Review of Core Competence

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  • Topic: Strategic management, Management, Core competency
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  • Published : March 9, 2011
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The review of “The Core Competence of the Corporation”

Introduction
When many corporations were struggling in unstable and unpredictable competitive environment in the 1990s, the proposition of the concept of core competence became the dominant framework in management theory (Liu, 2006). This essay will review the article entitled “the core competence of the corporation” by Prahalad and Hamel from three aspects. Initially the position of the article will be analyzed compared with the Porter’s positioning perspective followed by the presentation of three theoretical assumptions of the article. In the last part, the strength and weakness of the article would be critically investigated.

The resource-based view VS Positioning view
The underlying debate that the article reveals refers to the contradictory statements of Resource-based View (RBV) and Positioning perspective. Kogut and Zander (1995, p420) claim, “Strategy is much more than the selection of product markets and technologies of production. Above all, it is the creation and maintenance of superior organizational routines that reproduce and develop the strategy and the organization over time”. In the citation, the organizational routines refer to the management of internal resources, with the purpose of creating competitive advantages in the volatile environment (Jansson, 2008).

The resource-based view of the firm highlights the internal competitive resources in formulating the strategic decisions to obtain the sustainable advantages. Barney (1991) describes the sustainable competitive advantage as the corporation’s capability to surpass its rivals in the long term. Hence, in order to maintain the competitive position in the industry, the resources should fulfill some conditions such as durability, uniqueness, non-transparency and non-replicability. The core competencies which is defined as “the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies” (Prahalad and Hamel,1990),is the derivative of the derivative of the Resource Based View (Srivastava, 2005). The persuasive case examples of successful organizations, such as 3M, Honda, and Canon, appear to develop strategy depending on the present and future competencies rather than the analysis of achieving the dominance of specific market (Prahalad & Hamel, 1990).

Rasche and Wolfrum (Linder and Seidenstricker, 2010) claims the market-based view of the industrial economy diverges from the inside-out perspective namely the resource oriented view. Porter is a strong advocator of outside-in view focusing on the environment factors in settling on strategic approaches to create competitive advantages; that is, the company should follow structure-conduct-performance model by analyzing the situations of not only the main competitors but also its suppliers, customers, substitutes and potential entrants to maximize the profit namely the five forces framework introduced by Porter (Jansson,2008. p286). Southwest Airlines is a typical example to illustrate the market-position led approach. Leavy (2003) reveals that competitive advantage based on a privileged market position indicate first-mover advantages in market-specific investments, skills and infrastructure such as aircraft.

The divergence between the theories can be traced to a different foundation. To begin with, the positioning perspective starts by mulling over the market that the company expects to enter and the position to be taken, and follows up by considering how the resources should be assembled. Conversely the resource-based view originates from evaluating which distinctive competences can be built, and then deliberates the market opportunities that would exploit them best. In other words, Porter views a firm as a bundle of activities; however, Prahalad and Hamel(1990) conceive it as a portfolio of competencies. The case of NEC and GTE illustrates the distinction...
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