CSIR Electronic Working Paper Series

Paper No. 2012/3

New Dimensions Added for Enhanced
Core Competence Application

Urban Ljungquist
School of Management
Blekinge Institute of Technology, Karlskrona
Sweden



February 2012









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2
WP 2012/3
New Dimensions Added for Enhanced Core Competence Application

Urban Ljungquist


ABSTRACT
We update the original core competence notions of identification and development
to fit high efficient innovation processes in dynamic environments, with aim to
progress the concept's applicability for scholars and practitioners.
To the core competence concept we add four dimensions previously missing:
time (shared history and shared future aims), managerial hierarchy levels (corporate
and SBU), innovation development modes and outcome types (radical/incremental
and exploitation/exploration), and finally innovation team characteristics and
support structure (homogenous/heterogeneous and formal/informal structure).
We propose that existing core competencies are ideally explored by
homogenous teams managed at the SBU-level, in structured context, which infers
competitive imitation protection. The process starts with identification then
progressed by a change in structure: going from formal to informal, which will
increase core competence and company performance.


Key words - Core competence, time, managerial hierarchy levels, innovation,
ambidexterity, support structure.




This paper is part of the research project No. 2011/0020 founded by the
Swedish Knowledge Foundation.







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3
New Dimensions Added for Enhanced Core
Competence Application



Urban Ljungquist

School of Management, Blekinge Institute of Technology, Karlskrona,
Sweden, [email protected] (corresponding author)




1. Introduction
Core competence, probably among the most important sources of company competitive
advantage, is often claimed to be a stepping-stone to future success (Markides and
Williamson, 1994, Prahalad and Hamel, 1990). Although the concept has been on the agendas
of scholars, consultants, and managers for over 20 years, detailed knowledge of it is still
limited, as has been recognized by various scholars (Bogner, Thomas and McGee, 1999,
Collis and Montgomery, 2005, Javidan, 1998, Ljungquist, 2008, Wang, Lo and Yang, 2004).
Scholars have identified practical and empirical difficulties to interpret the notion of the
concept, also in adoption to company specific strategies with maintained managerial
consensus (eg. Clark and Scott, 2000). The concept ambiguity potentially could originate
from low managerial "absorptive capacity" (Cohen and Levinthal, 1990, Volberda, Foss and
Lyles, 2010), as suggested in an empirical study with the conclusion: "While there was some
shared understanding of what is meant by the core competence concept (or principle) there
was absolutely no consensus about the specic core competences of the company." (Nicolai
and Dautwiz, 2010). This is very unsatisfactory; core competence applications is directly
related to company critical activities such as innovation processes. One solution suggested by
the latter scholars to take on the core competence challenge is to focus more on organizational
details for enhanced understanding.
In this paper, we take such an approach to enhance our detailed knowledge on how the
core competence concept relates to other key activities and concepts within the organisation,
such as company-specific activities of individuals and teams, including the structure of the
organisation, (Ljungquist, 2007, Robichaud, Giroux and Taylor, 2004).
In addition, even though we could reduce ambiguity of the core competence concept, our
understanding will not progress, we suggest, until the concept is brought more up-to date in
relation to contemporary business environment dynamics (Vasconcelos and Ramirez, 2011),
what Eisenhardt (1989) calls "fast-paced industries".
The purpose of this paper is to propose a core competence management model designed
to handle complex innovation processes in faced-paced market dynamism. In particular, we
will study the core competence concept from different perspectives: innovation outcome
types and modes of development (Eisenhardt, Furr and Bingham, 2010, Ellonen, Wikstrom
and Jantunen, 2009, Kim, Song and Nerkar, 2012, March, 1991), including existing literature
of ambidexterity (Cao, Gedajlovic and Zhang, 2009, Lubatkin et al., 2006, Raisch and
Birkinshaw, 2008, Raisch et al., 2009); time dimension of shared history and shared future
aims; task force teams' degree of homogeneity (Ko et al., 2011); and degree of formal
structural setting (Helfat et al., 2007, Nelson and Winter, 1982).
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In the following paragraphs, we review existing literature of core competence and
associated concepts.


