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 a Core Competence, at lower cost and more speedily than competitors. The Core Competence may result in unanticipated products. The real sources of advantage are to be found in management's ability to consolidate corporate-wide technologies and production skills into competencies, through which individual businesses can adapt quickly 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
Three tests for identifying a Core Competence
Building a Core Competence
A Core Competence is built through a process of continuous improvement
and enhancement (compare: Kaizen). It should
constitute the focus for corporate strategy. At this level, the goal is to
build world leadership in the design and development of a particular class
of product functionality. Top management can not be just another layer of
accounting, but must add value by articulating the strategic architecture
that guides the process of competence building.
Once top management (with the help of Strategic Business Units managers) have identified an all-embracing Core Competence, it must ask businesses to identify the projects and the people that are closely connected with it. Corporate auditors should perform an audit of the location, number, and quality of the people related to the CC. CC carriers should be brought together frequently to share ideas.
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.
Compare with Core Competence: Resource-Based View | Blue Ocean Strategy | Outsourcing | Delta Model | Vertical Integration | Porter | Strategic Types | Parenting Advantage | Four Trajectories of Industry Change | Forget Borrow Learn | Parenting Styles | Experience Curve | BCG Matrix | Growth Phases | Distinctive Capabilities | Organizational Configurations | Centralization and Decentralization | Management Buy-out | Acquisition Integration Approaches | Co-Creation | Strategic Intent
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