Inside-out strategy. Explanation of Core Competence of Hamel and Prahalad.
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 Porter’s five forces model) 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 building.
Three tests for identifying a Core Competence
- Provides potential access to a wide variety of markets.
- Makes a significant contribution to the benefits of the product as
perceived by the customer. - A
CC should be difficult for competitors to imitate.
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.
Core rigidities?
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.
on September 22nd, 2006 at 11:06 pm
While i fully agree with the concept of core competency, my struggle is this: in todays age of easy knowledge / skill / competency transfer, the real challenge lies in creativity and leadership. I am aware of the huge leap I make in my assumptions, however in a world where every thing can be digitised and out sourced (to the cheapest place on the planet) the source of competitive advantage in the future is likely to be in unlocking creativity within organisations and leading thru emotional, intellectual and spritual alignment. Would be oblidged for your views. Thank you.