Managing Core Competence of the

Organization
Shirish C Srivastava
Past studies on core competence have deliberated either on the theoretical concept of core
competence or its usefulness as a strategic tool for firms. In spite of a large number of papers on the
subject, to the authors knowledge, there has been no study which spells out an actionable
framework for leveraging the concept of core competence in creating competitive advantage for
organizations. This perceptible gap in strategy literature is the prime motivation for this study. In
this paper, the author views core competence as a dynamic learned resource which is subject to
continuous metamorphosis with changes in internal and external environment. The proposed
critical competence framework integrates the various studies on core competence and puts forth
an all-encompassing practicable methodology to be utilized by firms for sustained success. Critical
competence is the ability of a firm to successfully identify, nurture, develop, upgrade, and deploy
its hierarchy of competencies to attain sustainable competitive advantage. In the process of
proposing and explaining the framework for critical competence, this paper makes four major
contributions:
First, it provides a consolidated and comprehensive literature review on the subject of core
competence which can be used by academics for future studies on the subject.
Second, the proposed framework for critical competence shows that the possession of meta/
core competencies will in itself not result in competitive advantage; rather, it is important
to understand how these competencies are utilized for adding value to the firm.
Third, the proposed critical competence framework serves as a tool for analysing the past
success/failure and also serves as a guide for charting out the future strategy of firms.
Fourth, through the example of Indian Railways, the paper illustrates the descriptive
capability of the proposed critical competence framework.
The proposed framework helps us conclude that competencies in an organization need to be
continuously nurtured, developed, and also abandoned. Critical competence emerges as a
universal competence which is at the highest level in the hierarchy of competencies and is a pre-
requisite for attaining sustainable competitive advantage.
Executive
Summary
I N T E R F A C E S
presents articles focusing on
managerial applications of
management practices,
theories, and concepts
KEY WORDS
Critical/Core
Competence
Resource-based View
Meta-competence
Capability
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 49
49
E
ver since the seminal article of Prahalad and
Hamel (1990), a lot has been said and written
about the concept of core competence. Most of
the researchers on the subject agree that conceptualizing
organizations as a set of core competencies rather than
as distinct strategic business units (SBUs) helps in
enhancing their competitiveness. SBUs should be treat-
ed only as potential reservoirs of core competencies. For
sustainable competitive advantage, corporations have to
devise ways to identify, cultivate, and exploit the core
competencies that make growth possible (Prahalad and
Hamel, 1990). Though core competence has been uni-
versally recognized by scholars as a useful concept, there
are very few studies (conceptual and empirical) which
seek to explain the ways in which this concept can
actually be used for the benefit of organizations. Though
Prahalad and Hamel (1990) mentioned that management
should develop a corporate-wide strategic architecture
a road map of the future that identifies which core
competencies to build and their constituent technologies
they have not elaborated on how to go about charting
this elusive strategic architecture.
This perceptible gap in strategy literature is the
prime motivation for this study. This conceptual paper
on the subject attempts to address this void in strategy
literature in the following ways. From the theoretical
origins of the resource-based view of the firm and its
role in creating a sustainable competitive advantage, the
concept of critical competence is developed which, sim-
ply speaking, is the ability of the firm to effectively
manage its hierarchy of competencies. Further, by in-
tegrating the past developments in the literature on the
subject, an actionable framework for critical competence
is proposed. In doing so, this paper makes four impor-
tant contributions. First, it provides a consolidated and
comprehensive literature review on core competence
which we understand through the integrative theoretical
framework of critical competence. This detailed litera-
ture review on the subject can serve as a useful guide
for scholars and academics researching on the subject.
Second, the proposed framework for critical competence
shows that the possession of core competencies itself will
not result in competitive advantage; it is the successful
identification, nurturing, development, and deployment
of the core competencies that is important for adding
value to the firm. Third, the framework serves as a tool
for analysing the past success/failure of the firm and
helps in charting out the future trajectory for firms by
understanding their competencies map. Fourth, the paper
exhibits the descriptive capability of the proposed
framework through the example of Indian Railways
core competency in steam engine-based technology.
LITERATURE REVIEW AND THEORETICAL
DEVELOPMENT
Quest for Sustainable Competitive Advantage:
Resource-based View
In the last three decades, increasing competition fuelled
a substantial amount of strategic research on under-
standing the antecedents and processes governing firms
competitive advantage. Initially, traditional economic
theory was at the base of all such thinking. Product
market and industry structure were considered to be the
determinants of performance (Chandler, 1990; Caves
and Porter, 1977; Porter, 1985; Kogut, 1988; Rumelt,
1982, 1984; Williamson, 1985). Different explanations of
corporate strategies were offered by the various research-
ers: be it minimization of transaction cost or achievement
of economies of scale and scope. All these corporate
strategies were directed towards the external environment
and, according to this stream of thought, the firms which
were able to match their strengths with the opportunities
in the external environment were able to secure a com-
petitive advantage (Porter, 1985; Barney, 1991).
Subsequently, researchers started viewing firms as
a collection of resources and capabilities and started
considering the internal resources as the source of com-
petitive advantage. The resource-based view of the firm
suggested that the differences in the resources of the firm
(tangible or intangible) are accumulated and learnt over
time and the heterogeneity of these resources is the
source of competitive advantage (Barney, 1991; Dierickx
and Cool, 1989; Dosi, 1988; Itami, 1987; Mahoney and
Pandian, 1992; Nelson and Winter, 1982; Wernerfelt,
1984; Winter, 1987). This unique set of resources, capa-
bilities, and skills, which accumulate over time, plays
a significant role in providing a direction for the firms
future strategies. A firms competitive advantage is thus
derived from this unique knowledge (Spender, 1993).
The causal ambiguity of this heterogeneous unique
knowledge makes it inimitable and the maintenance of
its heterogeneity is essential for a sustained competitive
advantage (Peteraf, 1993).
Barney (1991) included all the assets, capabilities,
organizational processes, firm attributes, information,
50 MANAGING CORE COMPETENCE OF THE ORGANIZATION
50
knowledge, etc., within the ambit of firm resources.
