Wednesday, April 21, 2010

Have we realized the importance of Core Competencies yet?

The world of strategy professionals suffered an irreplaceable loss last Friday with the passing away of Dr C K Prahalad, who was the Paul and Ruth McCracken Distinguished University Professor of Strategy at the University of Michigan’s Ross school of Business. One of the foremost contemporary business thinkers and management gurus of our time, Dr Prahalad is credited with introducing the world to concepts such as Core Competency, Reinvention, Continuous Innovation, Next practices and to the immensely popular byline “Think Global, Act Local”. The last decade of his life was spent on prodding corporate houses and big businesses to focus on the world’s poor, thereby targeting both sustainable development and inclusive growth.

Like many other students of Business Strategy, I never had the opportunity to meet the great man. I only read his articles and his ideas. I was particularly enamored with his concept of Core Competence in the Corporation, published way back in 1990 along with Professor Gary Hamel of the London Business School. In this 16 page ground breaking article, they wrote 

“The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller branches are business units; the leaves, flowers and fruits are end products. The root system that provides nourishment, sustenance and stability is the core competence. You can miss the strength of competitors by looking only at their end products”. 

Much before the computer became omnipresent in corporate offices, much even before email became the norm for corporate communications and definitely much before the proliferation of mobile telephony, Professor Prahalad had the clairvoyance to get to the core of the basis for a corporation’s competitive advantage in the market place and expressing it in a metaphor that could be understood by all. By equating core competencies in the corporate to the root system of a tree, he achieved in sending out many clear messages in one single shot, some of them being:

  1.     Core Competencies are the basis of long term corporate sustainability.
  2.     Core Competencies are corporate resources and they cut across business units
  3.     New products and services can be created if core competencies are in place
  4.     Employees who embody the core competencies of the corporation often get a free hand over others.

In so dearly portraying the importance of core competencies, he also succeeded in elevating the prominence of intangible assets in the enterprise, a concept with which we are still grappling a full twenty years after Dr Prahalad first introduced it to the world. Such was the insightful genius of the man. He constantly exhorted corporate leaders to think outside the box, to ‘see’ opportunities lurking right in front of them, to look beyond existing markets, to always question the assumptions behind price and performance, to constantly search for and build innovative products and to lead customers to such products. He often gave the example of Steve Jobs of Apple and Ratan Tata of Tata Motors in this regard.

Just this month, he summarized his article on “Best practices get you only so far” in the Harvard Business Review by writing “Executives are constrained not by resources but by their imagination”. Memorizing this byline and trying to put it to practice could perhaps be the best tribute to Dr C K Prahalad.

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