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International Journal of Management (IJM)

Volume 7, Issue 3, March-April 2016, pp. 120127, Article ID: IJM_07_03_012


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ISSN Print: 0976-6502 and ISSN Online: 0976-6510
IAEME Publication

A LITERATURE REVIEW ON CORE


COMPETENCIES
Dr. Didem ENGNOLU
Lecturer, Program of Business Administration
Gediz University, Izmir, Turkey
Dr. Cenk Lain ARIKAN
Asst. Prof., Department of Business Administration
Gediz University, Izmir, Turkey
ABSTRACT
The purpose of this paper is to outline the major approaches accumulated
in the core competence literature. The construct, since its introduction in 1990
by Prahalad and Hamel, has received a lot of attention. Although many
researchers have attempted to bring core competence into practical use, the
literature depicts a lot of interrelated concepts which are sometimes used
interchangeably. Resources, capabilities, competence, core competence,
distinctive competence, and core distinctive competence are all used to mean
similar or sometimes exactly the same thing. Thus, this work aims to bring
forth insight as to the nature of the construct, make a significant contribution
in terms of clarification, and finally set a sound ground for further model
building. Research shows that core competence is at the heart of all
competitiveness. Therefore, we believe that firms, managers, and researchers
should have a more clear understanding of a construct that will benefit them
in highly competitive business environments.
Keywords: Competence, core competencies, capabilities, resource-based view
Cite this Article: Dr. Didem Enginolu and Dr. Cenk Lain Arikan, A
Literature Review on Core Competencies. International Journal of
Management, 7(3), 2016, pp. 120127.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=7&IType=3

1. INTRODUCTION
Core competence is a critical issue in todays highly competitive business
environments. The construct can be traced back to the seminal work by Prahalad and
Hamel in 1990. Prahalad and Hamel (1990) define core competence as the ability of a
firm to learn collectively how to coordinate various technologies and skills within the
organization in order to deliver better value. Hamel and Prahalad (1994, p.199) later
on expanded the definition into skills and technology that enable a company to
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A Literature Review on Core Competencies

provide benefit to customers. In other words core competence refers to the


coordinating ability of the firm to deliver the best it can. Prahalad and Hamels views
have been interpreted by various authors. One common theme which prevails is that at
the root of all competitive advantages lies core competence (Torkkeli and Tuominen,
2002). Therefore core competence is a critical strategic tool in understanding the
foundation of competitive advantage.
According to Prahalad and Hamel (1990) competence and core competence are
actually different concepts. They explain the differences as follows (Ljungquist,
2007):

A core competence must make a significant contribution to customer benefits,


A core competence should be inimitable and must be hard to imitate by rivals, and
A core competence should have access to different marketplaces.

According to Yang (2015) core competence is the efficient integration of


knowledge, technology, resources, techniques, employee skills, and management
skills of an organization. He also identifies core capability as the unique management
ability of core competencies to develop novel products, services, and processes. Petts
(1997) claims that core competence is becoming more crucial for competition in
business environments. He clarifies attributes of core competencies as 1) complexity,
2) invisibility, 3) inimitability, 4) durability, 5) appropriability, 6) non-substitutability,
and 7) superiority.
Javidan (1998) asserts that there must be a certain hierarchy of competencies and
that not all competencies of a firm have equal weight. This line of thought is also
consistent with the fact that a firm cannot possibly be best at everything. As
Kothandaraman and Wilson (2001) argue, a firm is lucky to have more than two
competencies. This assertion also supports Prahalad and Hamels view on core
competence to be the source of competitive advantage. A firm can be best at usually
only a very few and limited aspects. These aspects are the firms capabilities. Such
capabilities are sometimes referred to as competencies as well. Apples design
capability, McDonalds exceptional cost control performance, Wal-Marts very
effective system of managing customer information (Kothandaraman and Wilson,
2001), Zaras extremely short time to market, and 3Ms outstanding expertise in the
adhesives market are among the examples of most agreed upon core competencies.
Furthermore, according to Javidan (1998) resources exist and they vary in quality
and availability for a firm. As only a handful of these resources can effectively be
turned into capabilities that deliver higher value, the firm accumulates experience in
time in these more specific areas. These capabilities of being more experienced in
certain areas can then be transformed into valuable competencies through deliberate
investment. This deliberate investment takes a lot of human power and effort.
Through such investment and efforts these competencies will convert into one or a
very limited number of core competencies. Thus core competence can be said to build
upon continuous and deliberate investment and accumulation of experience. Such
competencies are able to provide the firm with a well-coordinated system that aims to
deliver better value to customers.

