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Introduction Core competence is a concept well known to academics, business practitioners, and consultants in strategic management. It was originally invented as a tool for justifying business diversification at large companies, and for supporting internal processes such as product development (Prahalad and Hamel, 1990). Scholars have acknowledged the importance of the concept by advancing it in multiple directions: by connecting it to conceptual notions of learning(Leietal.,1996), by suggesting corecompetence models to sustain competitive advantage (Petts, 1997; Hafeez et al., 2002), by building on the concept’s basic notions to invent similar concepts(Sanchez and Heene, 1997; Edenand and Ackermann, 2000; Sanchez, 2004), and by developing processes for its identification (Javidan, 1998; Eden and Ackermann, 2000). The importance of the concept is also acknowledged when testing the implementation of core competence as strategy(Clark,2000; Clark and Scott, 2000).However, it has recently been suggested that there is a lack of knowledge about the concept, since only a few empirical studies exist (Wangetal,2004). One category of existing studies focuses on ways of identifying core competencies empirically, using company task-forces, and using the associated concepts (resources, capabilities, and competencies) as part of the identification process (Javidan, 1998; Eden and Ackermann, 2000). The concept is often perceived as vague, and it is mixed up with other strategic concepts(Clark, 2000);there is,therefore,a need for scholars to focus attention on improving the clarity of the concept. One major benefit for the identification process is that employees survey the organization’s different parts, which increases organizational awareness of ongoing and latent activities. A setback in the process is the indistinct use of the associated concepts. For instance, their characteristics are not kept separate, either in conceptual discussions or in practical actions.This is unsatisfactory to those interested in core competence matters,since the characteristics of the associated concepts may enhance our comprehension of the core competence conceptions. The present paper contributes to this gap in knowledge by investigating those characteristics which discriminate between and signify the associated concepts. In addition, while the identification process per se and the label“associated” imply links between the associated concepts and a core competence,these links are still only assumptions in existing research; theoretical and empirical discussions and validations are lacking. Such links, however, are of major importance, since they involve potential influences. The purpose of this paper is to outline a core competence model by exploring links between core competence and the associated concepts of competencies, capabilities, and resources, and by proposing refinements to the characteristics of these concepts. This study was conducted in a single case; a Scandinavian company which is especially well suited for studying core competence matters due to its diverse product and market mix.The company’s products originate from several significantly different core competencies. This study focuses on a particular core competence, selected for several reasons: it is generic and has been established for more than 50 years; it is essential to all company divisions and business undertakings; and it is familiar to the employees and customers of the company. By basing the study on this core competence, it was made possible to identify and separate the associated concepts and their characteristics, as well as their links to the core competence. This study contributes to resource-based and core competence-based theory firstly by outlining a core competence model, and secondly by proposing specific and significant characteristics of the concepts of competence, capability, and resource which have significance both for research matters and for practical matters, in developing and specifying the concept of core competence. The paper is structured as follows. An initial model is introduced together with the theoretical presentation of the focal concepts. Next follows a discussion of the method by which the empirical data were collected. The data are then presented and discussed along withproposedrefinements, suggestedby the discussion, ofthe initial model.The paper ends with conclusions, managerial implications, and suggestions for further research. The initial model In this paper, core competence is defined as a competence that fulfils three criteria (Prahaladand Hamel,1990): contributes significantly to the customers’ benefit from the product, is competitively unique, and provides potential access to a wide variety of markets. There are several benefits of selecting these criteria as a definition: they are part of the concept’s original notions, and they conceptually link a core competence to a competence, deferring the necessity to empirically identify both. There are nearly as many definitions of the associated concepts as there are scholars in the domain of strategic management research. This dilemma has recently been acknowledged by researchers (Hafsi and Thomas, 2005); it poses a major problem for practical issues such as operationalization: which definition is most accurate? Definitional issues are pertinent to the present paper, since the characteristics of the concepts are dependent on them. Thus, there now follows a discussion of the definitional issues, starting with competence, which is already conceptually linked to a core competence. For the other two concepts, capability and resource, we have to take a step back and first discuss whether they can be linked to a core competence at all. The three criteria given above make competence a central concept in core competence issues. Competencies are crucial in general too, since they play a major part in organizational developments. Javidan (1998) has suggested a “competence hierarchy,” in which the competence concept is of greater value to a company than (in decreasing value order) the capability concept and the resource concept. Javidan’s research is bimportant to this paper, since it is he who suggested the associated concepts as being fundamental to core competence issues. The hierarchy notion, however, is discarded here, since Javidan discusses neither its conceptions nor its implications. Discussion of the theoretical ideas behind the competence concept has already been dealt with in moredetail by others(Bogneretal., 1999; Danneels, 2002; Sanchez, 2004).The primary signifying characteristic of a competence, apart from its being inherent in individuals and teams, is development. The concept is generally separated into functional competencies and integrative competencies (Henderso nand Cockburn, 1994 ).The former are used in daily activities, and the latter to integrate and develop new competence components. From a technology perspective, scholars suggest that product innovation, facilitated and improved by competencies, is a driving force of firm renewal (Danneels, 2002). Three types of competencies are distinguished: first-order competencies, which comprise customer and technological competencies; integrative competencies, or theability to combine first-and second-order competencies, or the ability to buildfirst-order competencies. Danneels’ typology is based on the same fundamentals as the division into