Core Competence

The well known management guru  K Prahalad and Gary Hamel coined the word "core competencies" in their article 'the core competencies of the corporate' in 1990, as the collective learning and coordination skills behind the company's  product lines. 

According to them 'competitive advantage' emanates from core competencies and this advantage results in a company introducing a flurry of new products and services.

Prahalad and Hamel say development of core product is the result of core competencies.  Core products do not get sold to customers directly.   In fact, core competencies help producing a number of  core products for end-users.

Core competence        >          core product        >     end product (new business).

New business opportunities arise out of core competencies and market needs.  This way, a company can create a wide array of businesses.  What binds the business units of a company is core competencies.  Core competency is specific to a business the way it operates, or its employees, or its works.   In other words –

• competitors cannot copy or imitate its core competency,
• the core competency can lead to,  or be leveraged to create many products and new markets.

Core competence can be technical expertise, or specialized know-how, or a process, or a special bond of close relationship with customers and suppliers.  It may even be a product development or employee dedication.

Developing Core Competencies:

When a company integrates different technologies and the coordination of diverse production skills, there arises core competence.

How to identify Core Competencies:

• Core competence opens up access to a number of markets,
• Core competence contributes widely to end-products/services,
• Core competence cannot be copied or imitated easily by competitors.

Core competence can be seen only when all groups and units in the organization come together and coordinate.  Core competence must result in all groups joining forces to bring out the end-product to the market arena.

Development of core competencies is not necessarily a costly affair.  Many a time a low cost alliance and licensing agreement could result in  developing core competence.

According to Prahalad and Hamel core competencies are not –

• Outspending the rivals on R & D,
• Sharing costs among business units,
• integrating vertically.

Sometimes these may facilitate core competencies, but are not sufficient to build core competencies by themselves.

Companies can sell their core products to other companies also for producing end-products.  What counts for a company`s success is their core products share, not branded products, and it is this which important from a core competence aspect.

Successful core products can lead to a variety of uses to gain cost advantage through economics of scale and economies of scope.

Questions:

• What are core competencies and core products?
• How to identify core  competencies?