Core competency (management science)
Core competency in management science refers to a significant strength of an organization, derived from its unique skills and experiences. Coined by C.K. Prahalad and Gary Hamel in 1990, the concept emphasizes that organizations should focus on their core competencies to stabilize operations, expand into new markets, and adapt swiftly to changes. This approach contrasts with viewing a corporation merely as a collection of different businesses; instead, it encourages a perspective centered on integrating and leveraging underlying qualifications and experiences.
Core competencies are identified through specific criteria: they should enable access to diverse markets, enhance the end product for consumers, and be unique and hard to imitate. These competencies can manifest as broad skills, such as technological expertise, or as specialized abilities, like exceptional engine design in automotive manufacturing. The concept also extends to individuals, highlighting essential skills that contribute to personal success.
Analysts suggest that organizations should invest in developing their core competencies while potentially minimizing unrelated activities, allowing for a more focused and efficient operation. By embracing core competencies, organizations can gain a competitive edge and foster growth across various sectors.
On this Page
Subject Terms
Core competency (management science)
A core competency is a major strength of an organization based on the organization's unique skills and experiences. Organizations may identify, emphasize, and develop these core competencies to stabilize their operations, expand into new markets, and react quickly to changes in markets or societies. The term was coined around 1990 by business analysts C.K. Prahalad and Gary Hamel, who felt that a focus on organizational cores would be the new direction of international business management. In the coming decades, many companies and other organizations adapted a core competency perspective that allowed them to expand their operations across multiple fields. The term core competency is sometimes also used to refer to an individual person's most essential skills and qualifications.
Background
Throughout the twentieth century, corporations became a common and increasingly powerful part of life in many countries. Most corporations began with a specific focus and built their business within a single industry. Later, though, large corporations began to merge and branch out into new businesses. This process of diversification led to some major corporations operating businesses across a wide variety of partly related or unrelated fields.
By the 1980s, the NEC Corporation had become a good example of this trend of diversification. This corporation began as a manufacturer of telephones and related equipment. Over generations of developing and diversifying, this corporation became a highly successful multitiered operation with businesses in not only telecommunications but also general electronics, computing, and semiconductors. Its branches reached smoothly across many businesses, industries, and countries.
Many experts questioned how NEC could find such success by branching out so widely from its relatively specific starting focus. They found it surprising that a corporation could enter new markets with such ease without extensive experience, and a preexisting good reputation, in the new markets. Two business analysts, C.K. Prahalad and Gary Hamel, suggested that NEC had achieved this feat using a new way of thinking about and leveraging its qualifications.
Prahalad and Hamel described this new way of thinking as the "core competency" mind-set. In a 1990 article for Harvard Business Review, the analysts suggested that the traditional corporation views itself as a mere portfolio of different businesses, a collection of elements that are not necessarily connected or integrated. Alternately, NEC and other corporations embrace the core competency model, in which they focus not on their concrete business holdings but on their underlying experience and qualifications.
Embracing the concept of core competencies, according to Prahalad and Hamel, would allow corporate leaders to stabilize their core as well as to nourish, expand, and integrate their various branch businesses. This would give the corporation a natural advantage over competitors and allow it and its subsidiary businesses to adapt to changes in markets or societies with speed and efficiency. Prahalad and Hamel proposed that the most successful business leaders of the 1990s and beyond would be those who embrace the ideals of core competencies to make their businesses grow and prosper.
Overview
Prahalad and Hamel defined core competencies as collective learning in an organization that allows its members to organize, use, and integrate different kinds of skill, knowledge, and technology. This shared learning lets an organization smoothly and effectively cross boundaries between industries. Core competencies are not an asset like money that can be depleted. Rather, as a form of learning, the more these competencies are used, the more they strengthen and expand.
The analysts illustrated the concept by likening an organization to a tree. The organization's core competencies form the roots. These roots support the trunk, or the core of the organization. Branches stemming from the trunk represent separate businesses and products. They can reach in all directions without danger because they are stabilized by the roots and trunk.
Organizations may have many tasks and abilities, but not all of these will qualify as core competencies. To make the most of core competencies, an organization must first determine what these competencies are. Prahalad and Hamel described three criteria that can be used to test whether a particular facet of an organization is a core competency.
The first criterion is that the facet must potentially allow the organization to access different markets. Second, the facet must greatly benefit the end product and its consumers. Third, the facet must be uncommon and difficult to imitate, based as it is on the organization's unique skills and experience. If a facet of an organization meets these criteria, it is most likely a core competency and can be emphasized and leveraged for the good of the organization.
Core competencies may take many forms. In the original use described by Prahalad and Hamel, they are primarily for organizations. Some of these competencies may be broad and general, such as having a strong grasp of new technology or an aptitude for public relations campaigns. Other competencies may be much more specific. For instance, a car manufacturer may be renowned for its top-quality engine design. This competency may allow the company to branch off into making other engine-powered machines such as lawnmowers or motorcycles.
Individuals also may have core competencies. For example, a person may have business skills in areas such as law, mathematics, economics, or technology. Someone might have interpersonal skills useful in teamwork, including motivational, leadership, or negotiating skills. Someone may also have personal skills of individual value, such as being a good communicator, a motivated worker, or an innovative thinker. Any of these may be a core competency that allows the person to find success in many areas.
Business analysts believe that organizations should embrace their core competencies. They should invest time, energy, and funds into further developing and maintaining those competencies. Potentially, they may also de-emphasize other endeavors that are outside of the competencies. These tasks may be minimized or even outsourced to other organizations, allowing the main organization to focus on its core skills and experiences.
Bibliography
Campbell, Andrew, and Kathleen Sommers Luchs. Core Competency-Based Strategy. International Thomson Business P, 1997.
"Core Competence." Economist, 15 Sept. 2008, www.economist.com/node/12231124. Accessed 8 Dec. 2017.
"Core Competencies of a Successful Scientist." Fred Hutchinson Cancer Research Center, www.fredhutch.org/en/education-training/oscd/core-competencies.html. Accessed 8 Dec. 2017.
Drejer, Anders. Strategic Management and Core Competencies: Theory and Application. Quorum Books, 2002.
Prahalad, C.K., and Gary Hamel. "The Core Competence of the Corporation." Harvard Business Review, May–June 1990, hbr.org/1990/05/the-core-competence-of-the-corporation#. Accessed 8 Dec. 2017.
Quick, Ellen K. Core Competencies in the Solution-Focused and Strategic Therapies: Becoming a Highly Competent Solution-Focused and Strategic Therapist. Routledge, 2012.
Rouse, Margaret, et al. "Core Competency (Core Competencies)." TechTarget, Mar. 2017, searchcio.techtarget.com/definition/core-competency. Accessed 8 Dec. 2017.
Tompkins, James A., et al. Logistics and Manufacturing Outsourcing: Harness Your Core Competencies. Tompkins P, 2005.
Zook, Chris. Beyond the Core: Expand Your Market without Abandoning Your Roots. Harvard Business School P, 2004.