Core Competence

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Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 CORE COMPETENCE: A COMPETITIVE BASE FOR ORGANIZATIONAL SUCCESS Gürhan UYSAL Hacettepe University, Turkey ABSTRACT assets that constitute a firm's competitive advantage (Duysteers, Hagedoorn, 2000; 76). A firm acquires The main object of this study is to investigate the competitive strength by developing new competencies impact of core competence of a firm on organization- through organizational transformation with acquisi- al success. Core competence is a firm-specific organi- tion and integration of knowledge (Carayannis, zational signature that leads to market dominance. It Alexander, 2002: 626). Such transformation can be is a signature because represents a firm-specific way observed in HortResearch Company, a New Zealand of doing business, and emerges from organizational scientific reserach institute. The core competence knowledge, expertise, experience, skills, systems, tech- strategy process was the major driver of the transfor- nology, capabilities and resources along with value mation of HortResearch into a commercially respon- chain that all differentiate firm from their competitors. sive and successful science business (Clark, Scott, Those assets are cornerstones for organizational 2000: 495). To put another way, Lei et al. (1996), pro- operations that firm do better than rivals. They also posed that core competence(s) based on double loop help firm to efficiently produce winning products to learning produce organizational specialization that is increase market share. Core competence achieves this difficult to imitate since competencies have special target by leveraging resources and capabilities. It qualities can provide a sustainable competitive advan- improves the quality of in-house operations with tage in this way (Gallon, Stillman, 1995: 20). rational resource allocation and usage of distinctive knowledge, expertise, and skills. Therefore, firm beats Core competence is related to resource allocation, competition, and dismisses organizational weakness- capabilities, knowledge, skills, and expertise along es, and external threats, and takes advantage of mar- with value chain. It needs three elements: skills, ket opportunities. A large number of firms do search resources and processes (Torkkeli, Tuominen, 2002: for an effective way of managing core competence to 282), and it is communication, involvement, and a respond rapid changes in their environments. Staying deep commitment to working organizational bound- in the business depends more on exploiting core com- aries (Franklin, 1997: 373). Knowledge resources, petencies in order to reach future priorities and vision innovative creativity and expertise are success factors of the firm. Thus, a firm's strategies should be based that create the critical potential of an organization on core competencies to make company successful in which is termed core competencies (Godbout, 2000: the market and to obtain customer value, differentia- 77). Therefore, a firm's core competence(s) is defined tion, and penetration in to new markets as a set of problem-defining and problem-solving insights that fosters the development of strategic INTRODUCTION growth alternatives (Lei et al., 1996: 549). In addition, A mission of strategic management is to provide a core competencies are the integrated bundles of skills firm with competitive advantage by internal resource and technologies which are competitively unique and allocation and capabilities, i.e., is to ensure an organi- re-deployable (Clark, 2000: 117). zation on competing for future success. The strategic management field is focusing on the role of competen- Core competencies are the collective learning in the cies and resources that accumulate within a firm organization, especially how to coordinate diverse (Dierickx, Cool, 1989; Barney, 1991; Quelin, Arregle, production skills and integrate multiple streams of 2000; Quelin, 2000: 477) because the core competen- technologies (Torkkeli, Tuominen, 2002: 273), and are cy of a company not only becomes the distinct corpo- the result of a social learning process in the organiza- rate signature but also provides the company with its tion (Godbout, 2000: 78). For example, technological competitive advantage (Harvey, Buckley, 1997: 37). competences are manufacturing plant and equipment, Because it is a pool of experience, knowledge, and manufacturing know-how, engineering know-how and systems that create and accumulate new strategic quality assurance tools, and customer competences are

5 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 knowledge of customer needs and processes, distribu- key determinants of competitive advantage (Carayannis, tion and sales channel, communication channel and Alexander, 2002: 625). Resource-based competencies company/brand reputation (Danneels, 2002:1103). mean competitive edge. Core competencies are corpora- These knowledge, know-how, and expertise lead to tion's fundemental strengths, i.e., things that companies decisions about new product development (Quelin, do very well (Torkkeli, Tuominen, 2002: 275), and dif- 2000: 477). New product development is crucial ferentiates a firm from its milieu (Banerjee, 2003: 261). because it describes the extent to which Core competencies are the things that some companies know how to Core competencies should be built upon organization- do business uniquely well; for example, some manufac- al capabilities, and resources. Gaining superiority in a turing corporations have consistently applied core com- competitive market depends on a firm's ability to iden- petency and have gained considerable strategic value tify, develop, deploy, and preserve particular resources from the coherency of this approach (Gallon, Stillman, that distinguish it from its rivals (Carmeli, Tishler, 1995: 21). Constantly focused on the role of competen- 2004: 300). Resources are input based, capabilities are cies and resources, firms' strategic management teams functional or process based, and competencies are are becoming increasingly interested in discovering an cross-functional and based on process integration effective way of managing the competencies since, in (Carmeli, Tishler, 2004: 300). Capabilities-based com- high-tech sectors, these competencies have a direct petition means the consistency of firm's product qual- impact on the firm's future competitive positioning ity, the insight into evolving customer needs, the abil- (Quelin, 2000: 476). ZAP, a high-tech firm, has compe- ity to exploit emerging markets, enter new businesses, tence in metal-forming technology, and makes bicycle or generate new ideas and incorporate them in innova- frame through metal forming, and builds relationship tions (Stalk et al., 1992: 57). Capabilities refer to the with bicycle manufacturers (Danneels, 2002: 1099). corporation's ability to exploit its resources (Torkkeli, The strategic differences that a firm can maintain with Tuominen, 2002: 274). Each corporation has various others have been defined