These firm resources can be further classified into three
categories: physical capital, human capital, and organi-
zational capital (Bogaert, Martens and Cauwenbergh,
1994). It was also highlighted by some scholars that not
all these firm resources are strategically relevant. Hall
(1992) made the distinction between assets (having
resources) and skills or competencies (doing resources)
which Amit and Schoemaker (1993) described as infor-
mation-based capabilities. Itami (1987) described invi-
sible assets as the information-based resources like con-
sumer trust, brand image, etc., and considered them
crucial for the long-term success of the firm. Most of the
researchers on the subject have reiterated that invisible
or intangible (doing) resources are critical to business
success.
Core Competencies as the Most Important
Resource
The concept of core competencies evolved from the re-
source-based view of the firm which emphasized the fact
that competitive advantage rests on the firms posses-
sion of unique difficult to imitate skills, knowledge, re-
sources and competencies (Wernerfelt, 1984; Rumelt,
1984). These causally ambiguous inimitable core capa-
bilities serve to provide sustainable competitive advan-
tage to the firm. This view emerged as a counterpoint to
market structure analysis of competitive strategy. A firms
core competencies are thus defined as a set of problem-
defining and problem-solving insights that foster the
development of idiosyncratic strategic growth alterna-
tives (Lei, Hitt and Bettis, 1996). According to Hamel and
Prahalad (1990), core competencies have three basic char-
acteristics: they provide access to a wide variety of mar-
kets, contribute significantly to the end product benefits,
and are difficult for the competitors to imitate. Though
researchers in this stream have described the limits to the
speed of accumulation of competencies (Dierickx and
Cool, 1989), these tacit strategic capabilities are nonethe-
less subject to learning (Teece, Pisano and Shuen,
1990).These collective learning or coordination skills
behind the firms product lines are the source of its com-
petitive advantage and enable the firm to introduce a
new array of products and services. By focusing on their
core competencies, firms stand to gain since they do those
things at which they are the best. Core competencies when
viewed as unique knowledge for problem definition and
problem solving can form the basis of a firms competi-
tive advantage and can also be leveraged in a wide vari-
ety of markets for future products.
Traditional literature on diversification strategy
suggests core competencies as corporate characteristic.
Related constrained strategy in which each of the firms
business draws on the same common core skill, strength
or resource is an indicator of the core competence as
a corporate asset (Rumelt, 1972). As already discussed,
competitive imitation of these core competencies is
extremely difficult as the imitator will have to follow
identical learning path and make the same irrever-
sible investments (Barney, 1991). Moreover, time com-
pression diseconomies also make the competencies in-
imitable (Dierickx and Cool, 1989).
The concept of core competencies is distinct from
the traditional strategic thinking of competing for market
share and also from Porters (1985) low cost-differentia-
tion strategy. The competition in the product/market
arena is essentially for market share (Buzzell, Gale, Sultan,
1975). Strategists and researchers use the term market
share to refer exclusively to brand share or end pro-
duct share. The concept of core competencies transcends
the boundaries of the traditional market share. It is
reflected in the firms core products which need not
be end products of the firm and are usually the result
of application of one or more core competencies of the
firm (Hamel and Prahalad, 1990). Since the core products
are usually not the end products and do not directly
contribute to the competitive advantage of the firm, they
may not be reflected by the traditional brand share
(Hamel, 1994). For example, in the context of Indian
Railways (IR), the core product of traction for transpor-
tation
1
was dependent on the core competency of IR in
handling steam engine-based technology till the 1980s
and is now dependent on the core competency of hand-
ling diesel engine and electric engine-based techno-
logy. In this case, the end product, transportation for
goods and passengers and the core product, traction
for transportation remains the same though the core
competency enabling it has changed with time. Further,
core competence talks of strategies that are beyond the
low cost or differentiation for providing sustainable
competitive advantage to the firm.
From Core Competencies to Critical Competence
Literature on the subject offers a wide array of expla-
nations about the concept of core competencies and their
1
Power required to haul trains or railroads.
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 51
51
role in enhancing the competitive advantage of the firm
but it is largely silent on the issue of operationalizing
it. Companies are likely to be different in terms of their
abilities to select, build, deploy, and protect these core
competencies. These differences are likely to yield dif-
ferences in corporate performance (Hamel, 1994). The
concept of core competence has implications at the
strategic level; the firms should systematically work
upon identifying their core competencies and develop-
ing them for sustainable competitive advantage.
Since the 1990 article of Prahalad and Hamel in the
Harvard Business Review, the concept of core competence
has been vividly discussed in literature. Most of these
discussions have been theoretical explanations or exten-
sions of the concept. Since core competencies are a bundle
of collective learning, the problem has always been to
understand and use the concept enabling firms to leve-
rage it in framing their future strategies. There is no
doubt about the fact that firms will certainly benefit if
they know what their core competencies are and draw
up plans for systematically developing and deploying
these core competencies. The very mention of making
the core competencies work brings forth the idea of
successful firms having a better ability to leverage their
core competencies. A resource, capability or skill which
is untapped or unutilized will not result in any advan-
tage.
In other words, possession of core competencies is
not an end in itself. The ability to leverage core com-
petencies for the benefit of the firm is of greater impor-
tance. Literature on core competence talks about differ-
ent types of competencies, the effect of learning on these
competencies, and other related aspects, but the ability
to manage the core competencies has not been studied
explicitly by researchers. This critical competence is at
the highest level of the abilities possessed by the firms
and is evidently the most important ability. Through
their concept of strategic architecture, Prahalad and
Hamel (1990) have stated in clear terms that for having
a sustainable competitive advantage, it is essential for
the firms to chart out a path for the future but they have
not discussed the way a firm should go about charting
this path. Bogaert, Martens and Cauwenbergh (1994) ask
a very pertinent question with reference to the skills in
an organization: Who possesses the skill of managing
the skills? The answer to this question is no doubt
important but more important is to know what this skill
of managing skills is.