2. DEFINITION OF CORE COMPETENCE


Core competence, its definition and content have long been criticized by authors to be
less than clear (Ljungquist, 2007). Thus, the application of the concept has been quite
difficult in the past twenty-five years. Capability and competence have been defined

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and used interchangeably by several authors including Spanos and Prastacos (2004).
Even Hamel and Prahalad (1994) have referred to skills, competencies, and
capabilities interchangeably. Authors including Ray et al. (2004) and Peteraf and
Bergen (2003) have used the terms capabilities and resources interchangeably as well.
Therefore, the literature definitely signals a need for construct clarification. This will
help practitioners to make better use of core competence. Through a clearer
understanding core competence and its benefits can be put to better use.
Ljungquist (2007) claims that core competencies are the most difficult to achieve
things for a firm. Therefore they are at the pinnacle of all values that the firm
possesses. In this regard, resources all have different weights in terms of their
potential to turn into competencies. Furthermore, only a very limited number of
competencies can reach the core competence level. This fact has both positive and
negative connotations for a firm. On the negative side, it means that creation of core
competence is really demanding. On the positive side, it means that once a firm gains
a core competence it is really difficult for the competitors to copy and imitate it. Thus,
there are both advantageous and challenging elements regarding the construct. Savory
(2006) argues that organizational learning which can happen at various forms such as
single loop learning, double loop learning and triple loop learning occurs mainly at
the individual and team levels. Thus, a certain hierarchy of learning needs to be
accumulated in time to qualify as a competence.
According to Barney (1991), resources can be sources of sustainable competitive
advantage if they have four qualities. If resources are valuable, rare, not perfectly
imitable, and non-substitutable, then they form the foundation of a sustainable
competitive advantage. Therefore, those resources that do not fall under these four
categories cannot be classified as building blocks of core competence. In this regard,
resource-based view suggests the characteristics of resources that make them viable
for core competence creation.

3. TYPES OF CORE COMPETENCIES


In the literature, different classifications of core competencies have been defined.
Prahalad and Hamel (1990) outline three major categories of such competencies: 1)
Market access competencies, 2) Integrity-related competencies, and 3) Functionalityrelated competencies. According to Gilgeous and Parveen (2001) market access
competencies help a firm get closer to its customers (e.g. such as brand management,
sales and marketing, technical customer support, and logistics), integrity related
competencies help a firm deliver products/services faster and with higher quality (e.g.
quality management, knowledge management, time management, just in time
systems, and faster production), and functionality-related competencies help a firm
deliver more functional products/services (e.g. innovation management, more and
improved features, and exceptional after sales services beyond normal expectations).
Thompson (1996) identifies strategic core competencies of organizations as
learning and awareness competencies, process (change) competencies, and strategy
content competencies. These competencies which influence organizational
effectiveness and productivity are most important for organizations strategic
performance and success. Ashton (1996) specifies nine core competencies which have
certain implementations in the literature. These competencies are customer service
orientation, flexibility, commitment to organizational values, achievement orientation,
entrepreneurship and proactivity, creative problem solving and decision making,
empowerment, and talent/performance management. According to Coyne et al. (1997)

