Chapter 3 – Business Concepts
23
calculate the profit contribution of each product line (or
business segment).
Capital Expenditures (Cap Ex)
Expenditures incurred to acquire long term assets. Long term
assets are usually plants and machinery, commercial real-
estate: office space / ware-house space, IT (Information
Technology) infrastructure / IS (Information Systems)
projects, etc.
From a macro-economic perspective, if companies cut back
on their Cap Ex, it can signal a slowing economy. On the
other hand, if companies increase their Cap Ex, that increased
spending on Cap Ex helps in the overall growth of an
economy. For example, at the time of writing (2007 – 2008),
reports increasingly suggest that amidst a
housing slump,
the
three pillars which keep the economy / GDP growing are Cap
Ex or capital spending, consumer spending, and exports.
Core Competency
The concept of core competency of corporations was
introduced by C.K. Prahalad and Gary Hamel in a Harvard
Business Review article in 1990. They wrote that a core
competency is an area of specialized expertise that is the
result of harmonizing complex streams of technology and
work activity. Put simply, core competency is a deep
proficiency that enables a company to deliver unique value to
customers. It embodies the corporation's collective learning,
particularly of how to coordinate diverse production skills and
integrate multiple technologies.
Core competency creates sustainable competitive
advantage for a company and helps it branch into a wide
variety of related markets. It is hard for competitors to copy
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