2. Literature review
Core competence is here defined as a corporate competence fulfilling three criteria
suggested by the concepts initiators (Hamel and Prahalad, 1994, Prahalad and Hamel, 1990):
A core competence must contribute significantly to customer benefit of a product;
A core competence should be competitively unique and, as such, must be difficult for
competitors to imitate;
A core competence should provide potential access to a wide variety of markets.

Using these criteria in defining core competence has several benefits: they refer to the original
understanding of the concept as proposed by Hamel and Prahalad (1994) and Prahalad and
Hamel (1990); and they conceptually link competence to core competence, which confirms
that the latter is not an isolated concept. Three concepts are commonly agreed to be associated
with the core competence concept, namely, competence, capability, and resource (e.g. Eden
and Ackermann, 2000, Javidan, 1998). There are nearly as many definitions of these
associated concepts as there are scholars using them (Hafsi and Thomas, 2005). We choose to
present only a summary review here; a fuller overview is to be found elsewhere (e.g.
Ljungquist, 2008). Competences are often described as individuals or teams aiming to
develop or refine (e.g. Danneels, 2002, Grant, 1996, Sanchez, 2004). In the present paper, we
define a competence as knowledge situated in individuals and teams usable, for example, for
developing and refining a core competence. A firms capabilities are created over time from a
mix of routines, tacit knowledge, and organizational memory (Amit and Shoemaker, 1993, cf.
Collis, 1994, Nelson and Winter, 1982, Stalk, Evans and Shulman, 1992). Scholars have also
separated capabilities into operational and dynamic ones (Eisenhardt and Martin, 2000, Helfat
and Peteraf, 2003, Teece, Pisano and Shuen, 1997). In the present paper, capabilities are
defined as systems and routines for supporting, for example, the process of coordination and
integration. Resources, finally, are often viewed and defined as inputs to value processes
(Eisenhardt and Martin, 2000, Grant, 1991); this definition is adopted here.
The aforementioned characteristics of the associated concepts are transferred on to core
competence by links between them: competence improvements, capability supports, and
resources as input to the core competence value process (Ljungquist, 2008). Such links
between an associated concept and a core competence can eventually become obsolete and
collapse, for example, when a salesman is not using the company CRM-system properly (a
capability), being designed to sense market information and send to other corporate units and
development teams. This implies that links are dynamic and could differ in strength at
different times. Collapsing links could threaten the existence of a companys core
competence, so the links are as crucial as the characteristics of the associated concepts.
What we here call the core competence context consists of the core competence concept
and its associated concepts (i.e., competencies, capabilities, and resources), each of which are
ideally organised efficiently and successfully to improve and support a core competence.
Since the core competence concept mainly consists of the people getting-the-job-done, i.e.
individuals and teams of individuals, its context is actually similar to high-performing project
teams (Ko et al., 2011). These scholars suggest antecedents and facilitators of effective
collaboration to consist of three parts: The first is adequacy of consensus, which refers to
the competencies of individuals and teams regarding collaborative (converging) issues. The
idea is to remove obstacles to team unity, and to achieve team integration and mutual support
between team members, since high-level (project-internal) consensus has been empirically
proven to positively affect project performance (Ko et al., 2011). In the following paragraphs,
we will elaborate more on collaborative convergence. The second is organizational context,
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which refers to four parts of the project process: set-up, implementation, monitoring, and
evaluation. ICT technology is preferably used throughout the project to support the
communication and collaboration process. This is similar to what we here call capabilities:
systems and structures to support activities. Another side of the organizational context is
suggested as well (Ko et al., 2011): avoiding too structured a setting for the project team,
since this could hamper the creativity and coordination. The third part is innovation
complexity, which refers to the social, physical, and temporal dimensions of a projects
context, particularly for inter-project matters such as participant communication and
coordination. This refers to issues such as physical distance and time zone differences
between team members.
The magnitude of the business environment dynamics differs greatly between when the
core competence concept was originally formulated in the 1990s and today, the latter being
much more dynamic (Vasconcelos and Ramirez, 2011). This has not only put more pressure
on firm top management to be more dynamic, but also on management at the firms strategic
business unit (SBU) level. This is because products, markets, and competitive issues are
normally handled at as local a level as possible, for example, to adjust to the local business
culture and distribution channels. For this reason, it is the SBUs that are mainly affected from
the enhanced dynamism. Corporate management ultimately needs to delegate its managerial
aims and assignments, not only to stay more alert to products and markets, but also to focus
more specifically on innovation issues, for example, regarding radical versus incremental
development (Audia, Locke and Smith, 2000, Damanpour and Daniel Wischnevsky, 2006, de
Brentani, 2001, Henderson and Clark, 1990). Hence, the increasingly dynamic business
environment of today also includes a shift of core competence management issues from the
corporate management level to that of SBU management - issues discussed more in-depth
below.

