The Core Competence of the Corporation

Topics: Strategic management, Management, Strategic business unit Pages: 37 (8314 words) Published: March 7, 2013
The Core Competence of the

C.K. Prahalad and Gary Hamel

Harvard Business Review


The Core Competence of the
C.K. Prahalad and Gary Hamel

The most powerful way to prevail in global competition is still invisible to many companies. During the 1980s, top executives were judged on their
ability to restructure, declutter, and delayer their
corporations. In the 1990s, they’ll be judged on
their ability to identify, cultivate, and exploit the
core competencies that make growth possible—
indeed, they’ll have to rethink the concept of the
corporation itself.
Consider the last ten years of GTE and NEC. In
the early 1980s, GTE was well positioned to become
a major player in the evolving information technology industry. It was active in telecommunications. Its operations spanned a variety of businesses including telephones, switching and transmission systems, digital PABX, semiconductors, packet switching, satellites, defense systems, and lighting products. And GTE’s Entertainment Products Group, which produced Sylvania color TVs, had a position in related display technologies. In 1980, GTE’s sales were $9.98

billion, and net cash flow was $1.73 billion. NEC, in
contrast, was much smaller, at $3.8 billion in sales. It
had a comparable technological base and computer
C.K. Prahalad is professor of corporate strategy and international business at the University of Michigan. Gary Hamel is lecturer in business policy and management at the London Business School. Their most recent HBR article, ‘‘Strategic Intent’’ (May–June 1989), won the 1989 McKinsey Award for excellence. This article is based on research funded by the Gatsby Charitable Foundation. Copyright

businesses, but it had no experience as an operating
telecommunications company.
Yet look at the positions of GTE and NEC in
1988. GTE’s 1988 sales were $16.46 billion, and
NEC’s sales were considerably higher at $21.89
billion. GTE has, in effect, become a telephone
operating company with a position in defense and
lighting products. GTE’s other businesses are small
in global terms. GTE has divested Sylvania TV and
Telenet, put switching, transmission, and digital
PABX into joint ventures, and closed down semiconductors. As a result, the international position of GTE has eroded. Non-U.S. revenue as a percent of
total revenue dropped from 20% to 15% between
1980 and 1988.
NEC has emerged as the world leader in semiconductors and as a first-tier player in telecommunications products and computers. It has consolidated its position in mainframe computers. It has moved

beyond public switching and transmission to include
such lifestyle products as mobile telephones, facsimile machines, and laptop computers—bridging the gap between telecommunications and office automation. NEC is the only company in the world to be in the top five in revenue in telecommunications,

semiconductors, and mainframes. Why did these two
companies, starting with comparable business portfolios, perform so differently? Largely because NEC conceived of itself in terms of ‘‘core competencies,’’ and GTE did not.

1990 by the President and Fellows of Harvard College. All rights reserved.

Rethinking the Corporation
Once, the diversified corporation could simply
point its business units at particular end product
markets and admonish them to become world leaders. But with market boundaries changing ever more quickly, targets are elusive and capture is at best
temporary. A few companies have proven themselves
adept at inventing new markets, quickly entering
emerging markets, and dramatically shifting patterns of customer choice in established markets. These are the ones to emulate. The critical task for
management is to create an organization capable of
infusing products with irresistible functionality or,
better yet, creating products that customers need but
have not yet even imagined.
This is a deceptively...
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