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core competencies can be grouped in two broad categories. These categories are 1)
insight and foresight competencies and 2) frontline execution competencies. Insight
and foresight competencies help firms to find or learn from novelty that creates
possibilities to move the firm much faster than its rivals. Frontline execution
competencies are critical where the end product or service and/or their quality is
dependent upon the execution quality of the frontline personnel. Thus, certain
advantages are possible for firms and brands where their products perceived quality
is affected from such employee involvement.
Baker et al. (1997) explain the types of core competencies in the existing literature
as strategic competence, distinctive competence, functional competence, and
individual competence. They also define another competence which is named as
competitive competence. Competitive competence differs from the other four
competencies mentioned above. Competitive competence is related with external
environmental conditions whereas other competence measures are related with
internal organizational standards. So, competitive competence is more dynamic in
nature. Eden and Ackermann (2000) add another perspective to the literature by
distinguishing between distinctive and core distinctive competencies. Distinctive
competencies refer to hard to imitate strengths a firm has that lead to sustainable
profit generation. Core distinctive competencies, on the other hand, help the firm
drive its aspirations. In other words, core distinctive competencies lead the firm
forward whereas distinctive competencies differentiate one firm from another in the
same industry.
Wang et al. (2004) indicate three broad types of core competencies as 1)
marketing competencies, 2) technological competencies, and 3) integrative
competencies. Their proposed model is an effort to integrate the different types of
core competencies and explore their relationships with firm performance. They assert
that market turbulence and technological turbulence are critical factors that moderate
the effect of core competencies have on firm performances. Their study which
focused on only high tech companies in China reports sound support that core
competencies really have significant effects on performance. Furthermore, they also
reported the significant effects of market and technological turbulence on this
relationship.
Abel (2008) claims that there is a link between core competencies and knowledge
capital. She identifies three main competencies which are related to firms explicit
and implicit knowledge. These main competencies are technical competence,
cognitive competence, and project competence. Technical competence refers to
analysis and engineering abilities of a firm. Cognitive competence refers to
understanding, reasoning, and creativity skills of employees. Lastly, project
competence focuses on the management and communication styles of the
organization. In another categorization, Mitchelmore and Rowley (2010) define four
types of organizational competencies. First type of competence is entrepreneurial
competence which involves idea generation, formulating strategies, risk taking, and
innovativeness. Second type of competence is business and management competence
which involves marketing skills, business planning, management skills, and targeting
skills. Third type of competence is human relations competence which involves
leadership skills, motivating ability, building organizational culture skills, and hiring
skills. The last type of competence is conceptual and relationship competence which
involves communication skills, decision making skills, analytical skills, and
organizational skills.

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The works of Yang et al. (2006) in the literature summarizes the final
competencies as problem solving, universal vision, sense of safety and environment
protection, planning, strategic planning, innovation, customer centricity, adaptability
to change, teamwork skills, communication, strategic leadership, cultivating the
subordinates, coaching, proactive action, IT skills, quality management, selfmanagement, emotion management, organizational learning ability, business
negotiation, decision making, source effectively, and domain knowledge. These
critical aspects reflect all major types of competencies in a comprehensive manner.

4. MAJOR APPROACHES MODELLING CORE


COMPETENCIES
Researchers have attempted to tackle the issue of modelling core competencies of
organizations in several different lines of thought. There have been considerable novel
approaches in the literature attempting to integrate the concepts. One of these
approaches can be credited to Long and Vickers-Koch (1995). Their approach is
contradictory in nature to most researchers in the sense that they define core
capabilities as the sum of core competencies and strategic processes. They claim that
core capabilities are the most critical and differentiating abilities a firm has. This
novel approach highlights the growing need in the literature for an integrative and
comprehensive understanding.
Sengupta et al. (2013) have proposed a model for core competence. This model
considers person-focused competence, job-focused competence, and role-focused
competence as the major component categories. Person-focused competence refers to
employee characteristics and values required fulfilling a stated job. Job-focused
competence is related with explicit and implicit knowledge and skills of employees.
Role-focused competence focuses on covering demands of the specified job.
Another approach to modeling core competence can be traced back to Yang et al.
(2006). In this model, there are four competence perspectives, as depicted in Figure 1:
internal-out (resource-based review) rationale, external-in (environment-strategystructure) rationale, the top-down (strategic thinking oriented) viewpoint, and the
bottom-up (core competence oriented) viewpoint. The model links the competencies
at both individual level and the organizational level and combines together corporate
strategy with organizational resources.
Top-down
From strategic thinking down
to identifying core competence

1. from external-in ESS (environment


strategy structure) rationale
2. from internal-out RBV (resource
based viewpoint) rationale
3. from bottom-up: micro perspective
(core competence oriented)
4. from top-down: macro perspective
(strategic thinking oriented)

Internal-out

External-in
Core
Competence

From resource base to shape the


competitive edge (RBV rationale)

