Core competency is essentially what a business does well that distinguishes it from other businesses.
I admit that this is a very general core competency definition. However, the definition of core competency needs to be broadened as the term moves into general usage and is applied to businesses of all sizes.
The concept of core competency originated as a resource-based approach to corporate strategy; the concept was first introduced by C.K. Prahalad and Gary Hamel. In The Core Competence of the Corporation (1990), they describe core competence as something that a firm can do well that meets three conditions:
1. It provides consumer benefits;
2. It is not easy for competitors to imitate;
3. It can be leveraged widely to many products and markets.
Obviously, such a strict definition of core competency excludes small businesses, as most would not be able to meet the third condition.
Fortunately, over time, the concept of core competency has evolved. All core competency definitions, however, include the concept of competitive advantage. For instance, BNET Business Dictionary defines core competency as a "key ability or strength that an organization has acquired that differentiates it from others, gives it competitive advantage, and contributes to its long-term success."
A business may, of course, have more than one core competency.