The two sides of the coin: core competence as capability and obsolescence

Although studies of "core competence" appear frequently, the concept lacks a clear definition that allows one to operationalize it and Use it to develop falsifiable predictions. We propose a definition based oil the phenomenon that core competence is typically applied to - adaptations to different external context. Sourcing insight form the paradigm of organizational ecology, we develop arguments rooted in theories of structural inertia and environmental imprinting. Empirical analyses of failure rates of entrants in the Italian automobile industry confirm our propositions that core competence is a source of competitive advantage when industry entry is based on relevant capabilities and a source of inertia and obsolescence when core competences need to be substantially altered. We conclude that whether core competence materializes as a dynamic capability or exposes the firm to liability to selection and obsolescence is a random process. Its outcome hinges on environmental variation and the resulting firm-environment (mis)alignment and is thus largely beyond managerial control.