In the short run, a company’s competitiveness derives from the price/performance attributes of current products. But in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.

Unlike physical assets, which deteriorate over time, core competencies are enhanced as they are applied and shared. But competencies still need to be nurtured and protected; knowledge fades if it is not used. Competencies are the glue that binds existing businesses. They are also the engine for new business development.

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