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 and/or recognize a Core Competence, which may reside within a specific function (s) within the organization or a combination of those functions. The Core Competence may result in superior positioning vis a vis the organization competitive landscape. The real sources of advantage are to be found in management’s ability to consolidate what the company is really good at and provide a the resources and avenue through which the owned core competence to adapt and co-evolve appropriately 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
ü Provides potential access to a wide variety of markets.
ü Makes a significant contribution to the benefits of the product as perceived by the customer.
ü A CC should be difficult for competitors to imitate.
Building a Core Competence
A Core Competence is built through a process of acquiring and retaining capable individuals; continuous improvement and enhancement of what the company does best. It should constitute the focus for corporate strategy. Top management cannot be just another layer of accounting, but must add value by articulating the strategic architecture that guides the process of competence building.
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.
C.K. Prahalad, Gary Hamel – Competing for the Future
C.K. Prahalad, Gary Hamel – The Core Competence of the Corporation
Michael Gold, Andrew Campbell – Corporate-Level Strategy