Enterprise Core Competency Theory
The concept of enterprise core competency theory was first introduced by C.K. Prahalad and Gary Hamel in 1990 in their renowned article “The Core Competence of the Corporation”. Prahalad and Hamel examined how the most successful corporations of the time such as Philips, Honda, and Canon were able to attain and maintain competitive advantage despite ever-changing market conditions. Their theory was based on four fundamental premises:
1. Core competencies can help a corporation establish strategic advantage.
2. Core competencies are not only related to products but also processes.
3. Core competencies are developed through synergy between different parts of the corporation.
4. Core competencies should be identified and improved in order to remain competitive.
The primary goal of enterprise core competency theory is to maximize corporate value and competitive advantage by applying limited resources strategically. Such an approach allows organizations to differentiate their products and services, capture a larger share of the market, and increase profitability. Enterprise core competencie theory derives from the notion that a firm should allocate its capital to areas where it can attain and maintain a competitive advantage. Accordingly, these competencies should be distinctive, extend across markets, and leverage existing technology and knowledge.
The concept of enterprise core competency theory is based on the three pillars of corporate structure: capabilities, resources, and organization. Core competencies represent the unique combination of capabilities and resources which are organized together to exploit technology and knowledge. Core competencies should serve as the cornerstone for an organization’s strategic direction.
The first step in developing a successful enterprise core competency strategy is to identify an organization’s current capabilities. This can be achieved by undertaking a strategic analysis, where the entire organization is evaluated from an internal and external perspective. This analysis should identify the strengths and weaknesses of the corporation. Additionally, a market analysis should be conducted in order to understand the customer segment the business is targeting.
The second step is to identify core competencies according to the following criteria:
1. Degree of knowledge – does the organization possess in-depth knowledge of the customer segment?
2. Ability to leverage existing resources – can existing resources be optimized and arranged effectively?
3. Product differentiation – is it possible to establish a unique product offering?
4. Ability to anticipate change – can the organization effectively anticipate customer needs and market trends?
Finally, the organization should devise a strategy for exploiting core competencies. This strategy should include initiatives to acquire, enhance, package, and market services and products which are related to core competencies. Additionally, strategies must be implemented to continually update management and operational practices in order to remain competitive.
In summary, enterprise core competency theory is an important strategic tool which allows organizations to gain and maintain a competitive advantage. The three pillars of the theory are capabilities, resources, and organization. Organizations should identify their core competencies and devise strategies which exploit these competencies in order to differentiate their product offering and increase their market share. Finally, strategies should be implemented in order to continually update management and operational practices.
