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Core Competence for Sustainable Competitive Advantage

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Core Competence for Sustainable Competitive Advantage
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IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 1, FEBRUARY 2002

Core Competence for Sustainable Competitive Advantage: A Structured Methodology for Identifying Core Competence
Khalid Hafeez, YanBing Zhang, and Naila Malak
Abstract—Core competencies are the crown jewels of a company and, therefore, should be carefully nurtured and developed. Companies can determine their future business directions based on the strengths of competencies. However, because generalized terms such as resource, asset, capability, and competence are not clearly explained in connection with competence theory, these posing difficulties in understanding many contemporary management concepts. In this paper, we provide a summary of the recent management theories by comparing their salient features. We then propose a linking mechanism between assets, resources, capabilities, competencies, and core competencies. We provide a methodology to identify core competencies by isolating unique and flexible capabilities of the firm. We use this framework to identify the core competencies of a U.K. manufacturing company. The results of our analyses is to help the company to make more informed strategic management decision regarding capability development, outsourcing, focusing, or diversification, with regards to new products, services, or markets. The framework is generic in nature and is applicable to benchmark a manufacturing, public, or service sector organization. Index Terms—Assets, capability, competence, core competence, resource, strategic flexibility, uniqueness.

competition. The term “core competence” was used by Prahalad and Hamel [3] to deal with capabilities within diversified firms. Several measures have been proposed how to identify unique resources and capabilities [4]–[9]. However, because generalized terms such as resource, asset, capability, and competence are not clearly explained in connection with competence theory, they become an obstacle in understanding



