Before delving into the subject of core capabilities, a definition of what that is would be welcome.
A few questions must be first asked to clear the field. I wouldn't go into what the capability is since that was discussed too many times. I will analyse the "core" (capability) concept though.Common sense says that a capability is core because somehow it is essential to the business. Is that enough though?
A capability is core because it offers a competitive advantage in delivering and selling the product, because it is a differentiator. Had it not been so, any competitor could and would deliver the goods. Is this trait enough though? Not really.
A capability is also core when it supports the strategic direction of the company. If it doesn't it soon looses its key role in the enterprise.
Is a capability core because the company excels in delivering it? This is rather an enterprise strength that can be transformed in a core capability only if it aligns with the strategic direction.
Must the core capability be only delivered by the company itself? No. In today's outsourcing and cloud era this is not the case any longer. In the end, any capability of the enterprise can be outsourced to a 3rd party that delivers better, at lower costs... Hence, the answer is no, the core capability does not have to be delivered by the company itself.
Are core capabilities changing, evolving? Sure. Some may become non-core as the industry and market evolve. And the other way around. The core capabilities analysis must be repeated periodically.
Does a capability have to be in the production chain alone? Not necessarily. It could also be a good customer or sales service. It depends on the business model.
Capabilities are not only black and white, that is core or not core. They may be classified on their degree of importance taking into account their overall contribution to the product and profit realisation. They can be more or less core.
Here is the summed up method to establish core capabilities.Identify what capabilities give the enterprise a competitive advantage and which of them align to the enterprise vision. These are the core capabilities. Establish the degree of coreness on a relative scale.
Choose a way to act on capabilities based on your enterprise strengths either by renting the best of breed, buying or building them. Act to improve and adapt them.
An example: for Apple, the core capability is the Design, aesthetic, performant, innovative and reliable. Still, the industrial design is outsourced. For many other firms the good old manufacturing remains core.