Core Competence
(Hamel Prahalad)

Inside-out strategy. Explanation of Core Competence of Hamel and Prahalad.

The Core Competence model of Hamel and Prahalad is a corporate strategy model that starts the strategy process by thinking about the core strengths of an organization.

Inside-out 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, at lower cost and more speedily than competitors. The Core Competence may result in unanticipated products. The real sources of advantage are to be found in management's ability to consolidate corporate-wide technologies and production skills into competencies, through which individual businesses can adapt quickly to changing circumstances. A Core Competence can be any combination of specific, inherent, integrated and applied knowledge, skills and attitudes.

In their article "The Core Competence of the Corporation" (1990), Prahalad and Gary Hamel dismiss the portfolio perspective as a viable approach to corporate strategy. In their view, the primacy of the Strategic Business Unit is now clearly an anachronism. Hamel and Prahalad argue that a corporation should be built around a core of shared competences. Compare: Horizontal Integration.

Business units must use and help to further develop the CC(s). The corporate center should not be just another layer of accounting, but must add value by articulating the strategic architecture that guides the process of competence building.

Three tests for identifying a Core Competence

Provides potential access to a wide variety of markets.
Makes a significant contribution to the benefits of the product as perceived by the customer.
A CC should be difficult for competitors to imitate.

Building a Core Competence

A Core Competence is built through a process of continuous improvement and enhancement (compare: Kaizen). It should constitute the focus for corporate strategy. At this level, the goal is to build world leadership in the design and development of a particular class of product functionality. Top management can not be just another layer of accounting, but must add value by articulating the strategic architecture that guides the process of competence building.

Once top management (with the help of Strategic Business Units managers) have identified an all-embracing Core Competence, it must ask businesses to identify the projects and the people that are closely connected with it. Corporate auditors should perform an audit of the location, number, and quality of the people related to the CC. CC carriers should be brought together frequently to share ideas.

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 to 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.

E-Article: C.K. Prahalad, Gary Hamel - The CC of the Corporation -

Book: Michael Goold, Andrew Campbell - Corporate-Level Strategy -

Book: C.K. Prahalad, Gary Hamel - Competing for the Future -

Core Competence Forum (22)

Is There Any Difference Between a Competence and a Competency?
"Is there any difference between an organizational / strategic competence and a competency? In other words are competences the same as competencies?"

Competences versus Core Competences versus Resources
"What is the relationship between competences, core competences and resources?
I'm a bit confused right now..."

How Does a Core Competence add Value?
"What can core competences do and how to they add value to and within the organisation? Please share your thoughts and references / ideas. Thank you!"

Financial Valuation of a Core Competence
"How can a firm determine the financial valuation of individual CCs? How can we measure the value of a core competence?"

Defining New Services / Capabilities
"How can we come up with ideas to develop new services, based on current internal strength of existing services and capabilities?
What techniques can be used? Please share your thoughts, thank you for your ideas..."

Core Competency versus Corporate Competency?
"Is there any difference between core competency and corporate competency?
If yes, then please explain."

Core Competences and Porter's 5 Forces
"Core competencies are like one pole of a magnet, opposite poles always attract each other. The other pole is customer's expectation's or the gap filling.
How you use your CC's with ref to Porter's Five Forces is also important."

Leadership & Core Competence
"Resources that might be easily available will not enable a business to achieve a competitive advantage over rivals. If a core competence yields a long term advantage to the company, it is said to be a sustainable competitive advantage.
Good leaders are dedicated to lifelong learning & seeking continuous improvement in their companies. They also seek it for themselves. Leaders recognize that competition between businesses is a race for competence mastery, market position & power. A goal for leaders/ management should be to focus attention on competencies that really affect competitive advantage, since it may not be possible to focus on all activities & competencies of a business."

Core Competency Should be Challenged
"A Core Competency should be difficult for competitors to imitate. But I would like to add that it should also be challenged from time to time by the competitors. Otherwise it will fail to deliver desired results. History says innovation is important for sustanability. High quality and revolutionary innovations are not possible without challenges. Competition brings-in challenges which drive innovations and changes. Competition and challenges to CC's are two main drivers of innovation and change."

Core Competences Change due to ICT
"(In what way) Did core competences change after the ICT evolution?"

Examples of Core Competences
"Here are few examples of Core Competencies you frequently see in literature on CCs:
Apple: user-friendly design of electronic consumer devices
Intel: innovative design and manufacturing of computer processors
Honda: building very efficient engines
Sony: miniaturizing of consumer electronics
Toyota: continuous improvement of car manufacturing and quality"

CC as an Organisational Trait(s)
"Try to define your organisation's Core Competency and you find yourself with the same problem as trying to identify your son's talent! He may be a good runner, but, not good enough.
Many companies do a lot of activities exceedingly well and still grapple with competition in their respective industries. It takes practise, branding and consistency to build distinctive competencies."

Outside- in vs. Inside-out
"I think the debate on the wisdom of an "outside- in" vs. "inside-out" approache is misplaced. CC is clearly the latter but unless you match your CC with market opportunities, CC will not yield desired results."

The Virtual Company and Core Competences
"It's interesting to consider a Virtual Business when you are thinking about Core Competences:
1. The Virtual Company focuses as much as possible / entirely on its own Core Competence (Typically Marketing, Visioning, Innovation)
2. It outsources all it's other functions to strategic partners, who are very good at performing those functions or even have that function as their core competence.
The Virtual Enterprise therefore could be said to derive its strength primarily from the way it deals with core competences..."

Integrating the Core Competence
"Having identified the core competence of the organisation, the real challenge - particularly in knowledge intensive organisations - lies ahead in integrating it with the competences of its people so as to enhance the overall organisational capability; which ultimately should result in rendering competitive advantage to the organisation."

Utilizing a Core Competence
"Once an organization has defined its Core Competence, finding or creating new markets to leverage the CC becomes a crucial task. Who can give some advise or suggest a generic method how such markets can be discovered? Please share your experiences."

Is CC REALLY Different from FF?
"The trouble with this article and concept is that it begins by suggesting that CC is opposite to Porter's FF approach in that it places CC at the start as opposed to FF which places market, competition and customer first. Then you read down to the "Three test for identifying a Core Competence" and find market, competitor and customer.
"

Identifying a Core Competence
"How can a firm identify its CC?"

Why Protect Core Comp
"Why a firm has to ensure it's CC hard to imitate? the whole market should be aware about a firm CC and the firm should use it in thier marketing activities for branding its culture, it's like using the ISO (I think!!)."

Collaboration and CC
"How can a firm avoid that its core competence(s) are threatened when it is collaborating with other firms such as in demand chain collaboration or outsourcing?"

Imitation of Core Competence
"How can a firm ensure that its core competence(s) are hard to imitate?"

Always link Strategy to CC
"Core competencies are the activities in which any organization does exceedingly well and they are always built over time. Therefore corporate strategies should be linked to CCs."

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