From environment to examine the


fitness of competence (ESS rationale)

Bottom-up
From core competence up to
solidifying the strategic thinking

Figure 1 Process Oriented Core Competence Identification Model


Source: Yang et al. (2006, pp. 65)

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Fleury and Fleury (2003) claim that there is a dynamic relationship between
organizations competitive strategy and their core competencies. In their strategiescompetencies model, they determine organizations competitive strategies in the
market as operational excellence, product innovation, and being customer driven. On
the other hand, they identify competencies in three dimensions. These dimensions are
operations/manufacturing, product development, and sales and marketing.
Ljungquists (2007) model outlines insightfully how resources, capabilities,
competencies, and core competence are all linked together. According to Ljungquist
(2007) resources provide the inputs to value creation and in this way they help utilize
core competence of a firm. Capabilities, on the other hand, comprise of systems and
routines and they support the existing core competence. Competencies are achieved
through the developments made at the individual and team levels. In this sense,
competencies are useful in improving the core competence.
According to Quelin (2000), management of competencies is a strategic issue for
firms. He further claims that over the past fifty years paradigms of firms, especially in
the R&D activities, have shifted. He notes four major eras with different
characteristics. In the first era, 1960s, firms tried to create technology driven moves
without much consideration of the market or the customers. In the second era, 1970s,
the focus was on the market dynamics where only a limited number of projects were
concentrated upon. In the third era, 1980s, iterations between R&D and the
marketplace were the main focus. In the last era, starting from the 1990s, customer
focus and inter-firm cooperation became the main areas of concentration. In this last
era, which also covers our contemporary management life, knowledge-based and
competence based management styles have become the main norms. Based on these
ideas, we can assume that strategic resources also include strategic relationships with
the customers, suppliers, and competitors. Firms can gain access to different set of
resources and feed their competencies and core competencies with them.

DISCUSSION AND CONCLUSION


Core competence, which has been introduced into the literature roughly twenty five
years ago, is a strategic issue for firms. Its meaning can be summarized as what a
company does best. Literature on this heavily discussed construct is full of overlaps
and related concepts that are sometimes used interchangeably. Our study tried to
provide a general sense of all the major approaches highlighting certain similarities
and differences between them. We hope that through such an overview and an attempt
to clarify we can reach a reliable ground for comprehensive model building. Thus, we
suggest that as a following step researchers attempt to reach a conceptual model
which then can be operationalized and tested quantitatively.
We believe that the biggest gap in the literature on core competencies is the lack
of practical use. So far, research has mostly concentrated on highly descriptive work.
Therefore, we believe that practitioners and researchers alike can gain certain
perspectives from our contribution. This literature review is not one without any
limitations. The content of the core competence construct still is heavily Western
culture based. We believe that a more comprehensive approach in the future that
embodies the Eastern way of thinking and managing can benefit the literature
significantly. Literature seems to focus also on mostly well-known and big firms. We
claim that this nature of the research also lacks certain rich content which can prevail
from smaller firms.

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Dr. Didem Enginolu and Dr. Cenk Lain Arikan


Core competencies are the integration of knowledge capital, human capital,
financial and non-financial capital of the organizations. These assets are the sources
of strategic competitive position of organizations in the marketplace. Organizational
core competencies are crucial dimensions of the corporate strategic management
process. For this reason, core competencies contribute to organizations in providing a
powerful competitive advantage.
Lastly, the missing link in the literature between organizational culture and core
competencies seems to stand out as a major area to be considered in the future. The
values and the dominant organizational culture of the firms may have significant
effects of core competence building. Organizational culture, through its unique nature
can be a significant source of competitiveness in all industries. Furthermore, our
understanding of this relationship can provide us with a more comprehensive
perspective. In this regard, we can understand, both as practitioners and researchers,
why certain firms can create distinctive capabilities that qualify as core competencies
which are truly unique and extremely difficult to imitate. By gaining a richer
perspective in this way, we can provide firms and managers with clearer and more
strategic paths into core competence development. In the highly competitive
contemporary business environments that require sustainable competitive advantages,
core competencies will stand out to be one of the top strategy issues for managers,
firms, and researchers.

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