The core competencies model of Hamel and Prahalad is an inside-out corporate strategy model that starts the strategy process by thinking about the core strengths of an organization.

Where the outside-in approach (such as Porter's five forces model) places the market, the competition, and the customer at the starting point of the strategy process, the core competence model does the opposite by stating that in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products.

The real sources of advantage are to be found in management's ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing circumstances.

As core competence can be seen any combination of specific, inherent, integrated and applied knowledge, skills and attitudes.

In their article "The Core Competence of the Corporation" (1990) Prahalad and Gary Hamel dismiss the portfolio perspective as a viable approach to corporate strategy. In their view, the primacy of the Strategic Business Unit is now clearly an anachronism. Hamel and Prahalad carry on to argue that a corporation should be build around a core of shared competences.

Business units should use and help to further develop the core competence or core competencies. The corporate center should not be just another layer of accounting, but must add value by enunciating the strategic architecture that guides the competence acquisition process.

Three tests to identifying a core competence are:

• provides potential access to a wide variety of markets,
• should make a significant contribution to the perceived customer benefits of the end product(s), and
• a core competence should be difficult for competitors to imitate.

Core competencies are built through a process of continuous improvement and enhancement (compare: Kaizen).

They should constitute the focus for corporate strategy.

At this level, the goal is to build world leadership in the design and development of a particular class of product functionality.

Top management can not be just another layer of accounting consolidation, but must add value by enunciating the strategic architecture that guides the competence acquisition process.
Once top management (with the help of divisional and Strategic Business Unit managers) has identified an overarching core competences or core competences, it must ask businesses to identify the projects and the people closely connected with them.

Corporate auditors should direct an audit of the location, number, and quality of the people who embody the core competence.

Core competence carriers should be brought together frequently to trade notes and ideas.