu Weiping et al., (2003) after analyzing scientific papers on core competence, identifies 677 factors affecting its development, and then selects the eight most important. Then a survey is conducted and a table of factors affecting the key competence of enterprises in practice is compiled. As a result of comparison of two tables, differences and connections between business and scientific circles were revealed, and ways of development of key competences were proposed [9].

6. Methods of complex analysis

The method of complex analysis combines quantitative and semi-quantitative method. In the developed system of indicators, both quantitative indicators and subjective estimates are involved, evaluated by indicators, and then calculated. The method helps not only to identify core competence, but also to determine its level and give a comprehensive assessment.

1) Value chain Analysis

Value chain analysis is the process of analyzing actions that can affect the input to a product or service. Value chain analysis is designed to increase profits by creating a product or service that outperforms competitors ‘ products. Improving the value chain for the sake of improvement should not be the ultimate goal [10].

A good example is Walmart — the largest retail chain in the world, with global sales of more than $ 480 billion in 2015. The company has more than 11,000 stores worldwide. Walmart excels in all aspects of supply chain management. It has an extensive network of distribution centers and has improved procurement, operations, distribution and integration into an extremely efficient inventory management system, resulting in better store inventory and lower costs .

2) Analysis of assets

The more specific the assets, the higher the level of core competence. A special role is played by intangible assets which are divided into four main categories: market assets, intellectual property assets, human assets and infrastructure assets [10]. The competitiveness of the company is manifested not in modern plants and modern equipment, but in intangible assets.

The secret of Coca-Cola’s success is based on intangible assets. Thus, the identification of core competence of the enterprise should begin with the audit of intangible assets of the enterprise, in particular the brand, reputation and culture.

3) Analysis of knowledge

As Erickson and Mickelson say, core competence can be seen as a form of knowledge how to coordinate different kinds of resources in a business. Knowledge is divided into four types: knowledge of what is (Know-what); knowledge of why (Know －why); knowledge of what to do (Know－how); knowledge of who (Know – who) [10].

4) Customer contribution analysis

The main difference between customer contribution analysis and value chain analysis is that customer contribution analysis comes from outside the enterprise. It analyses the price that the client is willing to pay for a purchase; the product or service when the customer is willing to pay more.

5) Analysis of competitive differences

Porter believes that the competitive advantage of an enterprise depends on two factors: the attractiveness of the chosen industry and strategic positioning within the established industry [10]. Thus, the analysis of core competencies in terms of differences with competitors consists of two stages: (1) analysis the common strategic elements with competitors, what are the differences between them, the reasons for the differences; (2) analysis of the differences between enterprises and competitors in the market and the performance of assets, such as the speed of technology and innovation, product image, brand, reputation, after-sales service, customer loyalty, etc.

Methods of assessment of complex analysis

1) Simple numerical comparison method

Huang Ji has created a system of indicators of competitiveness of city commercial banks. Using a simple numerical comparison method, he compared the performance of six banks and ranked them. Thus, the core competences of each bank were determined [11].

2) Gray Systems Method (GST)

Cybernetics is based on the completeness of information, which is divided into a white system with full clarity of information, a black system with full obscurity of information and a gray system with partial clarity of information. A gray system is a system of bad information that is difficult to deal with using general statistical methods. The theory of gray systems, proposed by Chinese scientist Professor Deng Yulon [12], can process low-level information systems and use known information to determine unknown information about the system. Gray System theory measures the degree of correlation between factors based on the degree of similarity between factors.

3) The Analytic Network Process (ANP method)

A network is defined as a specific system that includes several separate subsystems. They are connected to each other and interact with each other at one or more points. The condition of the entire system will largely depend on how effectively to operate all of its component parts. Network analysis helps to understand the relationships that arise between subsystems, to describe each of them, to determine the relationship between individual structures and components. Visually, the network is depicted in the form of a graph or chart [13].

4) The Principal Component Analysis  (PCA)

Factor analysis is the synthesis of a correlation complex of variables into a small number of factors. The variables are further classified by various factors. The main methods are eigenvalue decomposition, SVD, NMF, etc. [14], [15]. Wang Li and Liang Yaling used this method to construct a model for assessing the core competence in the study of the system of indicators for the evaluation of foreign trade enterprises in clothing and explained in detail the main factors [16].

5)  Neural Network Analysis (BP)

 Neural Networks are a class of models based on biological analogy with the human brain and designed to solve a variety of data analysis problems after passing the stage of so-called training on available data. When applying these methods, first of all, there is a question of choosing a specific network architecture (the number of “layers” and the number of” neurons ” in each of them). The size and structure of the network should correspond to the studied phenomenon [17]. Then the built network undergoes a process of so-called learning. At this stage, the neurons of the network iteratively process the input data and adjust their weights so that the network best predicts the data on which the “training”is performed. The neural network resulting from “learning” expresses the patterns present in the data.

