Aligning Competencies, Capabilities and Resources

OVERVIEW: Innovation in technological competencies, organizational capabilities, and the application of resources is a necessary prerequisite to maximize a company's ability to penetrate the market with new products and services. In this paper we extend the work of Prahalad and Hamel (1990) and other authors to demonstrate the importance of aligning innovations in these three core areas. This alignment is illustrated with the analogy of an axe penetrating and splitting wood. The paper illustrates the difference between innovations that are aligned and supportive of a common goal, as compared to organizations in which these three components are independent and not supportive of each other. “Core Competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies” (Prahalad and Hamel, 1990). The introduction of core competencies had a major impact on management practice and thinking. Multiple authors adopted, adapted, and extended the ideas of core competencies. One of the most prevalent adaptations was to change “competency” to “capability” and apply a more general definition to the term. Stalk, et al (1992) stated that, “whereas core competence emphasizes technological and production expertise at specific points along the value chain, capabilities are more broadly based, encompassing the entire value chain.” They go on to propose that core capability is “a set of business processes strategically understood” and that it represents “technological and production expertise at specific points along the value chain.” Leonard-Barton (1992) turned core competency into core capability in this way, “core capability is an interrelated, interdependent knowledge system.” Even Hamel and Prahalad sometimes use the terms interchangeably in their later writings (1994). In this paper I propose that there is an important distinction to be made between competency and capability. Providing different definitions of these two terms is valuable in aligning two different sets of practices within a company. This alignment is essential to the effective penetration of the market with new and existing products. I propose that capabilities refer to a broad set of practices in which a company has proficiency. But that these practices are rooted in production and daily operations. A capability is the organizational ability to execute activities repetitively, efficiently, and predictably. Contrasting this, a competency refers to a company’s ability to improve its performance continuously. A competency is the source of differentiation for the company allowing it to create and offer unique products, services, and solutions to customers. A competency is the organizational ability to improve continuously.