Today we start a new series here: “Read in Moderation”. The idea is to analyze books that have gained enormous weight in the management debate, but which, with a little more rigor, are probably wrong on fundamental points. They are intelligent works, well written and full of good observations. The problem is not in the form, but in the theoretical ambition. They suggest strong causal relationships between certain practices and high performance, when, in practice, what exists are fragile and highly context-dependent correlations.
Much of this literature comes from retrospective analyzes of companies that have already succeeded. First, the winners are chosen. Then common points are identified. Then, the narrative that “explains” success is constructed. This process creates an illusion of causality that is difficult to undo. While the company is doing well, its choices seem visionary and disciplined. When results worsen, the same choices begin to be interpreted as stubbornness, arrogance or rigidity. What changed was the company, or was it the story told about it?
These books continue to be useful, even because most of these concepts have become common use in the market. They offer a common language and help with reflection. But they should not be treated as reliable causal explanations for superior performance. I’ve already learned a lot from them. And I also learned that taking your central theses literally can lead to worse decisions, not better ones. It is this risk that this series wants to talk about.
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The central idea
The first concept in this series is one of the most influential in business strategy: core competencies, presented by CK Prahalad and Gary Hamel in the article “The Core Competence of the Corporation” (1990) and developed in “Competing for the Future” (1994). The thesis is simple. Companies should not be seen as a portfolio of businesses, but as a portfolio of skills. Discover what the organization does that is unique and valuable, protect those capabilities and build sustainable competitive advantage.
This reasoning had real impact. In a period of exaggerated diversification, he brought focus and strategic discipline. In the 1994 book, the authors add ideas such as “strategic intent” and “stretch”, suggesting that these skills can sustain future movements. Still, the logic remains the same: strategic thinking begins within the organization, in the capabilities it already masters today. In many cases, this causes executives to treat core competencies as something almost immutable, a kind of true essence of the company, rather than a deliberate choice subject to review.
When the core becomes a restriction
When internal competencies begin to define corporate identity, a natural bias in favor of continuity emerges. The theory does not offer clear criteria for deciding when to abandon a core, nor does it help distinguish between something temporarily devalued and something definitively obsolete. And, by bringing identity and internal capacity closer together, it reinforces emotional attachment to practices that no longer make economic sense. Often, the discussion about core competencies ends up looking almost exclusively at the past, as if what worked before would necessarily remain relevant.
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In everyday life, this translates into a very common phrase: “that’s not core”. Often, this is a distortion of the original concept. But it’s not a random distortion. It derives directly from the way the theory organizes thought. And when the same distortion appears repeatedly in different companies, doesn’t it make sense to ask whether the problem is just one of interpretation? Worse: the concept can create a false sense of strategic security, as if identifying core competencies was enough to guarantee future advantage.
Where is the evidence?
John Kay argumenta, em “Foundations of Corporate Success” [2]that the relationship between “well-defined skills” and “superior performance” is weak. And that is the central point. Whoever claims causality should demonstrate it. It is not simple to produce causal evidence in strategy. But, precisely for this reason, any theory that sets out to explain it needs to deal with this challenge.
If developing core competencies generates sustainable competitive advantage, where is the convincing empirical evidence?
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Many companies celebrated in the 1990s as examples of the model later failed. Kodak possessed extraordinary capabilities in photographic chemistry. Nokia dominated hardware engineering. Blockbuster dominated physical logistics. They all had real, deep and rare skills. And, in part, they were limited by them. The skills that once created an advantage now restrict strategic choices. In several cases, core competencies were treated as a destination rather than a decision.
It wasn’t just managerial incompetence. It was a structural inability to abandon what once worked very well.
There are companies that have prospered by preserving core competencies. But the aggregate evidence is inconsistent. When a theory dominates business discourse for decades without clear proof of positive impact on results, the simplest hypothesis is straightforward: the theory explains less than it promises.
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What really matters
Prahalad and Hamel had the merit of shifting the focus from the product to the capabilities that make it viable. But the very structure of the concept privileges the known over the new, the internal over the external, continuity over rupture. And it often leads executives to assume that having well-defined core competencies automatically increases the likelihood of success in new markets, when this is rarely true.
David Teece and colleagues sought to advance this discussion by proposing the concept of Dynamic Capabilities. According to them, the true source of competitive advantage lies in the ability to reconfigure resources in the face of structural changes. What matters is not the current core, but the ability to create new cores of competence over time. In other words, competence is less about essence and more about continuous adjustment.
It is, in practice, an acknowledgment that the original formulation was incomplete. And it is also a more difficult proposal to transform into a concrete management process.
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The right question
Perhaps the central strategic question is not “what is our core competency?” This question already assumes that the answer lies within the company. A more useful question might be:
What will customers value in the future, and what do we need to unlearn to get there?
Theories shape the way we see the world. The concept of core competencies makes it easier to defend the status quo. It does not determine this behavior, but it increases the probability of it happening. And, when misinterpreted, it can also create a dangerous psychological protection: the idea that there already exists, within the company, a kind of strategic truth ready to be found.
Strategy is deciding under uncertainty. Frameworks help, but do not exhaust reality. It’s worth reading the classics. They are useful, especially when read critically. But it’s important to recognize when an idea works well as a metaphor and poorly as a theory. And some of the most celebrated, including this one, simply don’t deliver what they promise.