upon the extent and levels of resources, but companies differ in how they leverage resources usage (Banerjee, 2003: 251). When embed- them (Torkkeli, Tuominen, 2002: 274). Capabilities ded into the social fabric of the firm, competences can make the difference in using resources. Hence, a com- provide sources of competitive advantage because they pany determines what skills or capabilities will make depend on the unique interrelationships between peo- them unique in the future (Hamel, Prahalad, 1994: ple, routines and technologies that are highly inimitable 127). For example, the secret of Wal-Mart's success (Lei et al., 1996: 552). against its rival, Kmart, which is once an market leader in retailing industry, is a relentless focus on sat- Core competence: Leveraging isfying customer needs, gaining the full benefits of cross-docking, and finally, its human resource system Resources and Capabilities (Stalk et al., 1992: 59). Those are the capabilities of Core competency thinking is a powerful and widely pro- Wal-Mart so as to increase market share. moted approach to focus and mobilize an organization's resources; hence, a core competency is defined as an Wal-Mart's main objective is to improve internal area of specialized expertise that is the result of harmo- activities and develop organizational process to build nizing complex streams of technology and work activi- capabilities in order to beat rivals. Such firms as GE, ty (Gallon, Stillman, 1995: 20). Resources are stocks of Xerox, Motorola, Ikea, and Kodak achieved these available factors that are owned or controlled by the firm goals, and have become well known for their process (Carmeli, Tishler, 2004: 300). Each firm possesses a dif- innovations as well as their product innovations; for ferent profile of tangible and intangible resources and example, GE created the work-out (a participative, capabilities; hence, differences in profiles among firms employee focused, problem-solving retreat) and account for variations in the firms' competitive position process mapping (its version of reengineering), both and their performance (Carmeli, Tishler, 2004: 300). By of which have led to significant cost reductions with- leveraging its resources, a firm increases its strength, in the corporation (Higgins, 1996: 28). So, top execu- and uses them to overcome weaknesses and threats and tives are judged on their ability to identify, cultivate, take advantage of opportunities (Higgins, 1996: 31). and exploit the core competencies that make growth Leveraging resources also helps the firm to achieve possible (Prahalad, Hamel, 1990: 79). unreachable goals. The differences among firms in their accumulated resource endowments such as skills, The answer to question why competence is a key to propensity of learning, specialized assets could become organizational success lies on their ability in differen- important factors to reach organizational success (Lei et tiating a firm from their competitors. To be different al., 1996: 551) because differences and dynamism are and more powerful, company's capabilities and com-

6 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 petencies should be stronger than those of other competence because it makes competitive advantage by panies in the industry (Torkkeli, Tuominen, 2002: any other strategy possible (Higgins, 1996: 27). This is 275). Capabilities refer to a firm's capacity to deploy why; a firm focuses on innovation and internal effi- resources, usually in combination, using organization- ciency to be competitive. For instance, most U.S.- al process to affect a desired end (Carmeli, Tishler, based firms can either choose to acquire innovation 2004: 300). Capabilities are considered core if they and make it their core competence, or they can stag- differentiate a company strategically (Banerjee, 2003: nate and watch market share and profits decline |251). Thus, resources and capabilities that have high (Higgins, 1996: 32). Moreover, internal efficiency value (i.e., contribute to improving the firm's perform- depends on skills, expertise, knowledge, values, and ance) and rareness (i.e., are possesses by fewer of the structure to efficiently utilize organizational resources firms than the number necessary to create perfect so that firm effectively competes in the market. competition dynamics) have the potential to create Resources help a firm to create value in the organiza- competitive advantage (Carmeli, Tishler, 2004: 300). tion, and to mitigate the pressures that industry structure puts on firm profitability (Douglas, Ryman, 2003: A number of recent contributions highlight the impor- 334). The value is the necessary part of improvement tance of technological competences, technical skills, of key technological competencies to extend the cur- learning, and knowledge developed within companies rent product base: Value sharing and the technological for understanding performance differentials co-operation between Saint-Gobain and Scholtes in (Duysteers, Hagedoorn, 2000: 77). ULTRASONIC the market of high-temperature glass used in cooking firm has customer competence of relations with indus- plates is one such example (Quelin, 2000: 480). Hort trial customers of nondestructive testing ultrasound Research Company identifies a series of core values instruments, good reputation and brand name, and has that include client focus, environmental ethics, honest technological competence of ultrasound diagnostic and open communication, commitment to scientific signal generation and display; therefore, those compe- excellence, teamwork, and tolerance and respect for tencies differentiate the firm from their competitors in diversity (Clark, Scott, 2000: 501). producing flaw detector with color monitor, and in developing medical ultrasound diagnostic devices Core competences can become instituonalized over (Danneels, 2002: 1099). Companies develop a unique time and thus become part of the firm's knowledge-cre- set of skills for market positioning, combinations of ating system (Lei et al., 1996: 552): Technological resources, technologies, and personnel that provide knowledge, know-how, expertise and technical capa- competitive differentiation (Harvey, Buckley, 1997: bilities support firm's current products. Hence, a com- 36). Defining what expertise it possesses enables a pany should identify which technologies fit the market firm to more efficiently utilize its resources and customer needs as well as the organization's core (McNerney, 1995: 3). Therefore, top management competencies and current strategic plans (Torkkeli, must have a sense of where new opportunities lie, Tuominen, 2002: 271). An example is Canal +, the must be able to anticipate changing customer needs, French pay television company, which has always must have invested in building new competencies invested in the technological competencies used in the (Hamel, Prahalad, 1994: 124). design of television decoders to remain independent and to control other firms' access to its market (Quelin, An increasing number of companies now priorities the 2000: 480). In