3. Discussion
In the following we progress the discussion of the core competence concept regarding
links, levels and context.

3.1 Links
Companies are often managed and developed with a general aim of improving
performance (Bogner, Thomas and McGee, 1999). The core competence concept is well
suited to this and other general company aims through its capacity to foster general
improvements in company processes (Amit and Shoemaker, 1993, Eisenhardt and Martin,
2000, Helfat and Peteraf, 2003) and through its inherent ability to coordinate and integrate
(Danneels, 2002, Danneels, 2008, Sanchez, 2004) fulfil future customer needs (Petts, 1997),
and function as company strategy (Clark, 2000). Core competence could also be directed
towards more specific company aims, for example, to be competitive in product development
and to develop new technological trajectories. In fact, improvement and development, as
general or specific company aims, are arguably inherent in the core competence notion and
these would be shared with any of the associated concepts as well. However, a shared aim per
se does not necessarily link several associated concepts to the same context. To do that, the
two concepts must jointly be focused on the aim. Only then can an associated concept and
core competence link to a successful context.
A capability might have the capacity to link to a particular core competence, just as a
particular computer software might bring support to a companys core competence. Even
though they are both directed towards the same specific aim (e.g., refining the core
competence using new technology), the link between them will be superficial only and no
support will occur, unless both are jointly focused on the shared aim; the software aligned to
open source collaborations for instance. In practice, managers will often assume that a link is
established, and will accordingly continue to develop and reinforce the capability, believing
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that an ongoing core competence link is present and that the support are occurring. In fact,
such superficial links may hinder the future development of a core competence and its
associated concepts, since the support could potentially be better used elsewhere.
The discussion relates to what is called innovation complexity (Ko et al., 2011), seen,
for example, in geographically dispersed project units and time zone issues, which can
degrade project team efficiency and performance, in particular if the support systems are not
being in use or being obsolete - i.e. due to "core ridigities" (Leonard-Barton, 1992). As been
described and exemplified above, this notion applies to the core competence context.
An alternative to such a superficial link is an invisible link, which exists when the core
competence and its associated concepts share a history and/or a specific aim, but this sharing
is unknown, or not rendered visible. The point of illuminating invisible links is that their
existence enables managerial action: explicating and managing the links helps boost core
competence development, for instance using a particular resource (a brand) as input to the
value chain.
Table 1 shows the four types of links between a core competence and the associated
concepts, formed by the two dimensions of shared history and joint focus on specific aims.
The ideal situation is when both the core and associated concepts share a history and are
jointly focused on an aim. When a history is not shared but there is a joint focus on an aim,
the core and associated concepts need to be matched to compensate for the missing shared
history. When a history is shared, but there is no joint focus on an aim, the two concepts need
to be aligned towards the same aim.

Table 1: Four types of links between a core competence and the associated concepts.
Jointly
focused
on aim
Shared
history Yes No
Yes

