C.K. Prahalad and Gary Hamel. Guess the names don’t quite ring a bell, especially if you are a management researcher. Certainly, not the same decibel as a Michael Porter or Phillip Kotler. However, their contributions to the theory of core competence, one of the most fundamental concepts in management is stellar.
What will I do differently? How do I standout from the crowd? Why should a customer choose me over a competitor? In a nutshell, what will be my competitive advantage? These questions resonate deeply in most entrepreneurs as they start out in the sometimes-dangerous world of entrepreneurship.
C.K. Prahalad (now late) and Gary Hamel, in their seminal work, The Core Competence of the Corporation, provide a guide for companies to follow in order to build competitive advantage. Their advice is that companies identify, cultivate and exploit what they know best to do.
Organisational resources provide a stock of options from which the organisation can choose a core competence. For a new business, this could be the speed of getting work done or it could just be an uncanny street smartness of the Founder (which though may be unsustainable). It could be the organisation’s creative capability.
Dr. Jay Barney of the Fisher College of Business gave a new dimension to the concept of core competence. He introduced four variables, which are quintessential to a strategic core competence. In his opinion, a firm’s core competence has to be valuable (shouldn’t be worth much more than the paper on which it is designed), rare (shouldn’t be like the sand on the seashore), costly to imitate (should make competitors shrink at the prospect of developing it) and should be non-substitutable (shouldn’t easily lose its significance). In many ways, these variables are self-reinforcing.
Core competence only makes sense within the context of am industry’s reality. Outside of a market context, valuable, rare, costly to imitate and non-substitutable, absolutely make no sense. Therefore, in making sense of these variables, there is a need to have a good understanding of the market.
In the Nigerian travel service industry, there was an industry compromise that customers could not access cheaper services from the comfort of their homes. However, with a competence in technology and internet communication, an operator hitherto stuck in that compromise, broke-forth from it with wakanow.com. The result of this is that it has leapfrogged competition as one of the biggest brand names in the industry, within the space of a couple of years. It is difficult to know how profitable wakanow.com and its competitors are, as they are privately held and at no obligation to present statements of financial performance to the public. However, in terms of brand recognition, it is obvious wakanow.com is currently winning. Don’t forget a company can get a lot of financial rewards from a healthy brand recognition.
A core-competence is not always easy and straightforward to develop. It involves a lot of internal and external environmental scanning. Whilst we are not advocating that entrepreneurs get themselves involved in a maze of analysis-paralysis, we think there is some level of work to be done in arriving at it needed to get one. We also think there is a lot of reward to be derived from finding a core competence. In reality, it could be the difference between the sublime and the ordinary.