addition, competences leverage learning effective management of competencies through direc- and skills to build growth alternatives, and reduce tories, databases, project groups, horizontal structures uncertainty (Lei et al., 1996: 564). In a sense, to (Quelin, 2000: 477) since dynamic core competences achieve competitive edge, core competencies should can be used to reduce uncertainty and to make imita- provide potential access to a wide variety of markets, tion from other firms difficult (Lei et al, 1996: 549). make a significant contribution to the perceived cus- CHEMAN's dynamic competence is INERT technolo- tomer benefits of the end products, and should be dif- gy, which allows for coating of metal with glass-fused ficult for competitors to imitate (Prahalad, Hamel, silica technology, and the firm exploits its competence 1990: 84). They should also be (1) unique to the corpo- by adding enormous variety of fused silica columns ration, (2) essential to the development of core prod- for detection of variety of compounds, and develops ucts and eventually to end products, and (3) marketable ability to coat aluminum with INERT (Danneels, and commercially valuable (Torkkeli, Tuominen, 2002: 2002: 1099). 275). Hence, successfully developing core competencies depend on organizational learning, knowledge Peter Drucker declares that every organization needs acquisition, experimentation and dynamic organiza- one core competency: innovation that is the core com- tional routines because those factors lead to accumula-

7 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 tion of universal and tacit knowledge, continuous nologies and processes for designing, manufacturing, improvement and firm-specific skills and capabilities selling, and servicing your products at the lowest pos- (Lei et al., 1996: 555). Tacitness reflects the extent that sible costs (Higgins, 1996: 31), and (Torkkeli, a competency is intuitive, non-verbalized and yet unar- Tuominen, 2002: 271). Duysters and Hagedorn (2000) ticulated and tacit knowledge is inherently more say that technological core capabilities generate per- ambiguous than articulated knowledge (King, formance differentials. In addition, technological Zeithaml, 2001: 77). Tacit knowledge protects a com- competencies contribute to firm' competitive strength petency from being imitated by competitors. by determining the renewal of product lines (Quelin, Organizational learning activities include the processes 2000: 476) because technologies can help a company of knowledge-based organizational transformation, to build competencies around its strategic resources. and so, the result of improved organizational learning In order to reach those targets above, companies is enhanced strategic flexibility (Carayannis, implement, build, and manage core competence appli- Alexander, 2002: 626). Moreover, cooperation with the cation explained below. other firms can help an organization to accomplish this goal. Alcatel made cooperation with Sharp in the termi- Managing Core Competencies nals market to acquire new competencies. Alcatel has knowledge and expertise in the radio technology and in Activities, skills and disciplines, which are termed pri- telecommunication networks and Sharp has superiority mary capabilities, are the building blocks of core com- in LCD screens, memory storage and communications petencies (Gallon, Stillman, 1995: 21). The aptitudes, (Quelin, 2000: 480). Through cooperation, technical the skills and motivation of the employees are neces- competencies in Sharp enable Alcatel to gain access sary conditions for developing a core competence into new technological and values that do not possess because knowledge is carried through human resources previously, and vice versa. The right technology can be to achieve the company's objectives (Godbout, 2000: an essential part of resources needed in the core com- 78). In a sense, those core competencies must be a petence concept (Torkkeli, Tuominen, 2002: 282) capability which the organization can sustain over time because a technology-driven firm creates, renews, and (Torkkeli, Tuominen, 2002: 274). In the general hospi- upgrades its latent and enacted capabilities based on its tal industry, the ability to develop capabilities, which stock of explicit and tacit resources by technological are superior to its competitors, is critical for success learning (Carayannis, Alexander, 2002: 626). (Douglas, Ryman, 2003: 335).Accordingly, a core capability is a knowledge-set that distinguishes a firm Building core competencies will enhance using firm's from its competitors because the knowledge-set has a internal resources effectively and taking advantage of content embodied in employee knowledge and skills, capabilities in developing successful products, pene- technical systems, managerial systems and values and trate emerging markets, and satisfying customer norms (Banerjee, 2003: 253). The management of demands. In a sense, the real sources of advantage are technological capabilities is important because it pro- to be found in management's ability to consolidate duces increasing economic returns as they focus more corporate wide technologies and production skills into narrowly on knowledge assets and processes that are competencies that empower individual businesses to non-substitutable, rare, and valuable (Carayannis, adapt quickly to changing opportunities (Prahalad, Alexander, 2002: 626). 3M company, for example, Hamel, 1990: 81). Therefore, to dominate and shape builds their core competence on capabilities in surface the dynamic market, managers should think of needed coating formulations and continuous coating processes skills, technologies, and capabilities that organization and on know how in technical skills (Gallon, Stillman, must possess. Wright et al. (1998) identified 3 possi- 1995: 21). COMP firm in a computer business has ble core competencies of petrochemical refineries: (1) skills in peripheral integration and network integration, skilled workforce, (2) efficient production, and (3) and produces hardware for portable video editor built new business development. Infrastructure capabilities, on existing technological competence (Danneels, for example, concern the internal operations of the 2002: 1099). These capabilities provide direct support company, and technological capabilities provide direct to the product or service portfolio, can provide the support to the product or service portfolio (Gallon, basis for significant product superiority, and also give Stillman, 1995: 22). the firm broad strategic value (Gallon, Stillman, 1995: 21). Success in product development and strategic David Whitwan, CEO of Whirlpool, believes that the value comes from firm's core competencies that are only way to gain lasting competitive advantage is to essential to the development of core products and end leverage your capabilities around the world because products, and that are essential to the implementation competitive advantage means having the best tech- of the strategic vision of the corporation (Torkkeli, Tuominen, 2002: 274).

8 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 firms and managers ought to show high commitment Core competence development efforts are based on to core competence program to resolve business chal- capabilities, resources, organizational learning, R&D lenges (Gallon, Stillman, 1995: 25). works, technology, and work teams. In addition, the content and form of the core competencies are created Managers can also set up relationships among univer- through the linkages between the organization's goals, sities, competitors, suppliers and clients. Through structure and culture (Godbout, 2000: 78). If compe- these linkage strategies, and by establishing durable tencies reside in organizational culture and values, relationships with external research partners, firms are they will be unique and causally ambiguous, and can able to stay abreast of current developments, increase not to be imitated by rivals because they may be more their proximity to competence, and gain access to the uncertain and less mobile to the rivals (King, resources, knowledge and know-how that they do not Zeithaml, 2001: 77). The core competency approach possess (Quelin, 2000: 477). These strategic alliances in HortResearch Company fitted well with the culture allow a firm to combine resources across organization- of this company (Clark, Scott, 2000: 506). The opera- al boundaries in pursuit of competitive advantage tional learning, i.e., learning from experience, con- (Douglas, Ryman, 2003: 333). Strategic technology tributes to the management of core organizational alliances cannot be considered as effective short-term capabilities, resource allocation, and competitive strat- vehicles for the acquisition of core competencies, but egy (Carayannis, Alexander, 2002: 629). instead should be used to complement endogenous capabilities in the long run (Duysters, Hagedoorn, A core competence is acquired through acts of learn- 2000: 84). Because of the increasing complexity of ing on the success and failures of recombination of technologies, rapid technological changes, and the knowledge resources (Banerjee, 2003: 252). The hier- increasing costs of R&D, firms are no longer able to archy of developing competence is resources, capabil- monitor all the technological developments that are ities, competency and finally core competencies important for their core markets; therefore, strategic (Torkkeli, Tuominen, 2002: 274). A firm firstly deter- technology alliances enable companies to monitor mines candidate abilities, knowledge and skills which several technological developments, and simultane- are valid and applicable in practice. The firm some- ously, let them concentrate on a few, most promising, times also creates horizontal workgroups to foster the projects internally (Duysters, Hagedoorn, 2000: 84) sharing of experiences and to facilitate the development of new ideas (Quelin, 2000: 476). These abili- Organizations put core competencies into practice to ties, skills etc. should be analyzed before considered enhance competitiveness in existing product cate- as core competences, and pass some qualification cri- gories, or to focus R&D and technology investments teria (Gallon, Stillman, 1995: 24): Does it harmonize (Gallon, Stillman, 1995: 20). R&D is important in streams of critical technological capabilities? Does it core competency practice. Quelin (2000) believes, it translate into customer-perceived value? Is it difficult develops new key technologies, and implements to imitate? Are there substantial barriers to competi- strategies that lead to an improvement and acquisition tors? Is it extendable to new markets, i.e., does it pro- of fundemental techonologies. The ability to achieve vide market mobility? Moreover, dynamic core com- economies of scope for many crucial products is petences are developed by the integration of systemic founded on a common technological knowledge base organizational learning of knowledge and continuous (Duysters, Hagedoorn, 2000: 84). In the international improvement based on experimentation and the devel- computer industry, technological knowledge increases opment of firm-specific skills (Lei et al., 1996: 549). the performance of corporate. Thus, technology selec- Motorola cares about these criteria above, and is the tion is important to companies. The aim of technology leader in the development of semiconductor solutions selection is to obtain new know-how, components, and for wireless communications systems (Gallon, systems which will help the company to make more Stillman, 1995: 24). They recognize the potential competitive products and more effective processes competencies in order to develop and exploit, and to (Torkkeli, Tuominen, 2002: 271). leverage their competitive strength in the market. This means appealing to and utilizing potential in the To meet today's R&D challenges; many of the compa- organization as the success factor for an organization's nies have been attempting to devise new methods for sustainability (Godbout, 2000: 77). R&D activities managing technological competence (Quelin, 2000: can help a firm to find the potential competencies. It 476): They compile skills in the organization, manag- renews the firm's portfolio of competencies by identi- ing the breadth of the competence base, or monitoring fying the new technologies that are likely to become the competencies that accumulate at the business unit crucial over time (Quelin, 2000: 481). Therefore, level. For instance, examples of textile competencies

9 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 are a firm's expertise in managing international divi- develop and pursue a long-term strategic intent (Clark, sion or in developing innovative manufacturing 2000: 125). Full utilization of core competencies and processes (King, Zeithaml, 2001: 77). Therefore, to their development into competitive advantage is develop a new strategy based on core competence, essential to the realization of the goals established by managers need to understand the purpose and poten- strategic intent (Torkkeli, Tuominen, 2002: 275). tial of core competencies, and the details of the major Strategic fit model, i.e. SWOT approach, appears to be components involved (Clark, Scott, 2000: 504). more popular in Western firms, and leveraging resources is more popular in Japan (Higgins, 1996: Building competence requires a large amount and 31): This is why Japanese firms are niche players in variety of employee participation, and demands rigor- the market and give importance to resources, and ous analytical activity (Gallon, Stillman, 1995: 25), Western firms are consciousness more about their and organizational learning (Lei et al., 1996: 553). In internal and external environments, and give impor- addition, core competencies should be developed tance to strategic fit. around strategic business factors because this approach leads to a common understanding of where State-of-the-art companies adopt core competence the key performance gaps were in the business (Clark, approach to go beyond traditional way of doing busi- Scott, 2000: 507). Core competence-based competi- ness. For example, the combination of a specialized tive advantage can be sustainable over time, if the technology base and more diversified sales suggests company exploits cumulative learning about the tech- that the internally generated technological core com- nology effectively (Torkkeli, Tuominen, 2002: 282). petences can be applied beyond the traditional com- Recent conceptual work suggested the importance of puter industry (Duysters, Hagedoorn, 2000: 84). A organizational learning for core competence develop- resource or skill-based view focusing on development ment (Lei et al., 1996: 553). Organizational learning and application of core competences is offered to sup- translates knowledge into core competences. This is plement the traditional approaches (Lei et al., 1996: because core capabilities are a function of the firm's 549). On the other hand, Duysters and Hagedoorn ability to organize itself into a knowledge-creating (2000) discuss that specialized core knowledge base, system (Lei et al., 1996: 552). In addition, knowledge the depth of technological competences, technological creation have often involved the formation of certain specialization, and the focus of technological skills types of internal horizontal structures such as project appear to generate performance differentials between management, virtual R&D workgroups and the estab- companies in a high-tech sector, such as the world- lishment of a co-operative working relationship with wide computer industry. Another example to that is the surrounding environment including universities, TELECOM Company. TELECOM's technological laboratories, competitors, clients and suppliers competence includes RF signal transfer and amplifica- (Quelin, 2000: 476). tion, and it exploits these competencies by introducing new editions of amplifiers for cable TV customers With knowledge of the organization's existing and (Danneels, 2002: 1099). The firm takes advantage of potential technical competencies, a firm focuses on another competency, which are reputation and rela- evaluating the strategic value of current competencies, tions with customers in wire line telecom market, and forming an initial view on which potential techni- especially cable TV operators (Danneels, 2002: 1099). cal competencies might be strategic (Gallon, Stillman, Hence, a firm needs knowing how to act, knowledge 1995: 29): A firm also decides where, when, and how in practice, being able to act with the help of the tools, to expand the scope of the core competencies. The and special processes such as interactions, information major problem in managing competencies and R&D management and evaluation (Quelin, 2000: 477): activities is uncertainty. This phenomenon affects firms Knowing includes all of a company's knowledge, cul- throughout their activities in mobilizing the basic tech- ture, professional experience and way of thinking, and nological competencies, and internally controlling the knowing how to do is all of the practices and solutions interactions between these competencies, and mobiliz- that are meant to solve problems. ing all useful competencies (Quelin, 2000: 476). Quelin (2000) explains why develop a strategic man- How can organizations achieve the core competence? agement of competencies: First one is to enhance the They should follow strategic fit and strategic intent firm's flexibility. Strategic flexibility means that a firm approach, and fit their competencies into organization- faces a greater range of potential options for action al resources, and internal strengths and weaknesses, which can then be leveraged to achieve a better fit to and external threats and opportunities. The core com- its competitive environment (Carayannis, Alexander, petence approach requires ongoing commitment to 2002: 626). Secondly, they increase the company's

10 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 added value. A competence generates added value technologies, which could be directed into a number from firm's products, processes and organization. of market areas such as multi-media, telecommunica- Finally, the most important one, a firm's performance tions, semiconductors, as well as mainframe and per- is determined by its competence. Therefore, it should sonal computers (Carr, 1997: 54). That example shows be explained how core competence achieves organiza- that the competitiveness of companies derives from an tional success. ability to build the core competences that will result in new business development more speedily than others Core Competence: The Road (Möllersten, Sandberg, 2004: 81). The new business development competence seems to have a marketing to Organizational Success orientation, and seems to emphasize a focus on the Corporate survival is in the long term dependent on the customer as a source of competitive advantage ability to exploit core competencies (Torkkeli, (Wright et al., 1998: 21). A core competence process Tuominen, 2002: 282) because technology, learning for new business development programmes should and skills are specific to the context of their develop- begin internally interviewing individuals, and then, ment and use within the firm, and competencies may after interview, the potential core competencies are have little or no market value to other firms (Lei et al., evaluated with customers, suppliers, and industry 1996: 551). Core competencies are irreversible invest- experts (Clark, 2000: 116). ments that determine the future capabilities and strategic opportunities (Lei et al., 1996: 551). Technology is New product planning should also include the fore- also key to success since the right technology can offer casting the future. Forecasts are used in the develop- very effective leverage when a company builds its core ment of new products, in the hiring of new personnel, competencies (Torkkeli, Tuominen, 2002: 271). Core in the addition of capacity in current positions, in the competence is an entrepreneurial