Critical competence seeks to identify the unique
competencies of a firm through generic procedures. In
this sense, though the core competencies of firms are
diverse, their critical competence is universal. The per-
tinent question is to gauge whether firms possess this
critical competence or not. The ability of a firm to develop
its strategic architecture is its critical competence and,
from the discussion, this emerges as a prerequisite for
achieving sustainable competitive advantage. Hamel
(1994) has described the hierarchy and differences be-
tween meta-competencies, core competencies, and con-
stituent skills (Figure 1). Any individual business may
be having 40, 50 or more constituent skills, between 5
and 15 core competencies, and a couple of meta-com-
petencies. The distinction between the various levels
of competencies is more a matter of convenience but
understanding of hierarchy of competencies is essential
from meta-competencies (logistics in case of FedEx)
to core competencies (package tracking) to constituent
skills (bar-coding) (Hamel, 1994). The competence which
lies above all these competencies and which is all en-
compassing is the critical competence. Critical compe-
tence is the ability of a firm to successfully identify, nurture,
develop, upgrade, and deploy its hierarchy of competencies
to attain sustainable competitive advantage.
Hence, for sustainable competitive advantage,
managers should invest time, effort, and resources in
developing their critical competence. The first step
towards developing critical competence is to understand
that such a competence exists and realize that it makes
a difference to the competitive advantage of the firm.
From the above discussion it is clear that the pres-
ence of meta competencies or core competencies is not
Figure 1: Competence Hierarchy
52 MANAGING CORE COMPETENCE OF THE ORGANIZATION
52
the complete recipe for competitive advantage. Even if
a firm possesses certain meta or core competencies which
provide competitive advantage at a point in time, it is
possible that these competencies may not provide sus-
tainable competitive advantage. The relevant question
that arises is how do firms go about charting a path
for sustainable competitive advantage? Is there some
universal competence which is required by the firms for
achieving sustainable competitive advantage? The re-
source-based view attributes competitive advantage of
the firm to its resource heterogeneity. It further consid-
ers the maintenance of resource heterogeneity as the
source of sustainable competitive advantage (Peteraf,
1993). This approach is a post facto approach and relies
on the ex-ante benefits acquired by the firm. It does not
really provide a planned path for sustaining competitive
advantage. It can only provide us with a validation of
historical success stories.
The sustainable competitive advantage of a firm lies
in its ability to manage its hierarchy of competencies of
which meta and core competencies are of utmost impor-
tance and in this paper this ability is referred to as critical
competence. As already mentioned, though the firms
may have different competencies, their critical compe-
tence is universal. This study is an attempt to develop
a theoretical framework for critical competence which
can serve as a guide for practitioners and managers
helping them apply the concept of core competencies for
gaining competitive advantage.
CRITICAL COMPETENCE FRAMEWORK
The critical competence framework seeks to make the
concept of core competence work to the benefit of
organizations. The underlying assumption behind this
framework is the fact that something which can be
regarded as a skill can be explicated and learnt to be
used. Critical competence can be equated to a skill for
operationalizing and managing the competencies for the
benefit of the firm. The critical competence framework
comprehensively covers all the aspects related to com-
petencies and skills in a firm. It provides a holistic,
intuitive framework for designing the enterprise-wide
strategic architecture of the firm and provides answers
to the reasons for differences in performance of firms
that seemingly posses identical resources. It also exhorts
the practitioners to focus not only on developing or
acquiring core competencies but continuously work upon
upgrading, nurturing or abandoning them in relation to
internal and external environment. The proposed frame-
work for critical competence is given in Figure 2.
Figure 2: Critical Competence Framework
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 53
53
Let us analyse each component of the critical com-
petence framework which will help us in understanding
the applicability of the concept of core competence.
Competencies Pool
Every organization has its own set of doing resources.
These intangible assets are skills which help the firm in
performing its activities. Hamel (1994) uses the terms
competencies and capabilities interchangeably. These
competencies may or may not be strategic. Dierickx and
Cool (1988) mention that these competencies are learnt
and accumulated over time. This competencies pool at
any given point in time enumerates the capabilities of
the firm (useful as well as not so useful). The constituent
competencies in this pool undergo metamorphosis in
multifarious ways. The pool may be replenished with
competencies which continue to provide competitive
advantage; some new competencies may be added to the
existing pool or some of the old, redundant competen-
cies may be spilled out of the pool. Also, the pool may
have some dormant competencies which may be utilized
as and when the need arises. The critical competence
framework seeks to empower managers and practition-
ers with the requisite knowledge so that the competen-
cies pool of the organization is managed in a way that
enhances the firms performance. The management of
competencies pool, which is critical to the firms sus-
tained success, should be a conscious effort on the part
of the firm rather than something to be left to chance.
Hence, managers must view their organizations as
bundles of competencies which have to be continuously
managed for gaining a competitive advantage.
Competencies Hunt
Barney (1991) mentions that not all the resources in a
firm are strategically relevant. Strategic assets are the
firm resources that hold the potential for sustainable
competitive advantage (Amit and Schoemaker, 1993;
Barney, 1991). They have the following four attributes:
(1) they are valuable (exploit opportunities and/or
neutralize threats in the firms environment); (2) they
are rare among the firms current and potential compet-
itors; (3) they are imperfectly imitable, and (4) no stra-
tegically equivalent substitutes exist (Barney, 1991). This
implies that these are a set of difficult to trade and imitate
scarce resources and capabilities. Some of the examples
are technological capability, favourable cost structure,
and a firms service organization (Amit and Schoemaker,
1993). As mentioned by Hamel (1994), a firm may have
around 10-15 core competencies and a couple of meta-
competencies as shown in our hierarchy of competencies
in Figure 1. These distinctive competencies set apart the
organization from its competitors (Hall, 1992). The firm
should identify its key business processes, manage them
centrally, and invest in them heavily looking for a long-
term payback. Identification of this hierarchy of com-
petencies from the pool of competencies is not an easy
task. Causal ambiguity makes it extremely difficult to
attribute competitive advantage to particular competen-
cy. Meta-competencies and core competencies are them-
selves an intricate mix of a number of constituent skills.
To proceed further in developing its critical compe-
tence, a firm should be able to identify its elusive
higher level competencies (meta and core).
