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Stategy Review

1314 words - 6 pages

The Core Competence of the Corporation
c.k prahalad and gary hamel (1990)
A Critical analysis
The Core Competence of the Corporation
c.k prahalad and gary hamel (1990)
A Critical analysis

Business Strategy MAN3079


There are two different drivers of strategy for a firm with one being the organisation itself and the other being the environment. “The Core Competence of the Corporation” argues the case for the organisation itself and so the article is placed in the wider debate of the resource based view (RBV) strategy versus positioning strategy. The two different strategies will explained briefly and then the view of the article ...view middle of the document...

Analysis of these forces is used to help “reveal whether an industry is truly attractive” for investors and managers (Porter M. E., 2008). Porter argues that “operational effectiveness (OE) is necessary to achieve superior is not usually sufficient”, here the point being made is that the profitability of a firm is low when it concentrates solely on its own resources while being near the “productivity frontier” and that a strategy “to choose activities that are different from rivals” leads to a unique position whereby profits can be made. (Porter, 1996)

The Article View

Hamel and Prahalad begin their article by comparing two companies called the NEC and GTE, where the NEC had a “strategic intent” to acquire competencies. The company believed that the markets for computing, communications, and components would overlap in the future and opportunities would be there for any company that built “competencies needed to serve all three markets”. While NEC made alliances in an effort to gain the skills of other companies, “GTE relied on outsiders for critical skills”, (Hamel, 1990).This resulted in NEC overtaking GTE in terms of sales as it “multiplied its internal resources” and hence this technological advantage in the industry could now be seen as a resource barrier for other firms as mentioned by Wernerfelt.
The authors describe a concept of a “root tree” in which they show that the core competencies are the roots leading to the core products which lead to the manufacture of the end products themselves. The point here is that core products give a corporation more “application arenas” that eventually lead to economies of scale by reducing the cost of new product development.
Also Hamel and Prahalad believe companies that are “adept at inventing new markets” or “quickly entering emerging ones” are the ones to emulate and by doing so create “uncontested market space” as was carried out by a circus company described by (Mauborgne, 2004). This circus company did not have too be concerned about any competitors as it was offering a new and different product.
The above views of the article show that the authors believe in a strong internal analysis model which is very much a RBV approach. Whereas Porter argued OE would not be enough to achieve substantial profits, the article sees “competence building” as a way of becoming a world leader in industry.

Strengths of the Article

The article argues its viewpoints not only with theory which is used in other literature but also with real life case studies.
Firstly, Prahalad and Hamel identify core competencies as being those that “provides potential access to wide variety of markets…makes significant contribution to the perceived customer benefits…and difficult for competitors to imitate”. The definition of RBV given by (Barney, 1991) earlier that a resource must be hard to imitate matches the article view that competitors...

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