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A company's core competency is the one thing that it can do better than its competitors. A core competency can be anything from product development to employee dedication. Modern business theories suggest that most activities that are not part of a company's core competency should be outsourced.
If a core competency yields a long term advantage to the company, it is said to be a sustainable competitive advantage.
The concept of core competencies was developed in the management field. C.K. Prahalad and Gary Hamel introduced the concept in a 1990 Harvard Business Review article. 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."
As an example they gave Honda's expertise in engines. Honda was able to exploit this core competency to develop a variety of quality products from lawn mowers and snow blowers to trucks and automobiles. To take an example from the automotive industry, it has been claimed that Volvo’s core competence is safety.
According to Prahalad and Hamel a core competence has three characteristics:
- it provides potential access to a wide variety of markets,
- it increases perceived customer benefits and
- it is hard for competitors to imitate.
Ever since Prahalad and Hamel introduced the term in the 1990’s many researchers have tried to highlight and further illuminate the meaning of core competence. According to Leonard-Barton, D. “Capabilities are considered core if they differentiate a company strategically”. On the other hand Galunic and Rodan (1998) argue that “a core competence differentiates not only between firms but also inside a firm it differentiates amongst several competencies. In other words, a core competency guides a firm recombining its competencies in response to demands from the environment”.
It is important to distinguish between individual competencies or capabilities and core competencies. Individual capabilities stand alone and are generally considered in isolation. Gallon, Stillman, and Coates (1995) made it explicit that core competencies are more than the traits of individuals. They defined core competencies as "aggregates of capabilities, where synergy is created that has sustainable value and broad applicability." That synergy needs to be sustained in the face of potential competition and, as in the case of engines, must not be specific to one product or market. So according to this definition, core competencies are harmonized, intentional constructions.
Coyne, Hall, and Clifford (1997) proposed that "a core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard." Two ideas are especially important here. The skills or knowledge must be complementary, and taken together they should make it possible to provide a superior product."
For example, Black and Decker's core technological competency is in 200 to 600 W electric motors. All of their products are modifications of this basic technology (with the exception of their work benches, flash lights, battery charging systems, toaster ovens, and coffee percolators).
They produce products for three markets;
- 1 - the home workshop market - In the home workshop market, small electric motors are used to produce drills, circular saws, sanders, routers, rotary tools, polishers, and drivers.
- 2 - the home cleaning and maintenance market - In the home cleaning and maintenance market, small electric motors are used to produce dust busters, etc.
- 3 - kitchen appliance market. In the kitchen appliance market, small electric motors are used to produce can openers, food processors, blenders, bread makers, and fans.
Mascarenhas et. al (1998) found that large multinational firms typically have multiple competencies. These competencies include more than just technical know-how. They also include increasingly close external relationships with customers and suppliers.
References & BibliographyEdit
- Gary Hamel and C. K. Prahalad, (1990) "The Core Competence of the Corporation", Harvard Business Review, vol. 68, no. 3, May-June 1990, pp 79-93.
- Galunic, D.C. and Rodan, S. (1998). "Resource recombinations in the firm: knowledge structures and the potential for Schumpeterian innovation". Strategic Management Journal vol 19. p. 1193-1201.
- Mascarenhas, B., Baveja, A., and Jamil, M. (1998) "Dynamics of Core Competencies in Leading Multinational Companies", California Management Review, vol 40, no. 4, pp. 117-132.
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