Meta-competencies of a firm can be equated to the
personality of an individual. The personality of every
individual is different; so are the meta-competencies of
every firm. Hence, identification of meta-competencies
and consequently the core competencies of a firm is
almost as difficult as assessing the personality of an
individual. Even though the personality of each indi-
vidual is uniquely different from the other, still the
literature on personality seeks to identify some broad
generic personality traits, e.g., Myers Briggs (MBTI)
personality types. Classification of personality types
into broad groups gives a starting point to the practising
psychologist. Drawing an analogy from this example,
as a first step, we seek to classify meta-competencies into
generic groups. The term generic group of competencies
can be misleading as the meta-competencies of a firm
are the unique collection of all the learned experiences
within the particular organization. Nonetheless, since
meta-competencies are at a higher level of competencies
than core competencies, an effort can be made to classify
them into generic groups based on past literature of the
subject. The generic group of meta-competencies indi-
cates the most dominant common element among the
group of competencies. The criterion for the formation
of the generic group of competencies is based on the
commonality in the various competencies. Figuratively,
it can be said to be the highest common factor of all the
competencies in that group.
Identification of generic meta-competencies: Mascaren-
has, Baveja and Jamil (1998) classified competencies into
three basic groups: superior technological know-how, reli-
able processes, and close relationships with external parties.
54 MANAGING CORE COMPETENCE OF THE ORGANIZATION
54
A superior technological competence involves a deep un-
derstanding of a subject area. This deep understand-
ing arises from an early, substantial, and continuous
involvement in that area. It includes knowledge of the
scientific properties, inter-relationships, and latest de-
velopments in a subject area. This knowledge is useful
if the competitors do not have a similar knowledge and
it contributes substantially to customer value (Mas-
carenhas, Baveja and Jamil, 1998). A reliable process
delivers an expected result quickly, consistently, and
efficiently with least inconvenience and disruptions to
the customers. A reliable process can involve almost
anything, e.g., transfer of skills, ability to combine various
inputs to customize a product, etc. Reliability is impor-
tant because customers increasingly consider the total
cost of a product over its life and not just its initial
purchase price (Mascarenhas, Baveja and Jamil, 1998).
A close external relationship with suppliers, regulators
and professional organizations, distributors, and cus-
tomers yields several benefits. The firm and the partner
can identify opportunities for mutual benefit. Suppliers
can suggest ideas for new product development, pro-
fessional organizations can offer superior talent, dis-
tributors can provide market access and information,
and customers can provide guidance about the new
competencies the firm should develop (Mascarenhas,
Baveja and Jamil, 1998).
Higgins (1996) brings out an altogether different
factor which he calls as the core competence (or in our
case, meta-competence). He mentions that innovation
is the core competence because it makes competitive
advantage by any other strategy possible. Creating new
products and product enhancements provides differen-
tiation. Process innovation can lead to lower costs and
increased customer satisfaction (Higgins, 1996). Innova-
tion is an important ability of a firm which helps the firm
in coming up with new ways for fulfilling the needs of
the consumers.
Further, Hamel (1994) has classified competencies
(at the highest level) into three broad types: market access
competencies (management of brand development, sales
and marketing, distribution and logistics, technical
support, etc. all those skills which help to put a firm
in close proximity to its customers), integrity-related
competencies (competencies like quality, cycle time
management, just-in-time inventory management and
so on which allow a company to do things more quickly,
flexibly or with a higher degree of reliability than com-
petitors), and functionality-related competencies (skills
which enable the company to invest its products or
services with unique functionality which invest the
product with distinctive customer benefits rather than
making it incrementally better). These three meta-com-
petencies explain all kinds of competencies in the organi-
zations and organizations have one or more than one
of these meta-competencies.
Leo (1994) points out that time is a dimension of
strategy which does not find a place in the traditional
strategy frame. There is little concern in the competitive
frame about the pace of change as a key aspect of com-
petition (Williams, 1991). There is no doubt about the
fact that time drives strategy and affects the sustainability
of competitive advantage. With the increasing use of
information technology for business and the nature of
business becoming global, agility is a factor which is
becoming of increasing importance and can be consi-
dered as a generic meta-competency.
From the above discussion on the subject, we see
that different ways of classifying competencies by dif-
ferent authors reflect the diversified customer needs
which each of these generic meta-competency addresses.
The underlying criterion is that the meta and hence the core
competence should result in superior customer value. Sum-
ming up the discussion on generic competencies, we see
that meta-competencies of firms can be classified into
five generic groups:
cost efficiency
reliable systems
innovation
close external relationships
agility.
Cost efficiency: The ability of a firm to be cost-efficient
is dependent on developing its systems into a low cost
structure. This philosophy must be reflected in every
action of the firm to be classified as a meta-competence.
It will be a bundle of constituent skills having under-
currents of cost efficiency. For such a firm, all its ope-
rations will be directed towards achieving low cost. The
much fabled Every Day Low Price (EDLP) policy of
Wal-Mart is an actualization of such a meta-competence.
Reliable systems: A reliable system aims at delivering
an expected result quickly, consistently, and efficiently
with least inconvenience and disruptions to the custom-
ers. The primary focus here is the reliability of processes
rather than cost or any other criteria. It may happen that
having a reliable system may result in an overall cost
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 55
55
reduction because of lesser wastages. Reliable systems
assure the customer of lesser variability thereby min-
imizing his/her risk. This may be affected by state-of-
the-art technology or trained manpower but the effort
is to make systems reliable. A reliable process is valuable
when conducting business in a global context so that the
customer is assured about the level of quality he expects
to get throughout the world. Being able to offer a reliable
process is valued by customers since international trans-
actions are subject to great uncertainties and disruptions
because of transportation, communication, customs
delays, red tapism, and cultural differences. Merck has
a reliable process competence in the development of new
drugs (Mascarenhas, Baveja and Jamil, 1998). McDo-
nalds has the capability of delivering a consistent (re-
liable) taste through its McBurger all over the world.
Innovation: Firms having this meta-competence have
well-developed systems through which they are able to
understand emerging customer needs, the thrust being
on intelligent innovation. Intelligent innovation im-
plies that these firms are able to innovate products (or
services) which add superior customer value. The means
for achieving this meta-competence may be diverse
ranging from a technological superiority to a pool of
market-savvy managers. 3M is one firm which constant-
ly strives to do something new for its customers.