Ideal core competence
development context

Need to be matched
No

Need to be aligned

Difficult to develop
a core competence



3.2 Levels
For an aim to be specific, it needs to be formulated as close as possible to a core
competence. In a larger corporation, this means more often at the SBU-level than at the
corporate level, due to the aforementioned enhanced dynamic market environments. This is a
new aspect to the original core competence conceptions (Prahalad and Hamel, 1990), which,
for managerial and overall efficiency reasons, recommended handling the concept at the
corporate level. The adjustment with core competence management at the SBU-level instead
of the corporate level emphasizes a "time cautiousness" (Bowen, Rostami and Steel, 2010) of
being closer to the intensive product/market activities. Current and future performance recalls
the dimensions of radical innovation versus exploration. Both these aspects emphasise the
time dimension, as follows:
Radical (versus incremental) are types of innovation outcome that involves time (i.e.,
pace) as a critical part of development activities. Radical technology and products are
normally prioritised and developed under high time pressure, and have a longer business
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horizon than do incremental innovations. Scholars suggest that radical innovation could
be a symptom of the inability to innovate incrementally (Ellonen et al., 2009). Another
critical aspect of radical innovation is that an emergent change in technology could make
past experiences irrelevant (Vowles, Thirkell and Sinha, 2011), which could make a
companys current and past competitive advantages redundant;
Exploration (versus exploitation), on the other hand, are modes of development that
focuses more on the time needed for the investment (in development). Exploration
frequently takes longer to arrive at a useful outcome, yet can achieve greater market
impact, while exploitation requires less development time yet has a more mundane impact
(eg. King, Covin and Hegarty, 2003, Liu, 2006, March, 1991). Scholars have recently
suggested that exploiting a core competence will positively affect innovation rates, but
negatively affect innovation impact due to competency traps (Kim, Song and Nerkar,
2012, cf. Leonard-Barton, 1992). Differently stated, the exploitative capabilities affect the
current, and the explorative capabilities the future performance of a company (Lisboa,
Skarmeas and Lages, 2011). Furthermore, scholars infer difficulties combining
exploration and exploitation (Auh and Menguc, 2005, He and Wong, 2004, Raisch et al.,
2009).

Thus, the shift in core competence management level from corporate to SBU involves the
current versus future performance of a company issues normally decided on at the corporate
management level. We could expect management at the SBU level to focus more on
incremental and firstly on exploitative core competence developments, since they have faster
development on current performance and secondly on explorative developments. On the other
hand, as one scholar puts it, we could suggest that exploration in the form of strengthening
the external linkage to cutting-edge scientic knowledge and technology may be the only way
to enhance innovation impact or improve the chances of impactful innovation (Kim, et al.,
2012:5).
Table 2 outlines the main differences between type of innovation outcome and mode of
development, and presents four core competence development settings. Incremental
innovation enhances current business and has shorter time lag for performance effects than
radical innovation, so SBU managers could be expected to favour this core competence
strategy. Corporate level managers, on the other hand, are more likely to prefer radical
innovation, since they take account of a longer and more future-oriented business horizon.
The exploitation mode of development is advocated for rapid core competence development,
though it comes with low expected market impact; exploration, in contrast, is a slower
moving mode of development, yet with a higher expected market impact.

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Table 2: Four core competence development settings with a vertical ambidexterity
line (zigzagged).

Type of
innovation
outcome
Mode of
development Exploitation Exploration
Incremental

Induced at SBU level: short
business horizon
Rapid development with low
expected market impact

Induced at SBU level: short
business horizon
Slower moving development with
high expected market impact
Radical

Induced at corporate level: long
business horizon
Rapid development with low
expected market impact

Induced at corporate level: long
business horizon
Slower moving development with
high expected market impact


As described above, the difficulties of combining exploration and exploitation mean that
company managers may not want to choose both, but only one of them. Although scholars
have found empirical evidence that radical innovation indicates an inability to innovate
incrementally (Ellonen et al., 2009), which separates Table 2 horizontally, we instead wish to
propose making the separation vertical between exploration and exploitation in line with
research into ambidextrous difficulties (Raisch et al., 2009). Therefore, we suggest to include
an ambidexterity barrier, vertically dividing exploitation and exploration columns in Table 2,
see zigzagged line. We now advance the discussion of radical versus incremental innovation
types to encompass team activities and their impacts in a core competence context.


