Sustainable Competitive Advantage with Core Competence : A Review

Global Journal of Flexible Systems Management, Dec 2002 by Kak, Anjana

Abstract

The potential of an organization's sustainable competitive advantage depends on the rareness and imitability of its resources and capabilities. The less imitable a competitive advantage is, the more cost disadvantage is faced by the competitor in imitating these competencies. Thus, core competence is an important source of sustained competitive advantage for corporate success and greater is its economic return. The literature has been reviewed for the sources of core competence, role of core competence for competitive advantage, and formulation of strategy with core competence and flexibility in a more focussed manner. The organizational learning, strategic flexibility, effective technology management, and people provide the important sources of core competence.

Keywords : core competence, organizational learning, strategic flexibility, sustainable competitive advantage, technology management.

Introduction

The idea that complex internal capabilities are critical to an organization's success is not new. Phillip Selznick in his book 'Leadership in Administration' (1957), acknowledged that factors internal to an organization, e.g. its personnel and its past experiences, are important to its success in implementing a formulated strategy. he defined the art of good management as the ability to make a practical assessment of an organization's suitability to its strategy. Selznick called the strange characteristics of an organization its 'distinctive competence'. In the year 1960, Learned, Christensen, Andrews and Guth, academicians of the Harvard Business School, suggested that the goals of corporate strategy have to match an organization's distinctive competencies with available opportunities and thereby gain competitive advantage. The thinking on competencies and corporate strategy remained dormant during the 1970s and early 1980s, the reason being that the consultants and the academicians paid more attention to other approaches of strategy. Porter (1980) developed five-force framework of competitiveness, which helped managers to understand external opportunities and competitive threats, and enable them to formulate a strategy, based on these analyses. It is simultaneously important to know if the organization has the requisite skills to implement the chosen strategy or can it acquire those skills at a reasonable cost. Hayes (1985) stressed the thinking on an organization's internal competencies wherein he advised managers to build capabilities first and then encourage the development of plans for exploiting them. Itami and Roehl in their influential book, 'Mobilizing Invisible Assets' (1987), also pointed out the importance of building on organization's strengths, or what they called its invisible assets. This thinking gathered momentum with the emergence of the resource-based concept during the late 1980s. Successful corporate strategy depends on accumulating competencies and exploiting them by matching these competencies to the market opportunities, thereby achieving a sustainable competitive advantage. The identification of core competence of an organization is to be based on a corporation's complete history rather than selected parts of it.

The effective technology management, organizational processes and flexibility direct the attention to organizational capabilities, instead of focusing on specific technologies to build and refine core competencies. The less imitable the core competencies are, the more they become the factors for corporate success and greater is their economic return. This paper reviews the literature on the role of core competence for competitive advantage, sources of competitive advantage, and role of strategy with core competence and flexibility in a more focused manner.

Role of Core Competence for Competitive Advantage

Hamel and Prahalad (1994) define core competence as a bundle of skills and technologies that enable a company to provide a particular benefit to customers. Core competencies are not product specific; they contribute to the competitiveness of a range of products or services. They are the roots of competitiveness and individual products and services are the fruit. A core competence is a tapestry woven from the threads of distinct skills and technologies. A skill must meet three tests to be considered as a core competence, i.e., customer value, competitor differentiation, and extendibility.

Competitive advantage is at the heart of firm's performance. It is concerned with the interplay between the types of competitive advantage, i.e., cost, and differentiation, and the scope of the firm's activities. The value chain plays an important role in order to diagnose and enhance the competitive advantage. A sustainable competitive advantage creates some barriers that make imitation difficult. Without a sustainable competitive advantage, above average performance is usually a sign of harvesting (Porter, 1985).

The secret of a sustainable competitive advantage lies in performing every step in the value chain in an appropriate way. A competitive advantage essentially has to be one that not only merely represents better performance than that of its competitors, but also delivers genuine value to the customer, thus ensuring a dominant position in the market. The internal resources and capabilities of an organization play a very important role in building competitive advantage. The organizations that want to build competitive advantages, which cannot be eroded (no matter how much change is there in the environment), must make linkages between the advantage and the capabilities underlying it as impenetrable and as confusing as possible. Also the most important part of the competitive advantage stems from a capability that is impossible to replicate (Sinha, 1998).