Close external relationships: Close relationships with
suppliers, regulators, professional organizations, and
customers yield multifarious benefits. These relation-
ships are particularly useful in the global environment
to penetrate new markets. Close relationship with cus-
tomers enhances the firms ability of understanding its
customers better. Firms can leverage this competence to
customize their products (or services) for providing the
appropriate value to the customers. Managing relation-
ships is also a competence which accumulates with time.
Siemens produces and sells its large capital goods items
like power generation, telecommunications, and trans-
portation equipments to its customers in over 120 coun-
tries. Siemens close relationship with Deutsche Bank
provides it with ample low cost financing for its cus-
tomers enabling it to make its sales to many countries
(Mascarenhas, Baveja and Jamil, 1998). Dell is another
firm which is constantly working on its systems to manage
relationships with its suppliers and customers.
Agility: Speed is a factor which is fast becoming a
competence in the world of today. The only way to
increase this resource is by shortening the processing
times. The QB barber shops in Singapore offer a ten-
minute hair cut to its customers. FedEx offers next day
delivery to any destination in the world. Dell also prom-
ises to deliver your computer in a very short time. E-
business has particularly revolutionized the very con-
cept of agility. Internet helps the firms deliver even
customized products in a very short period to its niche
segments. Agility is a competence which is particularly
of relevance to the service industry.
All the generic meta-competencies are aimed at
satisfying some need of the customer in a better and
efficient way. Firms in the same industry may have
different generic meta-competencies according to the
target customer segment they aim to serve. The core
competencies of the organization emerge from the meta-
competencies it has. They are aimed at providing an
enhanced customer value. The systems in the organi-
zation have to be consciously built around the under-
lying meta-competencies to maximize the benefit for the
organization.
Competencies Enlightenment
The identification of five generic groups of meta-com-
petencies makes the task of understanding the dynamics
of critical competence easier. These generic groups of
meta-competencies cover all the possible kinds of com-
petencies possessed by the firms at the highest level of
hierarchy. Our task now is to find out which generic
group(s) of meta-competency describes a particular firm.
Once we identify the meta-competencies of an organi-
zation, managing them becomes easier. This competen-
cies enlightenment paves the way for future strategy
to be followed by the organization. Normally, successful
firms will possess not more than a couple of these generic
meta-competencies as they may have conflicting objec-
tives (Hamel, 1994). This helps them focus their resour-
ces in a directed way and they do not spread their
resources too thin. The identification of these elusive
meta-competencies and core competencies helps the
organization in spending its resources judiciously so
that these efforts serve as performance enhancers rath-
er than resource drainers.
Based on the above discussion and the nature of
meta-competencies, the following two propositions
emerge:
Proposition I: Successful firms have some identifiable
meta and core competencies.
56 MANAGING CORE COMPETENCE OF THE ORGANIZATION
56
Proposition II: The number of meta-competencies of
successful firms is very less, may be one
or two.
The task of identifying the generic meta-competen-
cies in a firm is not an easy task. Higgins (1996) uses
the McKinseys 7-S framework for designing the Inno-
vation Quotient Inventory. It is proposed that the 7-S
framework comprising of strategy, structure, systems,
style, staff, shared values, and skills comprehensively
covers all aspects of an organization and can also be used
for identifying the meta-competencies of organizations.
Meta-competence is also an all pervading phenome-
non in an organization and is at the highest level of
competence hierarchy. It is embedded in all the compo-
nents of an organization. For a generic competence to
be termed as meta-competence, it should be present to
a reasonable extent in all the 7-S of an organization.
Using this argument as the point of departure, we propose
a methodology for identifying the core competence of
an organization. As explained, these generic competen-
cies can be mapped on the 7-S framework as shown in
Figure 3. From this mapping we can conclude that a
competency is a meta-competency if it is embedded to
a reasonable extent in all the 7-S.
Different methodologies for mapping the above
matrix can be adopted. One such methodology can be
following a case study approach. In this approach, the
researcher studies the various elements of the 7-S of
selected firm(s) by observation. Subsequently he/she
moderates it by interviewing firms executives and
employees, reading firms procedures, manuals, circulars,
and other corporate communication literature. Based on
all these, the researcher can allocate points on a scale
of 0-10 on each of the 7-Ss of the firm where 0 signifies
no reflection and 10 signifies complete reflection of the
particular generic competence in that S of the organi-
zation. From the scores allocated to the various generic
competencies on all the 7-S, the researcher can conclude
which competence(s) are core. Another method can be
designing an inventory which is required to be answered
by the company executives. The results from this instru-
ment can be used by the researcher to interpret which
meta-competencies are present in the firm.
After identification of the meta-competencies, the
managers have to identify the core competencies in their
firm. This can be done in a way similar to that demon-
strated by Prahalad and Hamel (1990). In terms of our
framework, let us assume that we know that Canon has
a meta-competency of reliable systems; now, for un-
ravelling core competencies, the next level of competen-
cies which lead to the core products are listed. If the
listed competencies are pervading in their core-prod-
ucts, then they are their core competencies. For instance,
in terms of Prahalad and Hamels (1990) example, from
the competence map it emerges that three competencies
are pervading all the Canon products precision me-
chanics, fine optics, and micro-electronics and all
belong to the generic group of reliable systems. Hence,
these are the core competencies of the organization which
have to be managed effectively for sustaining a competi-
tive advantage.
Firms which possess critical competence have their
own methodologies for identifying their meta and core
competencies on almost a continuous basis. These
methodologies may not be dependent only on the formal
systems but may draw heavily on the informal systems
and organizational culture. Hence, it is imperative to
develop a competence consciousness in organizations
in addition to the formal systems for charting out meta
and core competencies.
Dynamics of Core Competencies
Deploy
The process of identification of meta and core compe-
tencies is just the beginning. These identified or known
Figure 3: Meta Competencies Identification Map
Cost Efficiency Reliable Systems Innovation Close External Relationship Agility
Strategy
Structure
Systems
Style
Staff
Shared values
Skills
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 57
57
competencies should ideally be deployed in diverse
businesses of the firms. Successful firms not only know
what their meta and core competencies are but they
leverage them by deploying them to their business. Before
deploying, the only concern is to see that they mesh with
the internal and external environment and that there is
no anticipated unmanageable dissonance.
