Assessment of the Core Competencies Approach

The great strength of the approach proposed by Hamel and Prahalad is that it places the cumulative development of firm specific technological competencies at the center of the agenda of corporate strategy. Although they have done so by highlighting practice in contemporary firms, their descriptions reflects what has been happening in successful firms in science based industries since the beginning of the twentieth century. For example Gottfried Plumpe has shown that the world’s leading company in the exploitation of the revolution inorganic chemistry in the 1920s – IG Farben in Germany had already established numerous technical committees at the corporate level. In order to exploit emerging technological opportunities that cut across divisional boundaries. These enabled the firm to diversify progressively out of dyestuffs into plastic pharmaceutical and other related chemical products.

Other histories of businesses in chemicals and electrical products tell similar stories. In particular they show that the competence based view of the corporation has major implications for the organization of R&D, for methods of resource allocation and for strategy determination. In the meantime their approach does not have limitations and leaves at least the key questions unanswered.

Differing potentials for technology based diversification- It is not clear whether the corporate core competencies in all industries offer a basis for product diversification. Compare the recent historical experience of most large chemical and electronics firms where product diversification based on technology has been the norm, with that of most steel and textile firms, where technology related product diversification has proved very difficult (see examples of successful attempts to diversify by the Japanese steel industry in the 1980s).

Multi technology firms:

Recommendations that firms should concentrate resources on a few fundamental (for distinctive) world beating technological competencies. Large firms are typically active in a wide range of technologies, in only a few of which do they achieve distinctive world beating positions. In other technological fields, background technological competence is necessary to enable the firm to coordinate and benefit from outside linkages especially with suppliers of components, subsystems, materials and production machinery. Industries with complex products or production processes with a high proportion of a firm’s technological competencies is deployed in such background competencies. In addition, firms are constrained to develop competencies in an increasing range of technological fields (e.g. IT, new materials biotechnology) in order to remain competitive as products become even more multi technological.

Thus as is shown in the Table, a firm’s innovation strategy will involve more than its distinctive core (or critical) competencies. In house competencies in background (enabling) technologies are necessary for the effective coordination of changes in production and distribution systems, and in supply chains. In industries with complex product systems (like automobiles) background technologies can account for a sizeable proportion of corporate innovative activities. Background technologies can also be the sources of revolutionary and disruptive change. For example, given the major opportunities for improved performance that they offer, all businesses today have no choice but to adopt advances in IT technology just as all factories in the past had no choice but to convert to electricity as a power source. However, in terms of innovation strategy, it is important to distinguish firms where IT is a core technology and a source of distinctive competitive advantage e.g. Cisco, the supplier of internet equipment for firms where it is the background technology requiring major changes but available to all competitors from specialized suppliers and therefore unlikely to be a source of distinctive and sustainable competitive advantage (e.g. Tisco the UK supermarket chain).
Source: Managing Innovation