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Employees work on the Honda Civic production line at the automaker's Dongfeng Honda factory in Wuhan, China in 2017. STR/AFP via Getty Images
Uncertain Terms

What’s a “core competence”?

The Uncertain Hour staff Feb 24, 2021
Employees work on the Honda Civic production line at the automaker's Dongfeng Honda factory in Wuhan, China in 2017. STR/AFP via Getty Images

While working on this season of “The Uncertain Hour,” we heard a lot of words and phrases that sounded weird to our ears. So each week we’re going to explain a bit of jargon. To get a new “Uncertain Term” in your inbox, subscribe to our newsletter! To go with our fourth episode, this week’s Uncertain Term is “core competence.”

In 1990, C.K. Prahalad and Gary Hamel published an article in Harvard Business Review arguing that a company’s competitive advantage was rooted in its “core competencies” — the skills, technologies or communication methods that set it apart.

Canon, for example, excelled at developing the fine optics and microelectronics that went into its cameras, printers and copiers. Honda made some of the industry’s most efficient engine parts for its range of vehicles. Even today, Disney’s characters and creative storytelling guide nearly every aspect of its business. In other words, it’s not just about the end product — a core competence is a skill, process or attribute that’s especially hard to imitate.

This new idea got a lot of companies thinking not just about the things they were good at, but about all the other things they didn’t need to do themselves. Some companies believed anything that wasn’t “core” was something they could find other people or companies to do. And over the next decade that idea — alongside the rise of the internet and globalized trade — led to an explosion of outsourcing. 

Detroit automakers started contracting with manufacturers in Mexico and elsewhere to build car parts. Customer service functions at many companies were outsourced to call centers all over the world. In the United States, new armies of subcontracted service providers emerged — to clean, provide security or prepare food on corporate campuses. In places like Silicon Valley, between 1990 and 2016, subcontracted jobs grew at three times the rate of all private-sector jobs. The nonemployee workforce was ascendant.

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