Successful firms (firms which have critical compe-
tence) not only know how to deploy their core compe-
tencies but are also aware of the dynamic nature of this
resource. The valuable core competencies in a firm need
to be nurtured and the not so valuable competencies
in a firm need to be abandoned. Firms should also be
on the look-out for new competencies which can be
acquired and focus on their development. Let us dis-
cuss each of these elements in the critical competence.
Nurture
Meta and core competencies reflect the specialized
expertise of an organization resulting from its collective
learning (Prahalad and Hamel, 1990). The existence of
core competencies in an organization is a necessary but
not a sufficient condition for the success of an organ-
ization. For the success of the organization, its core
competencies have to be nurtured. This implies that the
core competencies of an organization should manifest
in multifarious systems of the organization so that they
are actually used. To quote Prahalad and Hamel (1990):
Core competence does not diminish with use.
Unlike physical assets, which do deteriorate over
time, competencies are enhanced as they are
applied and shared.
If these capabilities and competencies are not nur-
tured, they will erode with time (Eaton and Lipsey,
1980). Dierickx and Cool (1989) mention that strategic
stocks are subject to stock erosion and, therefore, need
to be constantly monitored. Constant monitoring does
not necessarily only mean the upgradation of core com-
petencies. It means that the decision and control systems
in the organization must be so developed that they are
able to leverage the core competencies to the fullest.
Organizations should nurture core competencies and
not squander its resources in nurturing its non-core
competencies.
As already discussed, a firm has a pool of compe-
tencies but the ones which are supported by its organi-
zational architecture are the nurtured competencies.
Firms will be able to leverage its core competencies to
the maximum if these competencies are supported by
its organizational architecture or are nurtured. The three
elements of organizational architecture (Brickley, Smith
and Zimmerman, 1995) are:
assignment of decision rights within the firm
structure of systems to evaluate the performance of
both individuals and business units
methods of rewarding individuals.
The three legs of the organizational architecture
stool should balance and support meta and core com-
petencies at the top. Brickley, Smith and Zimmerman
(1995) mention that the organizational architecture for
an organization must be designed and created. This has
profound implications for the present study. If the
organizational architecture of a firm is not in tandem
with its core competencies, then it must be suitably
designed and created to support the desired core com-
petencies.
Besides organizational architecture, the organiza-
tional culture of the firm should also support its core
competencies. Organizational culture is the underlying
philosophy which guides the organization in all its
activities. The core competencies of a firm are nurtured
through its organizational architecture and organiza-
tional culture.
The 7-S framework gives details of the current
inventory of affairs in the firm; the organizational ar-
chitecture framework gives formal working proce-
dures and organizational culture gives the informal
working procedures of the firm. In this sense, the former
gives a static snap shot in time whereas the latter two
represent the dynamics of business conduct.
Develop
Organizations are always trying to imitate the actions
of other successful organizations (Lippman and Rumelt,
1982). For sustaining a competitive advantage, organ-
izations must continually learn and enhance their core
competencies. If constant renewal does not take place,
other organizations will imitate and make the compe-
tencies which led to competitive advantage obsolete. A
core competency must be continually invested in and
upgraded if it is to serve as a source of sustained com-
petitive advantage (Helleloid and Simon, 1994). Other
organizations attempt to imitate a successful firm, but,
due to imperfect imitation, other organizations may create
mutations which provide even greater value to custom-
ers (Hill and Helleloid, 1992).
Competencies may be upgraded or new competen-
cies may be acquired through internal development,
58 MANAGING CORE COMPETENCE OF THE ORGANIZATION
58
market procurement, inter-firm collaboration or merg-
ers and acquisition. Firms which have critical compe-
tence have well-developed methods of continuously
improving and upgrading their competencies. This sig-
nifies the dynamic nature of critical competence. The
framework in Figure 2 shows that critical competence
is a continuous iterative loop and the competencies are
modified, maintained or abandoned depending on the
dissonance between the current competencies and the
internal/external environment.
Abandon
The dynamic nature of competencies suggests that some
competencies may become obsolete with time. They
may cease to deliver sufficient value because of drastic
technological leap or other reasons. Competencies
development takes a lot of time and is a result of ac-
cumulated shared learning within the organization
(Prahalad and Hamel, 1990). It is important for managers
to be conscious of the fact that it is very easy for core
competencies to become core rigidities (Leonard-Bar-
ton, 1992). Firms should be sensitive to the internal and
external factors and avoid getting into a competence
trap (ODriscoll, Carson and Gilmore, 2001). It will be
opportune to mention here that the higher a competency
in the hierarchy (Figure 1), the more rigid it will be for
the organization to abandon. This implies that organ-
izations will have greater difficulty to shed their meta-
competencies than their core competencies.
Though managers must instil flexibility in their
competencies management, they must exercise caution
so as not to abandon a core competency without giving
sufficient thought. No doubt, it is imprudent to nurture
an unutilized core competency because nurturing a
competency demands substantial resources. But, man-
agers must remember that building a core competency
again from scratch will not only be a very costly propo-
sition but the feat may be next to impossible to achieve.
Hamel (1994) gives the example of Motorola which sold
off its television plants in the 1970s to Matsushita and
got out of consumer electronics business. Though
Motorolas decision of exiting from the highly competi-
tive consumer electronic business had a lot of foresight
at that point in time, in retrospect, it felt that it would
have been better if it had preserved some of its compe-
tencies buried in the former consumer electronics busi-
ness to help the company in its present business.
However, this example should not really deter
managers from abandoning unutilized competencies (or
competencies that will be unutilized in future). One of
the core competencies of Indian Railways (IR) was
maintaining and operating steam locomotives. How-
ever, this painful decision of abandoning its core com-
petency is now proving to be beneficial for the organi-
zation. Hence, abandonment of a competency including
a core competency can be done but it must be done only
after a lot of careful thought and deliberation. The
managers must take into account the perspective view
of the internal and external fit as mentioned in the critical
competence framework (Figure 2). While abandonment
of a core competency may be imperative for the contin-
ued success of a firm, it is an exercise which cannot and
should not be done in haste.
