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 all-

embracing 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 Core-
Core-Competency Mind-
Mind-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