A Source of Competence

  Manufacturing  

In their trend setting paper "The Core Competence of the Corporation" published in Harvard Business Review (May-Jun 1990), authors C.K. Prahalad and Gary Hamel wrote that the companies that understand their core competencies and develop strategies around them invariably outperform the competition.

They gave the example of how Honda understood the importance of competitive advantages that it got from its expertise in engines. Honda treated its engine expertise to be a core competence and by capitalizing on this was able to translate its success in the motorcycle business into success in the car business. On the other hand, Chrysler viewed engines as another component. Hence it outsourced it to Mitsubishi and Hyundai and became increasingly dependent upon them. Between 1985 and 1987, Chrysler's outsourced engines went from 252,000 to 382,000.

Prahalad and Hamel attribute the difference between the understanding of core competencies and the strategies to exploit them to be a major reason for the changing fortunes of Honda and Chrysler during that period.

In the 21st century, the core-competence discussion takes a new direction because of the paradigm shift brought on by information technology. Traditionally, IT was looked at as one of the enabling tools to get certain activities done and to bring on operational efficiencies. Non-IT business did not think it to be the …

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