Hardly any other term has been used so frequently in strategic management in recent years as "core competence" - and hardly any other has been so frequently incorrectly used. The reason for this is that many managers are not clear on the basic logic of the two competing schools of management thought.

Market-based view

The logic of the market-based view is based on the most significant management school of thought – the Structure-Conduct-Performance-Paradigm of industrial economics.

It presumes that the adaptability of a company can be decided by just a few industry characteristics regarding success or failure. That sounds obvious at first. The following disputable assumptions are behind it however:

• The Structure-Conduct-Performance-Paradigm assumes that companies differ only minimally with regard to resources and ability.
• It assumes that all expertise, technologies, know-how, etc. are mobile and that any company can acquire or purchase such resources.

The fact that this is more often the exception than the rule appears evident. However, this view, which was established as a result of strategy research in back in the 1960s, is still widely accepted and dominates strategic development at many companies.

Resource-based view

In 1984, Birger Wernerfelt introduced a paradigm shift with an essay he published in the renowned Strategic Management Journal, “A resource-based view of the firm“. He claimed that it is not the market and the industry, but rather the strategic resources of the company that are the source of above-average profits. It began an intense scientific discussion that lasted a decade before his view was actually put into practice.

Jay Barney identified four features that resources – either tangible or intangible – must have in order to provide a competitive advantage to the company. They must be

• valuable
• rare
• non-copyable
• non-substitutable.

If a company possesses such resources, then it is essentially a monopoly. It has something that provides a benefit to the customer, is rare, and cannot be imitated by the competition. This is what made the resource-based view tangible. Then, with Prahalad’s and Hamel’s essay "The Core Competence of the Corporation”, the term core competence inspired a breakthrough for the resource-based approach.

The competition for core competencies takes place on two levels: