Core Competences and

Competition

By
Kevin Hinde
Aims
 To note the origins of core competence and
consider the distinction with the term ‘competitive
advantage’.
 Critically comment on the nature of core
competences using the economics and
management literature.
 To let students share their experiences of what
they believe their core competences to be.
Origins of the term

 Environmental school
 Resource Based school
 Prahalad and Hamel
 Core competence versus competitive
advantage.
Core Business: the case of UK
Local Authority Financial Services

 Shaping core business as privatisation of

local government services prevails.
 Chief Finance Officers consider what is
core and what is peripheral business
Key Questions being asked of
Public Services

 Why should the ownership of the

organisation matter if society is faced with
the inefficient and ineffective provision of
public services?
 What is it about present public provision
that gives it the right to continue in that
activity?
Core Competences. Where are
they to be found?
Core Competences (1)

 Distinguishbetween
 Necessary Resources
 Unique Resources
 Threshold Competence
 Core Competence
Core Competences (2)

 Kay (1993) defined these as ‘distinctive

capabilities’ which yield a ‘competitive
advantage’.
 They are features of an organisation that
cannot readily be reproduced by
competitors.
Core Competences (3)
 They provide organisations with that
special advantage of reducing costs,
through economies of scale, scope and
learning, or of enhancing the value of
products or services through innovation,
marketing and quality.
 Core competences can vary over time and
with the strategy deployed by the
organisation.
Core Competences (4)
 They can be found in
– activities or hierarchies.
– Leaders.
 Kay(1993) notes
– Strategic Assets
– Innovation
– Reputation
– Architecture
Core Competences (5)
 Williamson has showed that where
participants in the exchange process
 are ‘locked-in’ (they have both agreed to continue with
the exchange relationship)
 have invested heavily in resources (there is a high
level of asset specificity)
 have asymmetric information, and
 engage in a frequent number of transactions

 Moral
hazard and opportunistic behaviour
may result
Core Competence (6)

 Williamson’s approach shows intermediate

situations between market and hierarchical
forms.
 Organisations that achieve these quasi-
contractual relationships are reflecting their
core competences.
 For some core competence is an ‘enabling
culture’.
Examples

 Relational contracts in the public sector –

service level agreements.
 Relational contracts in the private sector –
Nissan.
Other forces

 Social Networks
 Hierarchies and Clans
 Organisational Routines
 The role of tacit knowledge.
And Finally…

 Summary
 Have you covered the learning outcomes?
 Any Questions?