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Core competences (Hamel and Prahalad)

How can core competences (hamel and prahalad) support strategic choice or positioning?

AccessibleStrategicOrganisation3 min read

Contents

The authors define a core competence as an ‘integrated bundle of skills and technologies’.

Hamel and Prahalad describe a core competence as an integrated bundle of skills and technologies. Unlike a single product or asset, it is collective organisational learning that can be deployed across several businesses and can help the corporation create future opportunities.

When to use it

Use it in corporate strategy to determine how the centre can add value by building, protecting and transferring important competences across business units.

Origins

After BCG’s experience curve and Growth/Share Matrix shaped much strategy work in the 1970s, and Michael Porter’s Five Forces emphasised industry structure in the 1980s, the resource-based school became especially influential during the 1990s.

Gary Hamel and C.K. Prahalad advanced this perspective in their Harvard Business Review article “The Core Competence of the Corporation” and their 1994 book Competing for the Future. The 1994 publication developed the argument for a broad management audience. The wider school includes Grant’s resources-and-capabilities matrix; Barney’s synthesis in the VRIN model (Strategically distinctive resources (Barney)); Kay’s work on Distinctive capabilities (Kay); Snow and Hrebiniak’s Distinctive competences (Snow and Hrebiniak); and Teece, Pisano and Shuen’s Dynamic capabilities (Teece, Pisano and Shuen). The work of Collis and Montgomery on Strategically valuable resources (Collis and Montgomery) connects resource-based reasoning with market-based views such as Porter’s and BCG’s. Kay’s Distinctive capabilities (Kay) remains a particularly close comparison.

The central ambition is to reach emerging opportunities before rivals.

What it is

The framework asks two linked questions: what collective capabilities does the firm possess, and will those capabilities matter in tomorrow’s markets?

Its perspective differs from portfolio models and purely industry-based analysis. The corporation is treated as a portfolio of competences as well as a portfolio of businesses.

The related resource-based models differ in emphasis but share an inside-out question: which resources, relationships and coordinated skills can create value that competitors cannot easily reproduce? Hamel and Prahalad focus especially on how the corporate centre can nurture and redeploy collective learning across organisational boundaries.

For Hamel and Prahalad, corporate strategy extends beyond allocating capital among business units. Headquarters can develop strengths in critical operating processes—core competences—and align the organisation around an ambitious direction—strategic intent.

They contrasted this agenda with the era’s emphasis on downsizing and re-engineering. The aim was to regenerate strategy and reshape industries, not merely improve the efficiency of the existing portfolio.

The table presents six of their 13 strategic challenges. Each reframes conventional planning around future opportunity, foresight, stretch, leverage and industry creation. Competition for leadership in core competences has proved the most influential of these ideas.

Competing for the future requires a broader strategic frame.

Not only	But also
Competing for market share	Competing for opportunity share
Strategy as positioning	Strategy as foresight
Strategy as fit	Strategy as stretch: intent
Strategy as resource allocation	Strategy as resource leverage
Competing within an industry	Competing to reshape industry
Competing in products	Competing in core competences

Possible financial-services competences include relationship management, transaction processing, risk management, foreign exchange, financial engineering, trading, investment management, teleservice and customer-information capture. These labels become useful only when they describe an integrated capability, not a departmental activity.

How to use it

Begin by treating competence management as a cycle: identify, build, deploy, protect and renew the capabilities needed to compete for future opportunities.

Map the competences required for current and future markets against those the firm already possesses and those it must acquire, using the matrix below.

The four areas generate distinct strategic questions:

In fill in the blanks, current competences serve current businesses or product–market segments. Ask how better transfer or deployment could strengthen the existing position.

In premier plus 10, identify new competences required to become the leading provider in five to ten years and defend the present franchise. This resembles defining the future ideal player in Profiling the ideal player.

The matrix distinguishes leverage from competence acquisition.

In white space, explore new businesses that existing competences could create when redeployed or recombined.

In mega opportunities, determine which new competences would be necessary to participate in the most attractive future businesses.

A competence becomes strategically more valuable as its customer relevance, distinctiveness and defensibility increase.

Translate each priority competence into learning, technology, talent, partnership and transfer initiatives, with an owner and evidence of progress.

Top practical tip

Map both today’s and tomorrow’s required competences, then specify how each priority will be built and transferred across business units. A list without an investment and deployment mechanism is not a competence strategy.

Top pitfall

Do not assume that every corporate-level capability adds value. Critics, including Michael Porter, emphasise that competition occurs at business-unit level; the centre must demonstrate that its involvement improves a competence more than decentralised ownership would.