The Core Competence of the Corporation

Posted: 17 Nov 2009

See all articles by C. K. Prahalad

C. K. Prahalad

affiliation not provided to SSRN

Gary Hamel

London Business School

Date Written: 1990

Abstract

Development of a firm's core competencies is identified as the key for global leadership and competitiveness in the 1990s. NEC, Honda, and Canon are used as exemplars of firms that conceive of themselves in terms of core competencies. Core competencies are the organization's collective learning and ability to coordinate and integrate multiple production skills and technology streams; they are also about the organization of work and delivery of value in services and manufacturing. A firm must conceive of itself as a portfolios of competencies, instead of a portfolio of strategic business units (SBUs). The latter limit the ability of firms to exploit their technological capabilities; they are often dependent on external resources. The real source of advantage lies in management's ability to consolidate corporate-wide technologies and production skills into competencies, which will allow individual businesses to adapt to emerging opportunities. Cultivating core competencies does not mean outspending rivals on R&D, sharing costs among SBUs, or the price/performance of end products. Three tests identify such competencies: (1) they provide potential access to a wide variety of markets; (2) they significantly contribute to the customer benefits of the end-product; and (3) they should be difficult for competitors to imitate. Cultivating core competencies also means benefiting from alliances and establishing competencies that are evolving in existing businesses. The tangible links between core competencies and end products are core products, which embody one or more core competencies. Companies must maximize their world manufacturing share in core products. Global leadership is won by core competence, core products, and end products; global brands are built by proliferating products out of core competencies. Firms must avoid the tyranny of the SBU, the costs of which are (1) under investment in developing core competencies and core products, (2) imprisoned resources, and (3) bounded innovation. Top management must add value to a firm by developing strategic architecture, which will avoid fragmenting core competencies, establish objectives for competence building, make resource allocation priorities transparent and consistent, ensure competencies are corporate resources, reward competence carriers (personnel who embody core competencies), and focus strategy at the corporate level. A firm must be conceived of as a hierarchy of core competences, core products, and market-focused business units. Obsession with competence building will mark the global winners of the 1990s. (TNM)

Keywords: Growth strategies, Firm strategies, Organizational objectives, Core competencies, Organizational learning, Organizational structures, Alliance formation, Firm growth, Strategic planning

Suggested Citation

Prahalad, C. K. and Hamel, Gary, The Core Competence of the Corporation (1990). Harvard Business Review, Vol. 68, Issue 3, p. 79-91 1990. Available at SSRN: https://ssrn.com/abstract=1505251

C. K. Prahalad (Contact Author)

affiliation not provided to SSRN

No Address Available

Gary Hamel

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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