Core Competence

Fundamentals

The origin of the term core competence is perhaps best associated with Prahalad’s and Hamel’s breakthrough examination of how select firms built very deep sources of competitive advantage that endured over time. Around the same time, an emerging management theory known as the resource-based view of the firm surfaced in academic studies of firm-based competitiveness. The resource-based view struck a responsive chord among researchers and practitioners because it argued that core competencies are a valuable firm-based resource that enables the organization to distinguish itself from its rivals in important ways. This perspective views each firm as a unique bundle of resources and assets, of which knowledge, skills, and capabilities are among the most important, durable, and less subject to competitor imitation. Although investment in physical assets and new technologies can provide an initial source of competitive advantage, building knowledge-based assets provides more sustainable advantage based on the firm’s underlying capacity to learn and apply new insights and skills. In this sense, a core competence emerges from the culmination of a long period of learning and investment that creates an asset which enables the organization to innovate and compete effectively in the marketplace. As such, building core competencies based on knowledge and learning in turn influences the firm’s growth, evolution, and even its strategic choices. Some researchers have described this core competence—strategy linkage—as part of a larger evolutionary theory of the firm, whereby earlier competence-building efforts shape and guide the firm’s subsequent growth paths.

Although there are numerous research papers that have developed various perspectives on core competencies, ultimately a core competence is composed of (a) the firm’s knowledge base, (b) dynamic routines that lay the groundwork for strong firm capabilities, and (c) a high degree of “path dependence” that shapes the firm’s evolution.

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