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73Principle · Group 9

Core Competence

Core competencies in business

“A lasting lead comes from a few combined capabilities that can be transferred to many products and that others find hard to replicate.”

Most organizations describe themselves by what they offer: cars, films, courses, worship services. The principle of Core Competence looks one level deeper and asks what know-how makes all these offerings possible.

Group 9: Markets and OrganizationsT6 Business Strategy
Go to the in-depth section ↓
Three gold circles sit at the top of fine lines that converge in a teal trunk; below it, mist-blue root lines branch out. At the turning point, the roots light up gold, one circle falls off and a new one grows from the same trunk; in the final image, next to it, a rootless line shape holds up three circles that fall off at once.
In short

A lasting lead comes from a few combined capabilities that can be transferred to many products and that others find hard to replicate.

What it’s about: Most organizations describe themselves by what they offer: cars, films, courses, worship services. The principle of Core Competence looks one level deeper and asks what know-how makes all these offerings possible. A company is like a tree. The offerings are the fruit, the core competencies the roots. In between stands the trunk, a core product in which the know-how takes tangible form, such as an engine.

In depth

The principle in detail

Three steps through the principle: grasp it, place it, put it to work. Open each topic on its own.

The core messageCore statement and 3 clarifications
In essence

A lead rests on a few capabilities that open up several fields, create a noticeable benefit and are hard to imitate.

It does not say
That everything you do well is a core competence. If a capability meets only one of the three conditions, it is a strength, not a core competence.
It does not say
That a core competence carries you forever. What made you great can blind you to what is new.
It also says
A name is no substitute for know-how. If you merely trade on your reputation, you let the root wither.
The explanationProducts age faster than capabilities.
  • Products age faster than capabilities.
  • A model is outdated after a few years, but the know-how behind it grows with every new model.
  • If you know what that know-how is, you can move into new fields without starting from scratch.
The question

What know-how carries your team’s work, and where else could it carry you?

The signs3 signs when you heed it · 3 when you overlook it
When you heed it
  • You can say in two sentences what know-how defines your team.
  • You choose new projects partly by whether they strengthen this know-how.
  • Knowledge moves between projects and departments instead of staying where it is.
When you overlook it
  • Every project counts as equally important, and nobody can say what the team stands for.
  • Capabilities splinter into departments that keep their knowledge to themselves.
  • When a main product disappears, the search starts from scratch.
The backgroundFrom the article “The Core Competence of the Corporation” by C. K. Prahalad and Gary Hamel (1990). · T6 Business Strategy
  1. 1990
    OriginC. K. Prahalad and Gary Hamel

    The Core Competence of the Corporation

  2. 1992
    SupplementedDorothy Leonard-Barton

    Core Capabilities and Core Rigidities

  3. 1994
    SupplementedGary Hamel and C. K. Prahalad

    Competing for the Future

  4. Tradition T6
    TraditionBusiness Strategy

    Michael E. Porter, Richard P. Rumelt, Henry Mintzberg, Clayton M. Christensen, W. Chan Kim and Renée Mauborgne

    See the tradition on the Origin page
Read more: the full background

From the article “The Core Competence of the Corporation” by C. K. Prahalad and Gary Hamel (1990). Supplemented by their book “Competing for the Future” (1994) and by Dorothy Leonard-Barton’s core rigidities (1992).

The research3 sources: 2 theories, 1 case study · 1990–1994 · with limitations of the research
3 sources1990–1994 period2 theories1 case study
Strength of evidence
  1. weak
  2. moderate
  3. strong

An influential theory based on case examples; the concept is hard to measure, and the only field study among the sources emphasizes its downside.

  1. 1990
    Theory
    C. K. Prahalad and Gary Hamel

    “The Core Competence of the Corporation”: core competence as the collective learning of the organization; three tests; the company as a tree with roots, trunk and fruit.

  2. 1992
    Case study
    Dorothy Leonard-Barton

    “Core Capabilities and Core Rigidities”: 20 development projects in five companies; core capabilities both foster and hinder product development.

  3. 1994
    Theory
    Gary Hamel and C. K. Prahalad

    “Competing for the Future”: develops the idea into a strategy for future markets.

Where the research reaches its limits
  • Core competencies can turn into core rigidities: what made a company great blinds it to new technology.
  • The concept is hard to measure; in practice, many firms call almost everything a core competence.
  • Not every success rests on a deep capability; sometimes the situation, timing or luck decides.
  • The case examples do not prove that the lead is “lasting.”
Read more: what research shows

C. K. Prahalad and Gary Hamel introduced the term in the Harvard Business Review in 1990. They were arguing against corporations that were breaking themselves up into many independent business units, and described core competencies as the collective learning of the organization, above all the ability to combine different technologies and skills. Their three tests: access to several markets, a noticeable benefit for customers, hard to imitate. Their main evidence consists of case examples such as Honda, not measurements. In 1994, they expanded the idea in their book “Competing for the Future.” In 1992, Dorothy Leonard-Barton studied 20 development projects in five companies and showed that core capabilities can also become core rigidities: they both foster and hinder the development of new products.

