What should be done in evaluating core competencies

In evaluating core competencies, an organization must analyze its activities and compare them to internal or external benchmark measurements. Some comparison metrics will often relate to costs: how does the cost of making a product or performing a service internally compare to the price of external acquisition? To make fair comparisons, a company must be reasonably certain of the validity of its costs. Unfortunately, a recent survey of over 200 financial and operating executives in North America showed that less than half of the respondents were confident of their cost data. They wanted “more accurate, timely, and detailed information from their systems.”

To help provide such information, some companies use activity- based costing. In assessing alternative strategies that require substantial monetary investments (such as investing in new technology or opening a foreign production facility), managers compare the investment’s costs and benefits. Often, as with other strategic decisions, cost details may be more attainable than benefit details. Managers, aided by financial personnel, must then make quantitative estimates of the investment’s qualitative benefits (for instance, allowing the company to be the first to bring a product or service to market). The accompanying News Note addresses the significance of estimating future benefits from investments.