3.3 Context
One core competence and several associated concepts are ideally organised to bring about
an efficient and successful core competence context. Competences involve individuals and
teams, as previously mentioned. Capabilities consists of systems and structures that support
activities that develop the core competence context, such as administrative report systems,
project platforms (e.g., forums), databases on finished activities and projects, and internal
memos and the like. A support system infers structure.
It has been suggested that too structured a project setting could hamper creativity and
coordination (Ko et al., 2011); team homogeneity and invasive organisational rules and
procedures could negatively affect the outcome of project team collaboration. This may be
true in certain non-specialised and non-radical projects aiming for general idea generation.
For innovative process beyond the idea generation stage, however, we advocate an alternative
project setting. Our research into highly specialised innovative companies, for example, in the
telecom industry, suggests the contrary. Innovation teams facing highly competitive and
dynamic environments need to control the project team as much as possible, to achieve more
comprehensive analyses and complex outcomes. Even though they work in a dynamic
business and technology setting, with high expectations of project outcomes, these teams
benefit from a stable context. That is why, instead of trying to become dynamic, they are
trying to become more stable in the development process and within the team. One way to
foster stable processes is to include personnel with shared history, for example, people and
teams that have developed the same core competence for some time. The amount of sharing
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could be increased, for example, by a more stable context with non-random and even non-
interchangeable team members, as mentioned above, with an explicit and well-informed
shared history. Researchers suggest that shared history may hinder competitive imitation of
the core competence context, because of time compression diseconomies, asset mass
efficiencies, interconnectedness of asset stocks, asset erosion, causal ambiguity, and
substitution (Dierickx and Cool, 1989). Shared history, however, might not only give rise to
benefits. Leonard-Barton (1992), for instance, suggests that core rigidities could hinder future
change and development, in particular if the focal context is: sticky (i.e., unchanging in the
near future), fungible (i.e., diverse-usable), path-dependent (i.e., history bounded), and
causally ambiguous (i.e., tacit, complex, and specific).
We have discussed two types of components with a shared history: capability settings, i.e.
systems and structures that focus on the characteristics of the capabilities); and competence
settings, i.e., the design of the project teams in terms of homogeneity and collaboration
procedures. Both a capability and a competence could share history; depending on the desired
results, both could also be combined along a homogeneity/fixed versus heterogeneity/flexible
continuum, depending on the particular project context. A homogeneous team inherently
takes a converging approach and will therefore most likely achieve only few radical
outcomes. If supported by a formal structure, a specialist task force team could be high
performing (i.e., have high impact), but only for a focused yet shorter time due to burnout and
excess convergence, i.e. path dependency - which could bring about invalid team
developments (i.e., innovative technology not matching customer needs) - yet with high
protection from competitive imitation (Dierickx and Cool, 1989). If the team is supported by
more informal structures, lower-level yet more sustained performance could be expected,
primarily exploitative in nature. A heterogeneous team, on the other hand, could be expected
to achieve radical outcomes due to the multi-competence and multi-experience team setting.
Depending on whether a teams setting is formal or informal, its performance could be high
or low and its effective lifetime long or short (see Table 3). Flexible Fridays is a well-
known phenomenon, used for example by Google, to foster creativity in daily work. In
Googles case, every employee has the option of spending 20% of their time in a place that
enhances creativity. The phenomenon is not new. A well-known telecom company,
implemented this programme at larger scale several years ago. The programme at large was
cancelled, however, since creativity was not enhanced sufficiently. This occurred mainly
because project team performance was impacted by the loss of 20% of the working time. For
that reason, we label Flexible Fridays as a low (relative) performance arrangement yet for
an extended time period.

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Table 3: Four competence/capability settings.
Capability
Competence
Convergence/Homogeneous
team
Divergence/Heterogeneous
team
Formal/fixed structure

"Specialised task force"
Incremental development/
protected from imitation
High performance/
focused time period

"Explorative creativity"
Radical development
High performance/
focused time period
Informal/flexible structure

"Exploitative creativity"
Incremental development/
protected from imitation
Low performance/
extended time period