decision-ability to establishment of new operations, and in any other respond to the dynamics of the environment (Banerjee, decision requiring an irreversible investment 2003: 252). Firm-specific capabilities, skills and tech- (Makadok, Walker, 2000: 854). The success or failure nologies allow a firm to rapidly catch opportunities in of an organization will depend on the accuracy of the the market, and to constantly watch the changes in the decision-makers vision of the future (Makadok, business environment. For example Fujitsu, Honda, Walker, 2000: 855). For small and large organizations, Sumitomo and NSK's competence-based missions being just one step ahead of the competition is not suf- allow them to obtain achievements and to see opportu- ficient unless you can ascertain that you can be contin- nities arising in the business (Carr, 1997: 55). Another uously ahead (Godbout, 2000: 77). example is HortReserach Company, a New Zealand scientific research institute: With competition for Building new core competencies helps the firm to pen- research and development funding increasing, etrate into emerging markets by developing new prod- HortResearch experience shows that core competence ucts that fit to challenges and demands of these mar- strategy process helps senior management to link the kets. They form products in which intra- and inter- portfolio of research projects with changing industry organizational business strategies, innovative process- and sector priorities (Clark, Scott, 2000: 496). es, logistics and individual competencies find their expression (Godbout, 2000: 78). Therefore, a new Core competencies are therefore currently viewed as product can satisfy customer quality with the require- the primary means to enable organizations to respond ment specification (Osterlund, 2001: 161). In addition, to their environments (Godbout, 2000: 78). product innovation contributes to the competitiveness HortResearch Company successfully followed the of the firm through its dynamic and reciprocal relation core competence based strategy process throughout- with the firm's competences (Danneels, 2002: 1095). developing industry foresight, generating consensus and committing to an ambitious, future strategic Company's major brands will be successfully intro- intent, identifying core competencies to create this duced to market as long as they are manufactured effi- future (Clark, Scott, 2000: 505). ciently. Core competence efficiently produces the firm's products and makes good business based upon To reach success, core competencies should not be them (Möllersten, Sandberg, 2004: 84). It is the base obsolete or irrelevant; conversely, they should be sus- for making competitive products (Osterlund, 2001: tained and improved (Torkkeli, Tuominen, 2002: 275) 160) by anticipating customer needs and leveraging to develop a unique and effective product/market pol- resources to provide unique value to customers (Clark, icy (Godbout, 2000: 78). For example, Fujitsu saw 2000: 116). Textile executives say, their competencies their core competence in terms of complementary understand the needs of end users of their products, and

11 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 flexible manufacturing through quick changeovers general hospital industry, the acquisition and deploy- (King, Zeithaml, 2001: 82). Moreover, new products ment of a set of valuable and distinctive competencies are created by linking competences relating to tech- will enable a hospital to establish a favorable reputation nologies and customers (Danneels, 2002: 1095). in the market, thereby, attracting customers (Douglas, Without knowledge and know-how, organizations Ryman, 2003: 336): That is, the more distinctive hospi- become dependent on suppliers and external technolo- tal's competencies are in a market, the greater the com- gy and fail to control the key resources of their sustain- petitive advantage. A firm's core competencies and ability (Godbout, 2000: 78). The only way to earn capabilities profile the current product/market situation above-normal economic returns is to forecast the future and then assess capabilities in terms of future market value of resources to the firm more accurately than opportunities (Clark, 2000: 116). For example, for competitors (Makadok, Walker, 2000: 855). Core com- money market mutual funds, the particular competence petence development should include customer needs to is the ability to forecast changes in short-term interest support them in their business operations. For example, rates that has an impact on the economic surplus gener- in Sweden, an executive manager of a pulp producer ated by the fund and its growth (Makadok, Walker, emphasized the importance of giving support to the 2000: 853). Moreover, it uses tangible materials such as customer so that the customer's paper machines work equipment, machinery, mail list and intangible materi- properly (Möllersten, Sandberg, 2004: 86). This sup- als such as manufacturing know-how, understanding of port will attract new customers toward the company, customer needs (Danneels, 2002: 1102). and hold existing buyers. Much recent research has shifted from focusing on Attracting new consumers requires new competencies tangible assets as a source of competitive advantage to and organizational renewal to meet the customer include intangible assets such as competence and demands and to survive in a business environment. An experience (Pehrsson, 2004: 272). This utilization of executive manager emphasizes to know customer resources means improvement in organizational learn- needs to build a completely new competence in mar- ing, i.e., learning by doing. Learning new competence keting and sales (Möllersten, Sandberg, 2004: 87). makes a firm competitive in the future (Osterlund, New competencies are the knowledge for product 2001: 159) because the combination of firm-specific innovation that has been recognized as a primary assets or resources enables a firm to accomplish a means of corporate renewal that involves the building given task (Danneels, 2002: 1102). By doing this, core and expansion of organizational competencies over competencies give a company power to control the time (Danneels, 2002: 1095). Therefore, new products future shape of markets and industries, and to deter- in the market will face high success. In other words, mine the destiny of organizations (Clark, 2000: 115). new products with a closer fit to firm competences For instance, TELECOM's core competency is RF tended to be more successful