Managing Core Competency for Corporate Renewal: Towards a Managerial Theory of Core Competencies

Partly as a reaction to the implicit bias in favour of the analysis of the external environment in much of the strategy literature of the 1970s, best exemplified by Porter’s work (1980), many strands of research have recently converged to give more importance to the analysis of the firm’s own resources and competencies. Building on seminal works by Penrose (1959) and Selznick (1957), considerable efforts have been deployed to build a theory of the firm’s resources and competencies (Lippman and Rumelt, 1982; Rumelt, 1984; Wernerfelt, 1984; Barney, 1986; Itami, 1987; Dierickx and Cool, 1989; Teece et al., 1990), and to demonstrate to managers its value (Prahalad and Hamel, 1990). While this emerging theory does make a compelling case for the importance of resources and competencies to firm success, while it is intuitively appealing to managers, and while it presents business policy and organizational process researchers with a good opportunity not to let their fields of enquiry be reduced to a minor branch of economics, it lacks both a solid empirical base and a microtheoretical foundation. Competencies and resources are difficult to identify, isolate and measure (because they are often tacit, inimitable, collective, deeply embedded and interactive, and integrative). Their performance effects are hard to isolate from others, thus making resource and competence based theories hard to test in the conventional I/0 paradigm.