Business performance was primary based on the position of an organization in its industry and this view was criticized by Hamel and Prahalad as no common goal or corporation existed between the units. Alternatively, Porter believes that an organization should be viewed as individual business units. However, he does consider sharing resources between them which earlier idea planning ignore. This essay is going to discuss what competency is and compare with portfolio of individual business units. A core competency is something a firm can do well and meets the following three conditions pointed out by Hamel and Prahalad.
Firstly, it can provide customers benefits. Secondly, it is hard for competitors to imitate. Finally, it can be use widely in many products and markets. Hamel and Prahalad introduced this concept in 1990 Harvard Business Review article. A core competency is a bundle of skills and technologies for a firm to provide customers benefits. Sony is an example use this idea, Sony must ensure that technologists, engineers and markets have a share understanding of customers need and of technological possibilities. There are three test must meet when firm consider to use core competency as a management strategy.
These three test are can provide customer benefits, hard for competitors to imitate and can used widely in the market and product. There are many companies have the potential to build core competency but failed to do so because the top management are unable to conceive the company as anything other than collection of discrete business. Hamel and Prahalad define a business unit as focusing on end products or markets. However, the core competency is not product specific. It can be seen in broad sense which offering a wide rang of competitive advantages.
For example, ‘user friendliness’ at Apple Company. Core competency can be enhanced when it is being applied and shared, but it still needs to be nurtured and protected. Core competency is the glue that binds existing business. It is also the engine for new business development. Porter’s view of positioning, cost leadership and differentiation are all based on the final product. This is also the reason why Hamel and Prahalad and Porter have different views on whether the competency as a portfolio of core competency rather than as a portfolio of individual business units.
Hamel and Prahalad opinion is that competition is base on core competency much more than product. Glaxo is a company that supports Hamel and Prahalad’s idea. It suggests that if and organization is viewed as separate business focusing on the end product, future opportunities may be missed. Once the existing markets become matured and become a commodity if no new products have been envisaged. It is hard to maintain a core competitive advantage. However, if the organization based itself on core competency they to not diminish, the more they are applied, the more useful they will become.
The view of core competency is towards the future, while competition for individual business units focusing on end products is about the present. Considering the organization as a portfolio of core competency take an inside out approach. Hamel and Prahalad’s view only focus on internal analysis of the organization but not the external environment. However, the alternative view is the market based view taken by theorists such as Porter. This supports that in order to gain a competitive advantage, the organization needs to find a successful position for the product or service within the market.
This takes an outside in approach as it is based on positioning and then reviewing the organizations value chain to accommodate the external requirements. To sum up, it is very important and essential for a firm to build core competency. Core competency can bring several advantages and allow future opportunities to be identified as skills from different business units and can be combined to create new products. It is also a long term strategy and should be combined with the focus on end product to achieve competitive advantage.