functional versus integrative and exploitation versus exploration (March, 1991), and is relevant to the concerns of this paper since he studies manufacturing companies with a focus on technology, which is appropriate for the empirical case. Here, we follow the lead of Danneels (2002), and define a competence as residing in individuals and teams with development as its general characteristic. However, since core competencies are key ingredients in organizational success, they are already highly developed, which implies that minor competence developments are unlikely to have any impact on them.Consequently, only major developments (i. e. improvements ) are included here. Method This exploratory study was conducted in one company, which facilitates a deeper understanding of the context (Yin, 2003) and is crucial for general core competence comprehension (Eden and Ackermann, 2000). The context is also critical to the associated concepts: scholars have demonstrated them to be context-specific, and shown that in-depth empirical studies are needed to characterize them at a micro level (Ethirajetal.,2005).Researchers also emphasize the importance of making the research methodology slice vertically through the organization, to capture data and perspectives from different levels and perspectives (Leonard-Barton, 1995); an approach similar to the survey process recommended for core competence dentification (Prahalad and Hamel, 1990; Javidan, 1998; Eden and Ackermann, 2000). The case Creating loyalty among the major customers has long been the guiding light for all business undertakings in the Transfer Company. In the interviews, a general manager emphasized that the loyalties are crucial to the Transfer Company, and that they are mainly based on individual product adaptations. Throughout the years, the Transfer Company has developed technologies and products together with customers, which is a“win-win situation,” as customers obtain individually designed solutions and the Transfer Company develops products for existing demands. By testing this customer loyalty competence against the three criteria, it can be determined whether or not it is a core competence. The first criterion, that of significantly contributing to customer satisfaction, is met, since customers take part in product development and receive in return an individually developed product. This also verifies the third criterion,that of providing potential access to new markets, since the new product generates new markets. For this study, these two criteria were verified by customer interviews. The second criterion, that of being competitively unique, is met as long as customers remain loyal to the Transfer Company, because most of their customers prefer signing contracts with single suppliers. This is, therefore, a core competence, and it will represent the empirical core competence in this paper. Competence improvements The Transfer Company’s competence in creating customer loyalty has boosted its technological development. Effects are also apparent in the other direction: the ability to individualize products and to set new industrial standards in technological development has reinforced both customer loyalty and market competence. Infact, the Transfer Company’s chief components are a combination of market and technology competencies. This finding supports Danneels’ (2002, p. 1104) categorization of first-order competencies, which he argues are fund a mental:“New product development requires bringing together two competences: competence relating to technology and competence relating to customers.” Furthermore, the case description also informs us that the marketing and technological competencies are not only first-order; but they also explore and exploit new competencies, and are usually integrated from the outset. Thus, all of Danneels’ (2002) three categories were identifiable in the empirical case. However, integration at higher organizational levels and transfer of competencies from one division toanother are majorproblemsfor the Transfer Company. The reason why technologies are seldom transferred is the low level of cooperation between the different divisions. Thus, cross-division cooperation does not happen spontaneously; it must be initiated and implemented by top managers. Furthermore, when a product or technology is developed, it is seldom transferred to new markets, products, or technologies, even though it might be generically applicable, possibly due to the major focus on existing customers.Another hindrancetotransfermay bethe trial-and-errorspirit supported by the corporate rationale, which primarily supports revolutionary and not incremental developments. Thus, we can propose a refinement to the existing competence theory, e.g. Danneels (2002). Furthermore, the transfer characteristic also stresses an aspect of competencies that has previously been handled only implicitly: it describes a direction of the transfer; towards adivision, market, etc. The Transfer Company’s focus on the creation of customer loyalty acknowledges competence adaptation as a critical source for competitive advantage,an aspect which is not sufficiently emphasized in the existing market competence characteristic. Within the Transfer Company, the importance of this adaptation was accentuated in the mid-1990s: the macro-industrial switch to more service-centred products diminished the opportunities to patent technologies and products. The adaptation characteristic not only stresses the importance of understanding customer demands and needs, which strengthens customer loyalty in itself, but also acknowledges the increasing pressure put on suppliers to tailor-make customers’ individual solutions by handling the delivery of goods and services, including the individualization aspect of development. Thus, we can propose refinement of the competence concept by adding an adaptation characteristic. Conclusions This study was conducted in a single case; a Scandinavian company especially well suited for the investigation of core competence matters due to its diverse product and market mix, which originates from several significantly different core competencies. The study contributes to resource-based and core competence-based theory by outlining a core competence model and proposing specific and significant characteristics of competence, capability, and resource concepts which have significance both for research matters, in refining current characteristics and links, and for practical matters. We propose that competence is linked to the core competence concept not only theoretically, but also empirically. It was not necessary to separate competencies into first-order and second-order characteristics; competencies in the empirical case were both the former and the latter. Competence adaptation and competence transfer are therefore proposed as supplementary characteristics. We also suggest that capability is theoretically and empirically linked to the core competence concept. In accordance with the discussion, we propose a refinement to the capability concept: its characteristic involves routines/systems and capacity in combination. Further, a communicated characteristic, which can initiate organizational change, should also be included. Resources are of importance, via the value process, to a core competence, both in theoretical and empirical regards. The link, however, is merely of intermittent character. |
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