Core Competence for Sustainable Competitive Advantage

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IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 1, FEBRUARY 2002

Core Competence for Sustainable Competitive Advantage: A Structured Methodology for Identifying Core Competence Khalid Hafeez, YanBing Zhang, and Naila Malak
Abstract—Core competencies are the crown jewels of a company and, therefore, should be carefully nurtured and developed. Companies can determine their future business directions based on the strengths of competencies. However, because generalized terms such as resource, asset, capability, and competence are not clearly explained in connection with competence theory, these posing difficulties in understanding many contemporary management concepts. In this paper, we provide a summary of the recent management theories by comparing their salient features. We then propose a linking mechanism between assets, resources, capabilities, competencies, and core competencies. We provide a methodology to identify core competencies by isolating unique and flexible capabilities of the firm. We use this framework to identify the core competencies of a U.K. manufacturing company. The results of our analyses is to help the company to make more informed strategic management decision regarding capability development, outsourcing, focusing, or diversification, with regards to new products, services, or markets. The framework is generic in nature and is applicable to benchmark a manufacturing, public, or service sector organization. Index Terms—Assets, capability, competence, core competence, resource, strategic flexibility, uniqueness.

competition. The term “core competence” was used by Prahalad and Hamel [3] to deal with capabilities within diversified firms. Several measures have been proposed how to identify unique resources and capabilities [4]–[9]. However, because generalized terms such as resource, asset, capability, and competence are not clearly explained in connection with competence theory, they become an obstacle in understanding many contemporary management concepts. In this paper, we provide a summary of the recent management theories by comparing their salient features. Then, we propose a set of working definitions by categorizing resources into physical, intellectual, and cultural assets. Using our definitions, a conceptual framework is presented showing relationships between assets, capabilities, competencies, and core competencies. We show how to isolate competencies from capabilities by evaluating the collectiveness and unique attributes of capabilities, and how to further determine core competencies by evaluating the strategic flexibility of competencies. We use this framework to evaluate the competencies and core competencies of a U.K. manufacturing company. II. NEW WAVES OF STRATEGIC MANAGEMENT In recent years, three approaches have emerged as “a counterpoint to market structure analysis of competitive strategy” [10]. A brief account of these are given in the following and a summary of their salient features is shown in Table I. A. Resource-Based View In resource-based view, a firm is understood to be a bundle of assets and capabilities. The competitive advantage is acquired by accumulating strategic assets and capabilities. This is opposed to the competitive forces approach where industry structure and/or market segments are the competitive factors. However, the resource-based view argues that firms are heterogeneous to one another due to possessing of some unique assets and/or capabilities. These unique assets and capabilities, often known as strategic resources, can make all the difference in creating competitive advantage for a firm. Therefore, management efforts should be focused toward nurturing and exploiting these strategic resources [4], [9]. B. Competence-Based Perspective Competence-based perspective argues that it is the core competencies of a firm, not discrete, individual assets, which are the

I. INTRODUCTION RADITIONAL “competitive forces theory” asserts that in...
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