APPLICABILITY OF THE FRAMEWORK:
AN ILLUSTRATION
The proposed theoretically derived framework for cri-
tical competence suggests a plausible method for iden-
tifying and using the core competencies for creating a
sustainable competitive advantage for the firm. This
framework can be used not only for analysing if a firm
is on the right path of developing its critical competence
but also for charting out its future strategic trajectory.
This indicates that the framework has descriptive as well
as prescriptive ability which means that the framework
can not only be used, post-facto, for understanding the
success/failure of an organization but also for charting
out the future competence framework for the organiza-
tion. In this section, we illustrate the applicability of the
framework for understanding the success of an organ-
ization, i.e., its descriptive ability.
In the discussion about the framework (and also in
the previous literature on the subject), a large number
of examples from Western countries have been used
(Wal-Mart, 3M, McDonalds, etc.). In contrast to this, we
illustrate the universal applicability of this framework
through an Indian example and that too a government
organization the Indian Railways (IR) which as
indicated earlier, abandoned its core competence and
switched over to traction technology. Another reason
for the choice of IR as an example for illustrating the
concept of critical competence is that most of the Indians
are aware of and have used the Railways at some point
of their life as a means of transportation.
Before we present the applicability of the frame-
work in analysing the critical competence of IR, it is
imperative to provide some of its important contextual
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 59
59
details. IR is the principal mode of passenger and freight
transportation in India. It has played an important role
in the nation building process of Indian history after its
inception in the British India in the year 1853. It has one
of the biggest infrastructure and network compared to
other railroad systems across the world. Currently, it has
63,140 route kms of rail track, around 8,000 locomotives,
over 45,000 coaching vehicles (including passenger
coaches), and over 220,000 freight carrying wagons (IR
Year Book, 2004). Last year, IR moved over 550 million
tonnes of freight and, at the same time, carried around
5.5 billion passengers. IRs network has around 7,000
railway stations and employs around 1.6 million people
making it the largest single employer in India. IR, a
socio-commercial government organization under the
Ministry of Railways, is known for its professional
approach. The conflicting objectives of being a commer-
cial organization and at the same time fulfilling social
obligations makes it imperative for it to adopt innova-
tive efficiency enhancing systems. The end product
which IR offers is transportation for goods and passen-
gers. The core product which leads to this end product
is traction for transportation which hauls the passenger
and freight trains. Till 1980s, the core competency
responsible for this core product was steam engine-
based technology. The rapid proliferation of diesel and
electrical engine-based technology in the external envi-
ronment led to a dilemma about abandoning its core
competency in steam engine-based technology. The
problem was even more complex because around 0.3
million of the 1.6 million total employees of IR had
expertise in skills related to the core competency. How-
ever, it was forced to adopt the newer and more efficient
modes of traction. IR, which had nurtured and deve-
loped its competency in steam locomotives technology
for over a hundred years, abandoned it and developed
and deployed a new core competency in diesel and
electric engines technology. Though the abandonment
of this developed and nurtured competency was painful
for IR, as of now, this decision has helped improve its
efficiency manifold. We also observe that the meta-
competencies of IR guiding this transition of core com-
petencies (reliable systems and innovation) remained
the same even after the transition. In fact, the core product
as well as the end product delivered by IR is also the
same in description though there is an improvement in
quality.
Thus, IR, which at one point in time was focusing
only on steam-based technology, not only abandoned it
but is now consciously developing and nurturing the
diesel and the electric engine-based technology. The
critical competence of IR helped it rediscover its lost
agenda and focus on something which generates greater
customer value. Table 1 shows the applicability of the
framework through the example of IR. Though this
framework does not show the intricate details of the
framework, still it does give an idea about how this
framework can be broadly used to understand the suc-
cess/failure of an organization. Apart from the descrip-
tive capability, the framework also has a prescriptive
capability which can be used to systematically identify
and develop the organizations core competencies for
Table 1: Applicability of Critical Competence Framework for IR
Critical Competence Framework IR
Competencies pool Maintenance and operation of steam, diesel, and electric locomotives.
Core competencies hunt Initially, its core competency was in steam locomotives. With the phasing out of steam locomotives,
it started looking out for options and functions which would create superior customer value with
diesel and electric locomotives.
Core competencies enlightenment It realized that operation and maintenance of diesel and electric locomotives would create greater
customer value. By reorganizing its skills, it could redefine its core competency.
Abandon Due to technological development, it had to do away with steam engine technology which was
its core competency at one point in time.
Nurture Though it was nurturing the steam engine technology till the 1980s, now it is nurturing diesel
and electric engine technology.
Develop Competencies in diesel and electric engine technology were reorganized and upgraded for the
officers and staff. Many of the staff who had skills in steam locomotives were retrained and deployed
for diesel and electric locomotives.
Internal and external fit Diesel and electric locomotive operations create superior customer as well as organizational value.
Hence, an external change in technological climate resulted in IR changing its competencies for
survival, growth, and sustaining competitive advantage.
Deploy Currently, it has changed its agenda competently and now its traction-related core competency
is in diesel and electric engine technology.
60 MANAGING CORE COMPETENCE OF THE ORGANIZATION
60
gaining a competitive advantage.
CONTRIBUTIONS AND CONCLUSIONS
Firms are continuously striving for ways to attain a
sustainable competitive advantage. Literature on stra-
tegic research is replete with examples offering expla-
nations for various success stories in business. One stream
of research suggests core competencies to be at the base
of all competitive advantage. Researchers in the field of
core competence have been so intrigued by the concept
that a substantial portion of the literature is devoted to
the understanding of the concept of core competence
itself. While some researchers have explored the effect
of organizational learning on core competence, others
have studied the effect of external influence on the
development of new competencies, but very few re-
searchers have studied how the concept can be used by
organizations for attaining competitive advantage. Pra-
halad and Hamel (1990) touched upon the concept of
strategic architecture but did not discuss the vivid details
of this roadmap for the future. The aim of this paper is
to address this perceptible gap in strategy literature by
suggesting a framework which makes this concept work.
In doing so, this study offers four important contribu-
tions which have implications for academics as well as
practitioners.