6)  Data Envelopment Analysis (DEA)

Data Envelopment Analysis (DEA) is a relatively new measurement technique. DEA is a method based on linear programming to determine relative efficiency through various enterprise-implemented products.

Zhou Maofe with the help of the DEA assessed the effectiveness of the integration of 14 commercial banks in China in 2003 and compiled their rating [17].

7)  Analytic Hierarchy Process (AHP analysis)

Hierarchical analysis (AHP) is a decision-making method that breaks down elements strongly related to decision-making into several levels, such as goals, criteria, schemes, etc., based on qualitative and quantitative analysis. Klein, for the first time in his research, uses hierarchical analysis (AHP) to construct mathematical models to determine the basic competitiveness of an enterprise [4].

Wang Jun in the article “Research on the system of average competitiveness indicators of the main commercial banks of China – application of the development level analysis ” has identified the assessment factors of 16 commercial banks core competence and has conducted a thorough assessment using a hierarchical analysis [18]. Gao Xichao and Fang Lili proposed a new system that uses the AHP-ANN combinatorial model to assess core competence of enterprises[19].

Comparative analysis of methods

Previously, we have studied the methods of identification and evaluation of core competence. In table 1 we take a look on the strengths and weaknesses of each method.

Table 1. Comparative analysis of methods of core competence identification and assessment.

(Source: developed by the author)

Complex analysis (combining quantitative and semi-quantitative method) is currently the most widely used method. Its advantage is high detailing, systematic data processing, completeness and validity of the analysis results.

Research to improve the level of core competence

Recognizing that core competence is crucial for the development of enterprises, every company wants to have it. A large number of works are devoted to improving the level of core competence.

T. Mahoney and J. R. Pandian are the scholars in the field of corporate resources. They believe resources are key to the company continuing to make a profit. Resources must be limited, unique, impossible to simulate, non-negotiable, permanent, hidden. These resources must have a unique status[20].

Bob Gibbs, summarizing the experience of the Netherlands, Singapore and Western Australia in the field of development, concluded that the intervention of governments and regional authorities in the development of development strategies and preferential policies is a key factor in the competitiveness of the region. Infrastructure is not the main element of the core competence, the main element is the institutional environment of the government [21].

Liao and Zhang in their study noted that at least several aspects affect the development of core competencies, such as: building knowledge alliances with other companies or institutions; setting strategic goals for enterprise development; strengthening enterprise technology and innovation development; strengthening organizational management system and corporate culture; creating enterprise-specific management models and corporate culture; and increase the ability of employees and organizations to learn and create training organizations (enterprises) [22].

Sun Chunli offers a combination of theory and practice. He believes that market share, enterprise wealth ratio, net asset return, and other aspects should be related to the enterprise’s strategic management capabilities, operational capabilities, resources, product manufacturing capabilities, and marketing service capabilities [13].

Mohamed M. Mazrouk et al. analyzed the importance of various factors that contractors took into account when choosing a subcontractor through expert questionnaire and SPSS software processing. These factors directly affect the selection of a suitable subcontractor for production and its competitiveness. The progress, quality and reputation of subcontractors in the construction process also have a direct impact on the performance of the contractor and, therefore, indirectly affect the core competence [23].

Conclusion

After the analysis, we can conclude that almost all market participants have a certain competence, regardless of whether they have a competitive advantage or not. At the same time, the lack of competence can lead to a very rapid disappearance of the company from the market. Core competence provides long-term functioning of firms in the market due to the uniqueness and originality of the business entity and may be a source of competitive advantage.

Core competence includes:

1) collective training conducted in the company;

2) the ability to combine multiple skills, abilities and technologies;

3) the ability to combine resources and knowledge in such a way as to provide consumers with the best products and services;

4) everything that distinguishes the company from others and makes it competitive.

Concluding the review of modern theoretical and methodological approaches to the study of the core competence of the enterprise, it is necessary to draw several conclusions：

First, the core competence is the concept of multiple elements, not features embodied in a single factor；

Secondly, core competence is the result of the accumulation of competencies that are formed in the process of long-term development；

Third, the core competence is comprehensively reflected in every aspect of entrepreneurship；

Fourth, the key competence is necessary to maintain the sustainable development of the enterprise；

Fifthly, the study of key competence is conducted mainly in two directions: qualitative and quantitative. Fully quantitative assessment of the key competence of the enterprise is difficult, most scientists use the method of complex analysis. This method combines quantitative and semi-quantitative indicators, reflects the system and complexity of production processes, and uses the latest methods of data evaluation such as: the gray systems method (GST), the method of network analysis (ANP), the method of factor analysis (PCA), the method of data envelopment analysis (DEA), neural network analysis (BP), and the method of hierarchical analysis (AHP).

Currently, there are relatively few methods to identify key competencies of an organization. This can be partly explained by the low prevalence of the resource approach in management practice. Also, we need to keep in mind, that core competence is unique to each enterprise. That is why it is wiser to use a situational approach that is able to assess the state of resources of each organization individually.