Core Competence of the Corporation

Topics: Strategic management, Management, Core competency Pages: 6 (1863 words) Published: March 22, 2010
Business Strategy Assignment

This essay will follow the course of identifying the key areas of the core competency theory that the article entitled ‘The Core Competence of the Corporation', written by Prahalad and Hamel, explores as well as positioning the concepts in the wider debate of theory, comparing and contrasting with other ideas from strategic theory. Secondly, this piece will look at some underlying assumptions of the business world that the article formulates when looking upon its concepts, and how these assumptions fit with other theoretical work. Thirdly, I will go on to look at the overall strengths and weaknesses of the article and its foundations. ‘Resources are an organisation’s assets and are thus the building blocks of the organisation.’ (Wheelan 2006 p106). The article predicts that the turn of the 1990s would see top level managers attempting to utilise their workforce and product lines together in such a way to create sustainable competitive advantage. ‘A core competency is a collection of competencies that crosses divisional boundaries’. For example, Intel, ‘a leader in the semiconductor industry, is a designer and manufacturer of semiconductor components and related computers, of microcomputer systems, and of software (Pearce et al 2005, p207).’ The theory is also closely linked to another Gary Hamel review, whereby he suggests certain conditions are required for successful management innovation. He suggests the approach must be a fairly novel concept, challenging the orthodox, decentralised, western management norms. Secondly, it must encompass a range of processes, as in core competency theory, the collaboration of technological divisions and, thirdly, it is certainly part of an 'ongoing program of invention, where progress compounds over time' (Hamel 2006: p74). This article does well to stress the importance of small business units collaborating and communicating in order to gain from these synergies. The piece advocates that companies should look across the entire organisation and identify those individuals that encompass the company’s direction, i.e. - those that are most likely to be able to contribute to the development of successful future products. The theory is intertwined with the Resource-Based Model of Above-Average Returns, by identifying the how the firm’s competitive resources (capital equipment, employee skills) can be applied in its products and delivered in its industry. This theory, as with the article, states high importance on dynamic, complex core competencies which need to be constantly updated, especially in ever changing technological markets (Hitt et al 2007). The theory of core competency development as a means of strategy can be likened to a prescriptive process, much like Michael Porter's 5 forces model. Although fundamentally different to Porter's model, as the core competency approach does not feature cost leadership or niche targeting as a means to gain market share, it shares similar characteristics for success as the 'Type 3 Differentiation Strategies' (David 2007 p191). The prescriptive process in the article advocates deriving company strengths through existing product lines and developing them in order to formulate inimitable uniqueness for the firm. The resource based theory also states that this is imperative for the success of a differentiation strategy, as the ‘sources of uniqueness must be too burdensome for rivals to match’, (David 2007 p191). This text also promotes the idea that being close to the customer is just as important however, as their preferences are ever changing, whereas the article main basis for development is around the product and creating technological goods that they (the customers) 'had not yet imagined' (p80).

Two major assumptions that the article relies upon to formulate an advantageous viewpoint of core competency management have been identified. The first being that in the technological market, corporate success in the...

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Hamel, G. (2006). The Why, What, and How of Management Innovation. Hardvard Business Review. 84 (2), p72-84.
Hitt, R et al (2005). Strategic Management. 6th ed. U.S.A: Thompson-South Western. p19-20
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Pearce, J et al (2005). Strategic Management: Formulation, Implementation, and Control. 9th ed. New York: McGraw-Hill. p207
Prahalad and Hamel
Wheelen, T (2006). Concepts in Strategic Management and Business Policy. 10th ed. New Jersey: Pearson Prentice Hall. p106
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