Core Competence of the Corporation

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. . – 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 1990s and thereafter will be determined by creating a unique range of products through applying and developing core competencies. Dierickx and Cool (1989) propose a more wholesome resource based view as a means to competitive advantage by stating that resources used in the production of products must be strongly linked to the firm, with their origins lying in organisational skill and learning.

This therefore supports the assumption that developing company specific core competencies, heavily reliant upon the knowledge of integrated systems and departments working together to create a ‘high component of immobility’ (Dierickx and Cool 1989 p83) from one company to another, will lead to sustained competitive advantage. Another assumption of the article is that those companies with more traditional management styles require radical change to be able to keep apace with the technological advancements of the future.

Dr. Frank L. Douglas (2004), executive vice president of Aventis, suggests that ‘traditional management practices – reporting structure, incentives – do little to support most knowledge work’ (p1). Douglas advocates a sustained period of observation over teams of which you are responsible for. This is to understand how the knowledgeable workers in the company like to operate and therefore to gain an understanding of the direction of the team.

He also implies that everyone in the innovation process must take part in the evaluation practice so the team can progress sufficiently and become a ‘Hub for Innovation’ (p1). From this, strategists implementing core competency theory should consider that when undertaking the restructuring of the hierarchy, it is of great importance that all must be done to empower the individuals of the teams of which they lead, as ‘granting freedom and autonomy is positively related to various types of innovative behaviour, including the generation, testing, and implementation of ideas’ (Krause 2004 p88).

A particular strength of this article is its ability to demonstrate through examples in the business world, the possible benefits of adopting management systems through core competencies. It identifies how NEC in the 1970s went through the prescriptive process of articulating a ‘strategic intent to exploit the convergence of computing and communications’ (Prahalad and Hamel p80), i. e. – using two of its core competencies to create a position of strength in the market, by ‘infusing products with irresistible functionality’ (p80).

The importance of this convergence is underlined by the article switching the point of focus toward the customer. It suggests that by combining and utilising core competencies to effect can help to bridge the gap between separate technologies, ‘creating products that customers need but have not yet even imagined. ‘ Such language is successful in creating an aura surrounding the perceived benefits, and the article is overall convincing in the number of advantages from the approach it gives, for example, diversification. General Cinema found that their core competencies in movie exhibition, e. g. ‘dealing with a few, large suppliers and applying central marketing locally were very similar to those of soft drink bottling at the time’, to become the largest bottler of soft drink in North America (Pepsi) (Pearce et al 2005: p270). Another point well made by the article is that management need to create a competency culture throughout the organisation. This rationale is clearly defined. The argument is that lower level managers need to be willing to sacrifice personnel from their Small Business Units, in order to release the pools of talent that embody the core competencies from which unanticipated products can prosper.

Furthermore, it suggests that these lower level managers should be rewarded when surrendering their most worthy employees, to create a common-goal organisational culture. This is an important point well made within the article as it encourages the reader to think consequentially about the impact of such re-structuring decisions. One of my main criticisms of this article is that it tends to make substantial generalisations about the nature of the business world.

In the very opening paragraph, the article suggests that the top executives of businesses in the 1980s ‘were judged on their ability to restructure, de-clutter, and delayer their corporations’ (p79). Such a statement fails to consider the ever existing importance of financial performance and deliverance to other stakeholders such as shareholders and customers. Secondly, despite being convincing in its appreciation for the theory, the article seems heavily biased toward its application in the technological markets without specifically stating the industry specific considerations that undoubtedly need to be taken into account.

For example, the article stresses that in order to benefit from core competencies in this sector it is about creating new, enhanced products with unique functionality through the as semblance of hard to imitate competencies. However it leaves the reader wondering how managers in more standardised markets may apply this concept throughout their organisation and indeed examples of what these competencies would be.

A challenge for these managers is therefore to identify a position of uniqueness within their own sector, such as The BodyShop, who only use natural ingredients in their beauty products (Datamonitor 2006) to appeal to those ethically concerned customers. I believe this article is sometimes guilty of portraying simplistic, reductionist views toward ‘Western’ management styles of the time period, as well as core competency theory. The article poses questions such as how many of these (western managers) have considered ‘competitive strategy at the level of an entire company? (p83), and that competencies are facets a ‘company must build for world leadership’ (p83). Statements analogous to these depreciate the complexity of the business world and attempt to nullify other aspects which have significant impact on success, such as pricing policies and advertising campaigns. To conclude, the article portrays a hugely positive view of core competency theory and its arguments for its implementation are wide and favourably consequential. It is most closely linked with the Resource Based View style of leadership, in that it is the unique knowledge of a firm that can bring about superiority over competitors.

The article itself is very assured that from the point of 1990 onwards core competency theory is a requirement to maintain a strong position in knowledge based markets; however other theory suggests that man management skills still have to be correctly practiced to facilitate innovation. Word Count: 1627 References Datamonitor. (2006). Body Shop International, PLC SWOT Analysis. Company Report. 1 (1), p1-10 David, F (2007). Strategic Management: Concepts and Cases. 11th ed. New Jersey: Pearson Prentice Hall. p191-192 Dierickx, Y. , Cool, K. (1989), Asset stock acumulation and sustainability of competitive advantage, Management Science, Vol. 5 pp. 1504-11. . Douglas, F. (2004). A Platform for Innovation. Reflections. 5 (6), 1-8. 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 Krause, D. (2004). Influence-based leadership as a determinant of the inclination to innovate and of innovation-related behaviors: an empirical investigation. Leadership Quarterly. 15 (1), p79-102 Pearce, J et al (2005). Strategic Management: Formulation, Implementation, and Control. 9th ed.

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