"Flexible Fridays"
Radical development
Low performance/
extended time period



In a core competence context, the competencies and capabilities could be combined into
four different settings, depending on the desired results, as showed above. Formalised and
highly structured capability support systems foster high performance, yet for only a limited
time period; diverging competencies in a project team (could) bring about radical
developments.
We now advance this analysis further and categorise core competence processes
according to the four quadrants in Table 4, drawing on the previous discussions in Table 2
and 3 towards the core competence management model. For a homogeneous team, the focus
preferably is on existing core competencies: identifying in a formal structure versus refining
in an informal structure. A homogeneous team has the benefit of being protected from
imitation by competitors, for example, due to the causal ambiguity mentioned above; a firms
competitiveness can be preserved in this way. The team preferably starts in a sequence of
work order: beginning with the formal structure with high validity and reliability in content
and in process, to identify the firm's current core competence(s). When the identification is
completed, the team can proceed to a more informal and flexible structure, refining and
developing the existing core competencies. This movement is shown by arrow (A) in Table 4.
A heterogeneous team, on the other hand, can achieve radical developments, in particular
regarding creativity and new core competence ideas, yet is not protected from imitation by
competitors in an informal and flexible structure. To avoid imitation by competitors the team
therefore could progress the core competence development to a more formal and fixed
structure, as shown by arrow (B); to further enhance the imitation protection and to focus the
post-creativity development work task. Finally, for homogenous teams refining and
developing existing core competencies in an informal and flexible structure; to avoid too a
strong convergence, a dynamic input is likely needed: preferably by creativity and transfer of
ideas from heterogeneous teams, as indicated by arrow (C). The previously discussed
ambidexterity barrier is found in Table 4 as well - explaining why horisontal arrows/processes
do not exist; for optimal innovation and core competence development performance
homogeneous and heterogeneous teams are not to be mixed.


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Table 4: The core competence management model: Four alternative strategies and three
development processes (indicated by A-C).




4. Conclusions

4.1 Theoretical implications
We propose an update of the existing core competence model based on existing research
on the concept, and added with ambidexterity conceptions and project teams aspects. For
enhanced core competence development, the model distinguishes between existing and new
core competencies. The separation explicate ambidextrous difficulties and separate between
processes performed by homogeneous and heterogeneous competence teams. This adds to the
existing research on core competence (Chen and Wu, 2007, Gupta et al., 2009, Ljungquist,
2008, Prahalad and Hamel, 1990, Wheeler, Trott and Maddocks, 2009) by acknowledging the
context of the development as details of task-force teams and individuals; also on the
proposed change of management level from corporate to SBU which is new to the core
competence conceptions. In addition, we suggest the development preferably to be initiated
and controlled by SBU-units, to bring (horisontal) corporate cross-fertilisation and
knowledge-transfer internally. This (occasionally) also could happen vertically; when
corporate R&D-units are invited by SBU-managers to be engaged in reviewing and
participating in development projects such as initiating internal innovation contests.
This paper also adds to existing research on ambidexterity by suggesting how
development processes can be managed on different aspects: radical/incremental; high/low
performance; short/long time horisont; and by formal/informal structure (He and Wong, 2004,
Lubatkin et al., 2006, O'Reilly and Tushman, 2004, Raisch and Birkinshaw, 2008).
Finally, this research also adds to existing knowledge on the performance of innovation
teams and on creativity and work-motivation aspects of individuals (Annick, 2007, Auh and
Menguc, 2005, Klassen and Menor, 2007, Ko et al., 2011, Laureiro-Martinez, Brusoni and
Zollo, 2010, Simon, 2002).

4.2 Practical implications
The findings of this paper introduce a new core competence domain for researchers and
practitioners alike. Corporate and SBU managers preferably explicate the benefits of path
dependency, causal ambiguity and more - acknowledging the protection of competitive
imitation inherent in some parts of the core competence context. Even though core
competence identification reveals the existing competitive advantages of a company, we
propose an identification process protected from competitive imitation by formal structures
and with homogenous high performing team under a limited time period. After the
identification the homogenous team preferably move to a less formal structure setting to
refine and to develop existing core competencies. To avoid too strong a convergence and
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project stagnation, a dynamic newness is proposed, preferably by team-external sources, for
instance from employees in other teams or specialists, consultants or customers.
The "Flexible Friday" idea appeals to most people having interest in and being motivated
to participate in the company future success in general, and in the core competence
development in particular. A task-force creativity team does not need to be homogenous since
ideas basically could be generated in any setting. Development in this process often progress
rather slow, in particular in an informal structure. This is due to the explorative development
mode, and it is preferably not rushed since it could ruin the potential of high market impact.
Once the process is formalised, a more structured and forceful approach is possible. To
proceed with the ideas, and to progress to evaluation and development projects, a more formal
structure is needed, to channel and test the idea, and to focus towards explicit aims. The
heterogeneous team is preferably maintained, to enhance further creativity and to bring in
experts during different exploration steps.
Taken together, the processes here suggest a more holistic approach to be productive
when identifying and managing core competencies, for enhanced company development and
performance.


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