Resources and Capabilities started to be considered as the source of competitive advantage. The general idea is that if company is focusing on what they do best, they will maintain competitive advantage and profitability. The core competency model went even further by adding the idea of unique and difficult to imitate skills, knowledge, resources and competencies (Wernerfelt, 1984; Rumelt, 1984).
To better define and understand what core competency is, I will present different definitions:
– Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrated multiple streams of technologies. They have three basic characteristics: they provide access to a wide variety of markets, contribute significantly to the end product benefits, and are difficult for the competitors to imitate. (Hamel and Prahalad, 1990)
– Core competencies are a unique combination of technologies, knowledge and skills that are possessed by one company in the market. They have various attributes such as complexity, inimitability, durability, non-substitutability. A core competency is the basis for a large variety of end products and services. (Petts, 1997)
– Javidan (1998) points out, that core competency is a collection of competencies that are widespread in the corporation. It results from the interaction between different SBUs’ competencies. Core competencies are skills and areas of knowledge that are shared across business units and result from the integration and harmonization of SBU competencies. One useful finding of Hafeez et al.,(2002)
It is also important to understand what core competency is not:
– It is not a vertical integration
– It is not a Business Segment Unit
– It is not a single technology or product
Finally, we need to define some additional terms encounter in the above definitions and present the hierarchy from resources to capabilities to core competencies.
– Tangible resources: includes financial resources and physical assets which are identified and valued in the company’s financial statements.
– Intangible resource: human resources such as manpower, management team, training and experience, technology, culture and reputation
– Capabilities refer to the corporation’s ability to exploit its resources. They consist of a series of business processes and routines that manage the interaction among its resources. The literature uses most of the time the terms “capability” and “competence” interchangeably and difference is purely semantic (Hamel and Prahalad, 1992).
Underlying it all is that core competencies are hard to imitate and distinguish the company from competition. Therefore, strategy has to move from competing for product or service leadership to competing in core competence leadership. So identifying the core competencies of the company is critical to continuous strategic investment in them because they govern the long term potential of the company.
The core competence has to be a primary factor for strategy formulation as it is an important source of profitability. Scholars have acknowledged the importance of the core competence concept by suggesting core competence models to sustain competitive advantage (Petts, 1997; Hafeez et al., 2002).