First, we provide a consolidated and comprehensive
literature review on the subject of core competence and
develop a hierarchy of competencies for a better appre-
ciation. We understand how core competencies work
through the integrative concept of critical competence
for which we propose a theoretical framework. This
comprehensive and current literature review will serve
as a useful starting point for scholars undertaking future
research on the subject. It also serves to put the concepts
related to core competence in an organized fashion for
the benefit of academics.
Second, the proposed framework for critical com-
petence shows that the possession of core competencies
will not result in a competitive advantage by itself. It
is the successful identification, nurturing, development,
and deployment of the core competencies that is impor-
tant for adding value to the firm. The suggested critical
competence framework is arrived at by integrating the
various streams of research in the field of core compe-
tence with a view towards providing a comprehensive
and actionable framework for making the concept of core
competencies work. The concept of critical competence
is introduced as the most important resource a firm
should possess for sustainable competitive advantage.
Critical competence framework lays down a systematic
intuitive actionable strategic direction which can be used
by the firms in multifarious ways for tapping, building,
and utilizing their core competencies. This paper not
only elucidates a critical competence framework but also
gives a hierarchy of competencies with meta-competen-
cies at a higher level than core competencies. It further
puts forth the view about the universal applicability of
competencies which is reflected at the highest level of
hierarchy by critical competence. Thus, critical compe-
tence not only seeks to explain the sustainable competi-
tive advantage of firms but also reiterates the impor-
tance of viewing organizations as a hierarchy of com-
petencies.
Third, the proposed critical competence framework
serves as a tool for analysing the success/failure of firms
and also serves as a guide for charting out the future
trajectory for firms by understanding their competencies
map which identifies the generic meta-competencies and
helps in identifying core competencies. This can serve
as a useful tool for the practitioners for organizing their
thinking about using core competencies to gain competi-
tive advantage. The paper not only suggests ways of
identifying the elusive meta and core competencies but
also deploying them to the benefit of the firm. The
suggested holistic framework integrates the learning
and nurturing of core competencies to provide a better
understanding of the dynamic nature of core competen-
cies. The critical competence framework suggests that
the competencies pool may get replenished with time
by adding nurtured and upgraded competencies with
newly developed and learned competencies, and may
spill off the abandoned competencies. Hence, the frame-
work incorporates the forever evolving dynamic na-
ture of core competencies and suggests that for sustain-
able competitive advantage, organizations have to con-
tinuously nurture, develop, and abandon their core
competencies. The deployment of the competencies is
also a logical part of this framework because possession
of an unused competence is a source of wastage for the
firm.
Fourth, through the example of Indian Railways, the
paper exhibits the descriptive capability of the proposed
framework. The choice of a government department in
the Indian context shows the universal applicability of
the framework. This article not only talks of nurturing
VIKALPA VOLUME 30 NO 4 OCTOBER - DECEMBER 2005 61
61
and upgrading the existing core competencies but also
of developing new core competencies in line with the
trends and technological shifts taking place in the ex-
ternal environment. It is also imperative for the firms
to continuously assess its redundant competencies and
draw out an action plan for abandoning such compe-
tencies which might provide to be resource drainers
for the firm. Abandoning of core competencies should
be done with utmost care after weighing the pros and
cons in relation to future plans of the company vis--vis
its external environment. The critical competence frame-
work views competencies of a firm as a dynamic learned
resource which needs to be continuously managed for
the firm to have a sustainable competitive advantage.
Thus, having core competencies is not a guarantee to
success; firms have to learn the right ways of deploying
them to their advantage. The critical competence frame-
work offers comprehensive guidelines to the practition-
ers and managers about the various issues they should
focus on to leverage their core competencies for attaining
a sustainable competitive advantage.
Most of the past studies in strategy literature offer
a post-facto approach, i.e., they study organizations and
then analyse the reasons for their success or failure. This
traditional approach no doubt offers points of learning
for the managers but what the practitioners really need
is a forward looking strategic framework which pro-
vides them suggestions for business conduct. The criti-
cal competence framework is a universal model and in
addition to post-facto analysis, it can also be used to
formulate the competence strategy for an organization.
In other words, it has both descriptive as well as prescrip-
tive capability. The dynamic nature of critical compe-
tence framework takes into account the upgradation,
learning, development, and abandonment of core
competences in relation to internal/external fit making
it more realistic, practical, and holistic.
This paper leads us to the conclusion that for achiev-
ing sustainable competitive advantage, firms need to
have a critical competence. The various elements of
critical competence framework discussed so far bring
out their importance and meaning. We have demon-
strated the descriptive ability of the framework through
the example of IR. Future research can study and test
the usefulness of the suggested theoretically synthesized
framework with reference to its prescriptive ability. This
can be done by analysing the ways in which firms are
actually deploying, nurturing, developing, and aban-
doning core competencies. Such studies can offer con-
crete methodologies on how firms can develop their
systems for actualizing their critical competence frame-
work.
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Shirish C Srivastava is a doctoral candidate in Information
Systems and E-Business at the NUS Business School, National
University of Singapore. He has done his MBA with a
specialization in Information Management from Management
Development Institute (MDI), Gurgaon, India, where he was
awarded the Prime Ministers medal. He has a rich, ten-year
experience of working in various capacities as a gazetted
officer with the Indian Railways. He has also been a Professor
(Computer & Information Systems) at the Indian Railways
Institute of Mechanical and Electrical Engineering (IRIM&EE),
Jamalpur. He has presented and published his research in
international refereed conferences like Academy of Management
(AOM), Institute for Operations Research and the Management
Sciences (INFORMS), Asia Pacific Conference on Information
Systems (PACIS), etc. One of his papers was recently nominated
for the Carolyn Dexter Award and appeared in the best paper
proceedings at the Academy of Management Meeting, 2005,
Honolulu, Hawaii, USA. His current research interests include
IS and E-Business Strategy, IT off-shoring, and e-governance.
e-mail: [email protected]
No human pursuit achieves dignity unless it can be called
work, and when you can experience a physical loneliness
for the tools of your trade, you see that the other things
the experiments, the irrelevant vocations, the vanities you
used to holdwere false to you.
Beryl Markham
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