Ideas Versus Reality: Core Competence at NEC and GTE

Abstract

One of the most influential ideas that has emerged in the strategy and international business fields over the last two decades has been that of “core competence”. The article that popularized the concept, Prahalad and Hamel’s “The Core Competence of the Corporation” (Prahalad and Hamel, 1990), won the McKinsey Award for the best Harvard Business Review article of the year; eventually became the best-selling Harvard Business Review reprint of all time; and fostered an enormous amount of corporate, consulting, and academic activity. The present paper traces the development of the two companies that were used to motivate the idea of core competence in the original Harvard Business Review article. A relatively simple analysis of Japan’s NEC and the US-based GTE, shows that there were substantial differences in the performance of the two firms, but that the performance differential was exactly opposite to that claimed by the authors. In other words, the company that focused on core competence exhibited significantly worse, not better, performance over time. The paper stands as a warning for those who accept ideas in the absence of convincing evidence.