Core Competence

CORE COMPETENCY Group No.: 03 Members: 1. Ameet Shinde 2. Nilesh Bhusal

Ref: Article Core Competence by C.K. Prahalad

Core Competence is a skill/Asset/Technology that underpins the growth of the business and differentiates the business from its current and future Competitors OR Core competence is a bundle of skills and technologies that enables a company to provide a particular benefit to customers e.g. • Sony – benefit is pocketability core competence is miniaturization • Federal Express – benefit is on time delivery core competence is logistics management

The concept of core competencies was developed in the management field in1990 by C.K. Prahalad and Gary Hamel in the Harvard Business Review article titled “Core Competence of the Corporation”


Today’s corporation must maintain competitiveness by developing core competencies
Portfolio of competencies instead of a portfolio of businesses i.e. SBU’s
These competencies determine the strategic architecture of the firm
In the long run, competitiveness derives from an ability to build the core competencies at lower cost and faster than competitors

The Diversified Corporation

Inside Outside Corporate Strategy • The Outside-in approach (such as the Five Forces model from Porter) places the market, the competition, and the customer at the starting point of the strategy process • The Core Competence model does the opposite by stating that in the long run, competitiveness derives from an ability to build a Core Competence • Corporate strategy of a corporation should be built around a core of shared competences

• Core Competencies develops into core products

•From these core products come the new strategic business units. These SBU’s can be in completely separate markets

•These businesses each have end products that contain the core products

The core products are used to launch a variety of end products. For example, Honda

Variety of Markets

• What do miniature card calculators, pocket TVs, and digital watches have in common? • They are all the result of Casio’s know-how in Display Technologies • Honda – Engines • Sony – Miniaturization

–Fit this in your pocket.

Customer Benefit • Do these competencies add to the perceived customer benefits of the end product?

Easy to Imitate? • Philips is a market leader in TVs. Have you ever seen a Philips mini TV? Miniaturization is not one of Philips competencies.

Identifying a Core Competence 3 Tests for Core Competence: • Does this competence provide potential access to a wide variety of markets? • Does this competence make a significant contribution to the perceived customer benefits of the end product? • Is this competence difficult for competitors to imitate?

Developing the Core Competencies
A Core Competence is built through a process of continuous improvement and enhancement
It should constitute the focus for corporate strategy
Once top management have identified an allembracing Core Competence, it must ask businesses to identify the projects and the people that are closely connected with it
A core competency often can be acquired through alliances and licensing agreements.

Building Core Competencies …….

Invest in needed technologies e.g. Citicorp Adopting The Operating System. Infuse resources throughout business units to outpace rivals in new business development e.g. 3M,Honda won races of brand dominance Forge strategic alliances NEC’s collaboration with partners like Honeywell

The Loss of Core Competencies • Cost-cutting moves sometimes destroy the ability to build core competencies • Outsourcing prevents the firm from developing core competencies in those tasks since it no longer consolidates the know-how that is spread throughout the company •Failure to recognize core competencies may lead to decisions that result in their loss e.g. Motorola divested itself of its semiconductor DRAM business at 256Kb level, and then was unable to enter the 1Mb market on its own

Core Competence does not means…

According to Prof. C K Prahalad and Hamel, core competencies are not necessarily about 1. Outspending rivals on R&D 2. Sharing costs among business units 3. Integrating vertically

Cultivating a CoreCore-Competency MindMind-Set …

•Stop thinking of business units as sacrosanct •Identify projects and people who embody the firm’s core competencies •Gather managers to identify next-generation competencies

Core Rigidities • Care must be taken not to let core competencies develop into core rigidities • A Corporate Competence is difficult to learn, but is difficult unlearn as well • Companies that have spared no effort to achieve a competence, sometimes neglect new market circumstances or demands • They risk to be locked in by choices that were made in the past.

Thank You