because competencies amplifiers, and its wireless products are closely involve employee knowledge and skills, technical sys- aligned with its technological competences that gives tems, administrative systems, values and norms the firm the ability to design and manufacture a phys- (Danneels, 2002: 1096) and because competencies ical product with certain features that customer wants consist of the synergy of intellectual assets such as (Danneels, 2002: 1103). A company can perform high motivation, employee effort, technological and profes- growth rate by leveraging core competence. sional expertise, and methods of collaboration and Therefore, firm strategies should be based on core management processes (Godbout, 2000: 78). A corpo- competencies which are unique, knowledge-based, rate focus on core competencies builds synergy organization-wide capabilities (Clark, Scott, 2000: between units and provides the rationale for resource 496). Hence, managers must think of how the compe- allocation and investment (Clark, 2000: 121). tence might be applied in new product areas (Danneels, 2002: 1108). For example, firms such as Core competence is a key to competitive edge because Eastman Kodak, IBM and Motorola apply their core it represents a combination of business specialization competencies to develop new successful products and economic utilization of human skills, and hence, is because their competencies give them this ability. critical success factors of excellent organizations and Eastman Kodak's core competence might be consid- trend-setting companies (Godbout, 2000: 77). Because ered imaging; IBM's might be considered integrated a distinctive competence is a differentiated set of skills, data processing and service, and Motorola's unteth- complementary assets, and organizational routines ered communication (Williamson, 1999:1093). which allow a firm to coordinate a set of activities that provides the basis for competitive advantage in a partic- Strategy making focuses on the firm's heterogeneous ular market or markets (Williamson, 1999: 1094). In the resources, capabilities and competencies as those pro-

12 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 vide a more stable basis for competitive positioning in forecast the future is a specific competence that a firm a turbulent environment (Clark, 2000: 116). Because should have (Makadok, Walker, 2000: 854). competencies produce high-quality products that add HortResearch Institute is successful in implementation value to consumers. According to Douglas and Ryman of core competence strategy making by managing the study (2003), the value of a hospital's strategic compe- three core elements of their business: Anticipating tencies is positively related to hospital financial per- future needs, managing integrated research teams, and formance. Pehrsson (2004) also found the same result delivering innovative and effective solutions (Clark, that high strategy competence is generally associated Scott, 2000: 501). Makadok and Walker's study (2000) with high performance of the entrant business. The shows that superior forecasting ability generates an way in which competencies are mustered will be a pri- economic surplus, and that the stronger a firm's fore- mary factor in determining the degree of difference casting competence, the larger the firm will subse- between average and superior performance (Godbout, quently grow. Two key components of firm success 2000: 83). Because it provides a new way of thinking are firm core competencies and industry structure; about future priorities and positioning, which are the thus, a firm must develop competencies that allow it to factors critical for successful core competence strate- successfully position itself within its industry gy implementation (Clarl, Scott, 2000: 507). In the (Douglas, Ryman, 2003: 333). contemporary management literature, there is prevail- ing belief that organizations which learn to work sys- Any company that aims to obtain competitive edge tematically with their core competencies achieve con- should build causal ambiguity to save their core com- siderable strategic power (Godbout, 2000: 78). It also petencies. Executives emphasize that if a competitor develops an organization's capability in building could copy their information systems, which is their shared vision, personal mastery, and system thinking core competence, they would lose much of their com- that is to understand wholes, and to learn how the petitive advantage (King, Zeithaml, 2001: 82). Causal actions shape the strategy (Osterlund, 2001: 165). This ambiguity, which is ambiguity about the link between requires organizational changes. The most successful firm resources and sustained competitive advantage, changes and turnarounds in the Western industrial protects resources from competitive imitation world are cases where organizations have concentrat- although socially complex resources such as a good ed on the core competencies of the organization and reputation and trust are time-consuming and expen- the quality of competencies of their employees sive to imitate (King, Zeithaml, 2001: 76). Causal (Godbout, 2000: 76). At the organizational level, core ambiguity among competitors protects the firm competence based strategy making will translate into because competitors cannot imitate valuable compe- changes- new products, new processes, new skills and tencies if they do not understand the relationship new people (Clark, 2000: 123). For instance, between these resources and competitive advantage HortResearch Company culminates the transformation (King, Zeithaml, 2001: 76). of their organization from a bureaucratic Government department to a commercially successful science busi- Discussions and Conclusion ness by the process of developing a new strategy based on core competencies (Clark, Scott, 2000: 496). This study is about investigating the impact of core competence of a firm on organizational success. The The core competence approach to strategy making is study aims to clear two important questions: What are only one of many contributions within emerging we really good at? What distinguishes us in the mar- resource based view of the firm, and arrived at a time ketplace, adds value to our products and services, and when executives in large corporates were aware that gives us a competitive advantage? (McNerney, 1995: many of the traditional approaches were inadequate, 3). The reason to focus on those questions is because and it offered a compelling rationale for corporate