The related principles71 Value Chain · 74 Valuable, Rare Resources · 79 Exploration and Exploitation · 81 Path Dependence
Valuable, Rare ResourcesValue Chain

To go deeper, see 74 Valuable, Rare Resources (the four tests explain why a core competence can sustain a lead) and 71 Value Chain (the know-how sits in individual activities and in how they work together)

Exploration and Exploitation

79 Exploration and Exploitation demands that you use a competence and renew it at the same time

Path Dependence

81 Path Dependence stands in tension with it, because early decisions about capabilities can become shackles

Read more: the full text

To go deeper, see 74 Valuable, Rare Resources (the four tests explain why a core competence can sustain a lead) and 71 Value Chain (the know-how sits in individual activities and in how they work together). 79 Exploration and Exploitation demands that you use a competence and renew it at the same time; 81 Path Dependence stands in tension with it, because early decisions about capabilities can become shackles.

The action steps5 action steps: Write down what your team delivers, and for each item ask what know-how makes it possible.

  1. Write down what your team delivers, and for each item ask what know-how makes it possible.

  2. Test each kind of know-how against three questions: Does it open up several fields? Do the people who receive it notice its benefit? Is it hard to imitate?

  3. Limit yourself to two or three capabilities that pass all three tests.

  4. Make sure this know-how is passed on between people and projects and does not depend on one person.

  5. Once a year, check where the same know-how is blinding you to a new development.

The reflection questions3 questions: What know-how lies behind several of your team’s offerings at once?
  1. What know-how lies behind several of your team’s offerings at once?
  2. What would your team do if its most important offering disappeared tomorrow?
  3. Where does your greatest strength blind you to a new development?

Take your time with one question. Write down your answer – or talk it over with someone you trust.

To finish
The picture to rememberThe animation once more, with an explanation
  1. Three gold circles sit at the top of fine lines that converge in a teal trunk
  2. Below it, mist-blue root lines branch out
  3. At the turning point, the roots light up gold, one circle falls off and a new one grows from the same trunk
  4. In the final image, next to it, a rootless line shape holds up three circles that fall off at once
Strategy Check

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In context

Group 9: Markets and Organizations

Guiding question: How does an organization win in the long run?

Stage 3 of 5: Choose the path

Where the 92 principles come from: eight traditions of strategy, from classical war theory to dealing with uncertainty.

More about the origin

Background: WEGVISOR’s own selection from the strategy literature · More about the origin

Examples

The principle in practice

From the different spheres of society.

Business

Honda and Core Competence

Honda builds cars, motorcycles, lawn mowers and generators. What looks like a motley assortment rests on a single capability: building small, reliable combustion engines. This is exactly the pattern C. K. Prahalad and Gary Hamel described as core competence in 1990.

Core Competence
Culture & Sports

Pixar and Core Competence

Pixar first sold computers, then software, then commercials. Only in 1995 did “Toy Story” arrive, the first feature film animated entirely on a computer. The products changed; the capability stayed: technology and storytelling under one roof.

Core Competence
FaithEducation

The Jesuits, the School of Messina and Core Competence

The Jesuits were not founded as a teaching order. But after a school for lay students opened in Messina in 1548, education became their most important field of work. One capability, thorough education according to a fixed plan, soon carried hundreds of schools on several continents.

Core Competence
Business

Movie: Ratatouille

In Paris, a rat with an extraordinary sense of taste becomes the secret cook of a famous restaurant. The 2007 animated film shows how a single capability carries many dishes and why a name without that capability is worth little.

Core Competence
FAQ

Questions about Core Competence

What does the principle of Core Competence say?

A lasting lead comes from a few combined capabilities, not from individual products. A core competence opens up many markets, creates a noticeable benefit and is hard to imitate.

Where does the principle come from?

It comes from C. K. Prahalad and Gary Hamel, who described it in the Harvard Business Review in 1990. They were arguing against corporations that saw themselves merely as a collection of separate business units.

What are some examples?

Well-known examples are Honda’s engine building, Pixar’s combination of technology and storytelling, and the educational work of the Jesuits since 1548.

How well is Core Competence supported by research?

Evidence: weak – an influential theory based on case examples; the concept is hard to measure, and the only field study among the sources emphasizes its downside.

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