References: [1] M. Porter, Competitive Advantage. New York: Free Press, 1985. , The Competitive Advantage of Nations. New York: Macmillan, [2] 1998. [3] C. K. Prahalad and G. Hamel, “The core competence of the corporation,” Harv. Bus. Rev., pp. 79–91, May-June 1990. [4] J. B. Barney, “Firm resources and sustained competitive advantage,” J. Manage., vol. 17, no. 1, pp. 99–120, 1991. [5] R. M. Grant, “The resource-based theory of competitive advantage: Implications for strategy formulation,” in California Management Review: Spring, 1991, pp. 114–135. [6] G. Hamel, “The concept of core competence,” in Competence-Based Competition, G. Hamel and A. Heene, Eds. New York: Wiley, 1994, pp. 11–33. [7] R. Sanchez, A. Heene, and H. Thomas, “Introduction: Toward the theory and practice of competence-based competition,” in Dynamics of Competence-Based Competence: Theory and Practice in the New Strategic Management, R. Sanchez, A. Heene, and H. Thomas, Eds. New York: Pergamon, 1996, pp. 1–35. [8] D. J. Teece, G. Pisano, and A. Shuen, “Dynamic capabilities and strategic management,” Strat. Manage. J., vol. 18, no. 7, pp. 509–533, 1997. [9] B. Wernerfelt, “A resource-based view of the firm,” Strat. Manage. J., vol. 5, pp. 171–180, 1984. [10] R. P. Rumelt, “Foreword,” in Competence-Based Competition, G. Hamel and A. Heene, Eds. New York: Wiley, 1994, pp. xv–xix. [11] W. C. Bogner and H. Thomas, “Core competence and competitive advantage: A model and illustrative evidence from the pharmaceutical industry,” in Competence-Based Competition, G. Hamel and A. Heene, Eds. New York: Wiley, 1994, pp. 111–144. [12] R. Sanchez and A. Heene, “Reinventing strategic management: New theory and practice for competence-based competition,” Eur. Manage. J., vol. 15, no. 3, pp. 303–317, 1997. [13] D. J. Teece, G. Pisano, and A. Shuen, “Firm Capabilities, Resources, and the Concept of Strategy,” University of California at Berkeley, Working paper 90-8, 1990. [14] K. E. Marino, “Developing consensus on firm competencies and capabilities,” Acad. Manage. Exec., vol. 10, no. 3, pp. 40–51, 1996. [15] R. Amit and P. J. H. Schoemaker, “Strategic assets and organizational rent,” Strat. Manage. J., vol. 14, pp. 33–46, 1993. [16] A. Nanda, “Resources, capabilities and competencies,” in Organizational Learning and Competitive Advantage, A. Edmondson and B. Moingeon, Eds: SAGE Publications Ltd., 1996, pp. 93–120. [17] J. Klein, D. Gee, and H. Jones, “Analysing clusters of skills in R&D-core competencies, metaphors, visualization, and the role of IT,” R&D Manage., vol. 28, no. 1, pp. 37–42, 1998. [18] G. Stalk, P. Evans, and L. E. Sculman, “Competing on capabilities: The new rules of corporate strategy,” Harv. Bus. Rev., pp. 57–69, Mar.–Apr. 1992. [19] Y. Doz, “Managing core competency for corporate renewal: Toward a managerial theory of core competencies,” in Core Competency-Based Strategy, A. Campbell and K. Luchs, Eds. London, U.K.: Int. Thomson Business Press, 1997, pp. 53–81. [20] J. Goddard, “The architecture of core competence,” Bus. Strat. Rev., vol. 8, no. 1, pp. 43–52, 1997. [21] J. A. Klein and P. G. Hiscocks, “Competence-based competition: A practical toolkit,” in Competence-Based Competition, G. Hamel and A. Heene, Eds: Wiley, 1994, pp. 183–212. [22] R. Henderson and I. Cockburn, “Measuring competence? exploring firm effects in pharmaceutical research,” Strat. Manage. J., vol. 15, pp. 63–84, 1994. [23] B. Kogut and U. Zander, “Knowledge of the firm, combinative capabilities, and the replication of technology,” Org. Sci., vol. 3, pp. 383–397, 1992. [24] R. Sanchez, “Strategic flexibility in product competition,” Strat. Manage. J., vol. 16, pp. 135–159, 1995. [25] R. Reed and R. J. DeFillippi, “Causal ambiguity, barriers to imitation, and sustainable competitive advantage,” Acad. Manage. Rev., vol. 15, pp. 88–102, 1990. [26] I. Dierickx and K. Cool, “Asset stock accumulation and sustainability of competitive advantage,” Manage. Sci., vol. 35, no. 12, pp. 1504–1514, 1989. [27] D. J. Collis, “Research note: How valuable are organizational capabilities?,” Strat. Manage. J., vol. 15, pp. 143–152, 1994. [28] C. W. Hofer and D. Schendel, Strategy Formulation: Analytical Concepts. St. Paul, MN: West, 1978. [29] D. Leonard-Barton, “Core capability and core rigidities: A paradox in managing new product development,” Strat. Manage. J., vol. 13, pp. 111–125, 1992. [30] D. Helleloid and B. Simonin, “Organizational learning and a firm’s core competence,” in Competence-Based Competition, G. Hamel and A. Heene, Eds. New York: Wiley, 1994, pp. 213–239. [31] K. Hafeez, Y. Zhang, N. Malak, and S. Iqbal, “Determining firm key capabilities using analytic hierarchical process (AHP),” presented at the First Int. Conf. Systems Thinking in Management, Geelong, Australia, Sept. 2000. [32] K. Hafeez, Y. Zhang, and N. Malak, “Determining key capabilities of a firm using analytic hierarchical process (AHP),” Int. J. Prod. Econ.. Manuscript no. PROCE #2413, to be published. Khalid Hafeez received the Ph.D. degree from the University of Cardiff, Wales, U.K., in 1991. Currently, he is a Principal Lecturer in information systems at the Sheffield Hallam University, Sheffield, U.K. From 1993 to 1994, he served as the Publication Chairman of the U.K. Information Technology and its Application Society and co-chaired many conference and track sessions. He has been an Invited Speaker in many conferences under the themes of supply chain management, competence management, and information society and knowledge clusters. He has participated in many U.K. and European grants and has supervised many Ph.D. students. His current research interests include knowledge management, human capital management, supply chain management, organization learning, and system dynamics. Dr. Hafeez is a member of Institute of Logistics and Transport U.K. YanBing Zhang received the B.S degree from the University of Beijing, China, and M.B.A. and Ph.D. degrees from the Sheffield Hallam University, Sheffield, U.K., in 1999. Prior to receiving his degrees, he was a Commercial Engineer with the China Research Enterprise, Beijing, China. He has presented his work in many notable conferences and has been published widely. His research interests include core competence, supply chain management, and application of Analytic Hierarchy Process. Naila Malak received the B.Sc. degree from the University of Northumbria at Newcastle, U.K., and the Ph.D. degree from Leeds University, U.K., in 1995. She has served as an Analytical Chemist at Smith-Kline Beecham, U.K. (currently Glaxo-Beecham). Currently, she is involved with various European projects at the Enterprise Center, Sheffield Hallam University, Sheffield, U.K. Her current research interests include economic regeneration and project management in the Biotechnology fields. She is an associate member of Institute of Management.

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