the translation for "core competency" is market domi- strategy decisions, resource allocation and competi- nance (McManus, 1995: 17). It is a market dominance tion (Clark, 2000: 115). Moreover, a core competence since a core competency is simply something a com- helps an organization achieve its chosen competitive pany does better than any of its competitor advantage by providing customer value, competitor (Vadhanasiripong, 2000: 7). differentiation, and extendibility to markets (Franklin, 1997: 373). Therefore, the acquisition and develop- Core competence is a firm-specific organizational sig- ment of the right core competences to create future is nature that introduces winning products to market that clearly a strategic issue (Franklin, 1997: 374) because provides a firm with competitive advantage. The cor- shaping future deals with positioning the firm in the porate signature emerges from organizational knowl- industry (Douglas, Ryman, 2003: 333). Therefore, edge, expertise, experience, systems, technology, skills, capabilities, and resources. Those are the fac-

13 Journal of Global Strategic Management | V. 1 | N. 1 | 2007-June | isma.info | 5-16 | DOI: 10.20460/JGSM.2007118710 tors that differentiate the firm in the market, and that wide technologies and production skills into compe- are difficult to imitate by rivals, and finally, that devel- tencies that empower the firm to adapt quickly to op new assets and specializations within the organiza- changing opportunities (Prahalad, Hamel, 1990: 81). tion in order to catch market opportunities. Firms develop core competence to support their current A firm obtains organizational success with the help of products, and so, to increase their competitiveness. core competence that contains distinct qualities above, This is why, in addition to capabilities, activities; tech- and that provides a company with rational resource nology etc., effective management of developing com- usage to produce successful products. New product petencies should include the experiences, skills and development and new market penetration based on aptitudes of human resources that use knowledge core competence strategy enable the firm to have new resources to achieve organizational goals. Because growth alternatives. Because core competence human resources of firm uses knowledge resources to involves technologies and social learning unique to reach organizational goals. Therefore, employees the firm. For example, competencies such as technical ought to join to efforts of developing core competence. know-how, quality improvement instruments, knowl- These efforts are keys to competitive success because edge about consumer requirements, and firm reputa- competencies increase the organizational flexibility to tion make the firm build winning strategies. That is to effectively respond to the business environment. say, leveraging resources enhances company's competitive superiority. Moreover, core competence Core competence encourages entrepreneurial activi- improves the quality of in-house operations by inte- ties in the organization to respond rapid changes in the grating technology, skills, experience, and know-how. environment. That will result in firm survival in the long run. To stay in the business depends more on Distinctive core competencies differentiate the firm exploiting competencies because it identifies the from their competitors in how to use and leverage their future priorities, capabilities, and opportunities. The resources to beat the competition. They also provide a success or failure of an organization will depend on management for dismissing organizational weakness- the accuracy of the decision-makers vision of the es and external threats. Each corporation has various future (Makadok, Walker, 2000: 855). In addition, resources, but companies differ in how they leverage core competence improves synergy among organiza- them (Torkkeli, Tuominen, 2002: 274). Capabilities, tional departments by collaborating resources, experi- which are a set of process in the organization, also ences, knowledge and skills. It is critical success fac- make difference in organizational operations and man- tors of excellent organizations and trend-setting com- ufacturing to increase product quality. Duysters and panies, and represents a combination of business spe- Hagedoorn (2000) believe that technical core capabil- cialization and economic utilization of human skills ities generate performance differentials. Therefore, (Godbout, 2000: 77). capabilities should have importance in developing core competence strategy because both capabilities Competencies show a firm its present situation in the and core competencies manufacture high-quality market, and help a firm to monitor and acquire need- products, watch customer wants, and develop new ed capabilities to catch market opportunities. The products to put into markets. The importance comes combination of firm-specific assets, resources, and from the ideas that capabilities refer to the corpora- capabilities enable a management to accomplish this tion's ability to exploit organizational resources task (Dannels, 2002: 1102). (Torkkeli, Tuominen, 2002: 274). This is why upper- level managers is evaluated by managing and exploit- Core competence has an ability to give a company ing core competence of their organization. power to control the future shape of markets and industries, and to determine the destiny of organiza- To increase organizational efficiency depends mainly tions (Clark, 2000: 115). Core competence provides on executing core competence strategy. Because a this power to firm with new product development. competence uses specialization, knowledge, skills, New products, which are built on competencies, are and experiences to effectively run resources. These successfully introduced into the marketplace because resources build organizational value on end products competencies involve specific and distinctive organi- consumed by customers. Thus, plenty of firms search zational knowledge, skills, and values. Therefore, in effective ways for managing competencies to take the development of competence-based new product, top most advantageous, and to decrease uncertainty. In a management should call attention to customer sense, the real sources of competitive advantage are demands to satisfy them in their business operations. the management's ability to consolidate corporate This will lead to attracting new buyers for the compa-

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