A core competency is a concept in management theory introduced by C. K. Prahalad and Gary Hamel. It can be defined as “a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace” and therefore are the foundation of companies’ competitiveness.
Core competencies fulfill three criteria:
- Provides potential access to a wide variety of markets.
- Difficult to imitate by competitors.
- Should make a significant contribution to the perceived customer benefits of the end product.
Variables of the Four Core Competencies
As part of their work, Prahalad and Hamel developed a Core Competence Model. The model focuses on a combination of specific, collaborative, integrated and applied knowledge, skills and attitude. The model, which should not focus on fighting off the competition, but on creating a new competitive space, comprises four core competencies:
- Resources: The sources for the development and acquisition of skills and technologies
- Capabilities: The possibilities to build core competencies
- Competitive advantage: The challenge to acquire and develop the largest possible market share of core products
- Strategy: The strategy to develop the largest possible market share of finished products.
Core competencies and product development
Core competencies are related to a firm’s product portfolio via core products. Core competencies as the engines for the development of core products and services. Competencies are the roots of which the corporation grows, like a tree whose fruit are end products.
Core products contribute “To the competitiveness of a wide range of end products. They are the physical embodiment of core competencies.” Approaches for identifying product portfolios with respect to core competencies and vice versa have been developed in recent years. One approach for identifying core competencies with respect to a product portfolio. They use design structure matrices for mapping competencies to specific products in the product portfolio. Using their approach, clusters of competencies can be aggregated to core competencies. A similar method for assessing how far a company has achieved its development of core competencies. More recently Hein et al. link core competencies to Christensen’s concept of capabilities, which is defined as resources, processes, and priorities. Furthermore, they present a method to evaluate different product architectures with respect to their contribution to the development of core competencies.