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Definition: Core Competence (Prahalad Hamel)
CK Prahalad and Gary Hamel introduced the idea of core competence. In their view, Core competence, is the unique strength of the firm that helps it to differentiate its products from the competitor’s products in the long run.
The core competence of a firm gives it sustainability, as it cannot be easily replicated by its competitors. Also, core competence helps the firm to grow as it can be used for several products and markets.
Example: Core competence can be anything like superior technical knowledge (for BCG) and excellent manufacturing systems (for Toyota). Taking the example of BCG, the superior technical knowledge is the core competence of BCG as its competitors cannot build the same kind of knowledge level easily.
The ability to proficiently deliver value to your customers and which sets you apart is called a core competency. All the major firms in the world rely a lot on enhancing their core competencies. In this competitive world, it is imperative to have the set of skills that are distinct and can help you create a niche.
Management gurus CK Prahlad and Gary Hamel coined this term. It appeared in a Harvard Business Review article in 1990. Hence, it is a relatively new concept.
The management theory of core competency is essential because:
1. Helps a firm to establish a footprint
2. Create impression on the psyche of a consumer
3. Help in gaining more market
We can elucidate it with the help of an example. Mercedes has one of the best engineering plants in the world and they have built a brand on it. Thus, their core competency in engine making and they are world class in it. Such competencies also help in forming mergers with other regional brands who might have some other core competency, like distribution or after sales. So, it can be anything.
The three essential characteristics of Core Competencies are:
1. Should be difficult to be imitated by competitors
2. Should provide good value to the end consumer
3. Helps in widening the footprint of a firm
The aim of core competency is to facilitate collective learning across organization. The focus should be on holistic learning rather than vertical integration. These skills should be viewed as unifying principle for a company and should help it to tap the available resources in the most optimal way.