The Fallacy Of Prahalad and Hamel's Core Competency - Aditya Yadav
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This document discusses the flaws in the theory of core competencies as proposed by Prahalad and Hamel. It argues that focusing solely on core competencies is too inward looking and can lead to strategic irrelevance if customer needs change. It also notes that the age of specialists is over and that organizations need to be specialized generalists to provide end-to-end solutions. Additionally, focusing only on core competencies can prevent companies from making the jump to new technology cycles, potentially leading them to lose their leadership position over time. The document advocates that companies should focus not just on core areas but also allocate resources to related and some unrelated areas to maintain competitiveness.
The Fallacy Of Prahalad and Hamel's Core Competency - Aditya Yadav
- 1. “Running an Agile Fortune 500 Company” Aditya Yadav, aditya.yadav@gmail.com in.linkedin.com/in/adityayadav76 *
- 2. * *A Typical Global Company *Fortune 500/1000 *200 Divisions *40 Countries *25000 Employees
- 4. * *Original Question “What are our Core Competencies? It is known that to succeed you have to focus on your core competencies. How do we do that?” *The Correct Question - “That‟s Not Entirely True. There is a bigger picture beyond The Core Competencies Theory. Shall we take a fresh look at the entire horizon? Shall we?”
- 5. And The Philosophy Behind The Answer *
- 6. * * A core competency is a concept in management theory originally advocated by C. K. Prahalad and Gary Hamel, two business authors. In their view a core competency is a specific factor that a business sees as being central to the way the company or its employees work. It fulfills three key criteria: * It is not easy for competitors to imitate. * It can be reused widely for many products and markets. * It must contribute to the end consumer's experienced benefits. The importance of the product/service to its customers. * A core competency can take various forms, including technical/subject matter know- how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication, best Human Resource Management (HRM), good market coverage, etc. * Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. Core competencies reflect the collective learning in organizations and involve how to coordinate diverse production skills and integrate multiple streams of technologies. It is communication, an involvement and a deep commitment to working across organizational boundaries.Few companies are likely to build world leadership in more than five or six fundamental competencies.
- 7. * * What was going on in the Minds of Professor Prahalad and Hamel when they wrote this Theory? * They both had a hangover from the Era of Specialization * And somewhere in 1980‟s-1990‟s organizational attempts with transferring management capability across business‟s hadn‟t worked out. Obviously they were using (i) Upfront Planning (ii) Strategy By Design and (iii) Mindless Execution by Minions. * So Professors concluded that there is something more basic than products and businesses which is their core competency. * And beyond that the Professors took the analogy of Specialization and built further …. Things like * You should concentrate on your core competency (i.e specialization) this Specialization Era Hangover is sprayed all over the Research in that era. Things like * You shouldn‟t squander your resources outside your core competency etc. * But guess what?...
- 8. * * Today the Era of specialists is over…. The Generalists have arrived… * And they are supported with (i) Emergent Strategy (ii) Iterative and Incremental Execution (iii) Bottom Up Organizations (iv) Empowerment (v) Transparency (vi) Knowledge Ecosystems (vii) everyone is available for hire for a price * The only things that remain today are Trade Barriers, Govt. Protectionist Policies, Cartels, and … * Patents which don‟t allow other people to enter the space… * So you will ask me if I can beat Boeing and AirBus? * The answer is Yes! Ceteris Paribus. * If I had the cash i.e. $50billion, no patents to deal with, no cartels, or protectionist policies and ceteris paribus everything else remaining equal, there are atleast 500 possible groups in this world who would challenge AirBus and Boeing. There is absolutely no relevance of the concept of Core Competency in the world today… * Not every single person can do anything but a group of chosen generalists are capable of doing everything that atleast already exists today. And BTW there are people launching private space shuttles… * Can we make Nuclear Reactors? Yes! Ceteris Paribus. Deregulate and decontrol the nuclear mining and processing, make it a legal business possibility, remove licensing and regulation and within a couple of years you would have nuclear reactors from IBM, Apple, Google and Microsoft who are in the business of software products and services. * The concept of core competencies are as prehistoric as the dinosaurs and extinct. And Patents, protectionism… are an abomination delaying the progress of Human Society and Innovation, and eventually benefits to the end consumer. * If someone says we cannot do or wont do something because that‟s not our core competency. Then you have to tell them there might be other reasons and constraints for not doing them or us not being able to succeed at them (ceteris paribus violation) but not being our core competency is absolute rubbish
- 9. *
- 10. * * The Core Competency Theory by C.K.Prahalad and Gary Hamel has serious Flaws. * It is very inward looking… * I think what‟s fundamental is to realize that Organizations should focus on things they are good at rather then squandering their resources all over the place. * Ref: My Deck on Strategic Relevance * Instead of writing a Theorem let me just say – Aditya focuses on Swimming because that‟s his Core Competency and he is good at it. But suddenly women in Bangalore have decided they prefer Geeks. * Ouch! Aditya just lost all his chances of finding the partner he wants !!! ;-) * Oops! That‟s Strategic Irrelevance * And you also forgot The Law of Diminishing Returns!!! * This is the First Big Flaw with The Theory of Core Competencies
- 11. * * So your company decides they are good at (i) Processors (ii) Motherboards, and (iii) RAM and (iv) Fabs… (Building them) * But that‟s not what Customers want. * That‟s good only if you are a Small Niche Player * If you are to end up in the Fortune 500 list and want to stay there for more than a decade… * You have to offer End-To-End Solutions within your Industry and All Converged Industries you operate in. * Specialization is another Mantra chanted in Management Literature for Leaders “Focus on your strengths rather than squandering away your time and effort on other things, to maximize the outcome” * The Reality: The age of the hyper specialist is Over!!! * Leaders and Organizations have to be Specialized Generalists!!! * “We know all about the (World Leaders in) Car Engines but we know nothing about the transmission, alternate fuels, passenger safety or how to secure the car” OOOPS!!!! * This is the Second Big Flaw with the Theory of Core Competency
- 12. * * Its Empirically Observed that World Leaders (Organizations) cease to be leaders beyond one Business Technology Cycle. * Which is normally 1-1.5 decade * Its understandable when the CEO is incentivized on a 3 year target… * But guess what? Your company has to survive and succeed for the next „x‟ decades * That‟s the prime reason why CXO‟s focus on Core Competencies and ignore the Long Term Survival and Success of the Firm. They deliver what‟s asked of them, nothing more nothing less and walk away. * The reality is that An Organization has to continuously work on making the Jump to the Next S Curve * Some companies use the Formula 70:20:10 * You focus 70% of your efforts on The Focus Areas * 20% on Related things * 10% on unrelated things * This hopefully covers the need to make the Double S Curve Jump * This is the Third Big Flaw in the Theory of Core Competency.
- 13. * Aditya!!!