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) Distinguish between 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?