In the article, the authors introduce a new approach to strategic management called the "Resource Based View of the Firm" RVB. RVB attempts to develop a business model framework that helps describe how a company's resources drive its performance in a dynamic competitive environment. This approach integrates the internal analysis of the company (i.e. core competencies) with the external analysis of the industry and the competitive environment (i.e. Porter's Five Force Model). The article argues that both analyses are required to accurately assess a company's competitive position. While Porter's Five Forces Model helped strategic managers choose the right industries and, within them, the most attractive competitive positions, it did not place a high enough emphasis on a company's core competencies. The emphasis in the model was clearly on the phenomena at the industry level. Likewise, the core competencies approach emphasized the importance both of the skills and collective learning embedded in an organization, but little emphasis was placed on the external environment.
From Prahalad's article titled "The Core Competence of the Corporation", core competencies entail the collective learning in an organization and how diverse production skills and multiple streams of technologies are integrated. Core competence involves communication, involvement and a deep commitment to work across organizational boundaries. He argues that core competence does not diminish with use, unlike physical assets. He also argues that roots of competitive advantage arise from within the organization and that new strategies and improved competitive positioning are only constrained by the current level of the company's resources. Herein lies the key differences in the analyses carried out by Prahalad and Collis. Collis first argues that core competencies cannot be evaluated in isolation, because their value is determined in the context of the present market forces. In order...
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