Identifying, Applying, and Leveraging Core Competence

Point Summary

Books and Articles

Kevin P.Coyne, Stephen J. D.  Hall, Patricia Gorman Clifford, “Is your core competence a mirage?” McKinsey Quarterly, 1997, pp. 40-54.

Core competence - the idea that a company can succeed without a structural competitive advantage by becoming the best at a few key skills or in a few knowledge areas - has enjoyed enormous popularity over the past 6 years.  But despite all the attention this concept has received, its tangible impact on corporate performance has been mixed at best.  To address the need for a more rigorous approach, an article proposes a clear definition of what a core competence is (and is not), and suggests how an executive in pursuit of a competence-led strategy is likely to prove worthwhile.  It outlines 3 distinct paths to developing a competence - evolution, incubation, and acquisition.

C. K.  Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business Review.  May/Jun, 1990, 68(3), pp. 79-91.

In the 1990s, top executives will be judged by their ability to identify, cultivate, and exploit core competencies that make growth possible.  They will have to rethink the concept of the corporation itself.  The critical task for management is to create an organization capable of infusing products with irresistible functionality or creating products that customers need but have not yet imagined.  Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies.  A core competency has 3 identifying elements: 1.  It provides potential access to a wide variety of markets.  2.  It makes a significant contribution to the perceived customers benefits of the end products.  3.  It is difficult for competitors to imitate.  Senior management should spend a significant amount of time developing a corporate wide strategic architecture that establishes objectives for competence building.  The location, number, and quality of the people who embody competence should be identified.     

Briance Mascarenhas and Alok Baveja, and Mamnoon Jamil, “Dynamics of Core Competencies in Leading Multinational Companies,”  California Management Review, Summer, 1998.

This article examines the core competencies of twelve leading multinational companies. It explores their competencies, how they were developed, and how they are shifting over time. Successful companies rely on three types of competencies: superior technological know-how, reliable processes, and close external relationships. Different approaches are needed to develop each types of competency. While these firms have historically relied on technological know-how and reliable processes, they are planning more close external relationships for the future. External relationships help these firms strengthen and extend their traditional competencies while responding to the demands of globalization, mass customization, enhanced quality, and rapid technological change.  

James Brian Quinn, “Outsourcing innovation:  The new engine of growth,” Sloan Management Review, Summer, 2000,  41(4), pp. 13-28.

Innovation calls for the complex knowledge that only a broad network of specialists can offer. That is why many companies are starting to outsource innovation. Four forces are enabling this change: 1. Demand is doubling every 15 years. 2. The supply of knowledge workers is skyrocketing. 3. Interaction capabilities have grown. 4. New incentives have emerged. The most effective companies, however, keep core-competence activities in-house, outsourcing the rest to best-in-world suppliers. The challenges facing companies that outsource innovation are discussed.

Helen Rheem, “Technology: Core competence or diverse competencies?” Harvard Business Review. Mar/Apr, 1995,  73(2), pp. 11.

Professor Keith Pavitt and Senior Research Fellow Pari Patel of the Centre for Science, Technology, and Energy and Environment Policy at the University of Sussex, question whether large companies can even have core competencies when it comes to technology.

Case Studies

Mary M. Crossan and Ariff Kachra, “Starbucks,” HBS Case, 9-98M-006, 1999.  

Starbucks is faced with the issue of how it should leverage its core competencies against various opportunities for growth, including introducing its coffee in McDonalds, pursuing further expansion of its retail operations, and leveraging the brand into other product areas. The case is written so that students need to first identify where Starbucks' competencies lie along the value chain, and then assess how well those competencies can be leveraged across the various alternatives. Also provides an opportunity for students to assess what is driving growth in this company. Starbucks has a tremendous appetite for cash since all its stores are corporate, and investors are betting that it will be able to continue its phenomenal growth so it needs to walk a fine line between leveraging its brand to achieve growth and not eroding it in the process.