4
CORE COMPETENCIES
The next crucial step in building a Box 3 strategy is identifying your organization’s core competencies—the things that separate you from your competitors. Core competencies may seem straightforward, but to correctly identify them, you need to look beyond your products, customers, physical assets, and talent. Those are capabilities and advantages. Core competencies, on the other hand, are about know-how. Always an intangible asset, core competencies are something you do, and they can never be a single skill.
For example, one of Honda’s core competencies is its ability to design, engineer, and manufacture small engines. Let’s assume for the sake of simplicity that Honda has one thousand engineers in its R&D lab in three underlying technologies: combustion technology, electronic controls, and microprocessor controls. Suppose you hired one thousand engineers in the same three technologies. Will you be able to match Honda’s world-class capability in designing, engineering, and manufacturing small engines? The answer is no. Honda has a system, a culture, and a methodology by which these thousand engineers have learned to work together in an integrated, synergistic way over a long period. It is the company’s collective and cumulative learning that you cannot replicate overnight. And not only has Honda integrated its technical skills in its R&D lab, but the company has also integrated R&D with manufacturing, so that Honda designs for manufacturing. Additionally, Honda has integrated R&D with marketing, addressing customer problems in the design.
As this example shows, core competency is an organization-level concept. Core competencies are good ways to vet ideas—and will help you determine which of several seemingly good Box 3 ideas you’re better suited to take on.
PROCESS
To figure out your company’s core competencies, you must dig into why you offer better value to your customers than your competition does. Are there things that only your company can uniquely do? Or things that it can do better than everybody else? If so, what combination of skills, know-how, and intangibles constitutes your ability to do so?
List your organization’s three to five key core competencies:
Then ask yourself the following questions, and fill in the chart that follows those questions.
Can you exploit this competency across multiple growth platforms? You should be able to extend your organization’s core competency to create new revenue streams. For instance, Honda can apply its small-engine know-how to put a small engine in a motorcycle, an automobile, a snowblower, a power tool, and so forth.
Can it contribute significant customer value? Customers never see your core competency. However, they can tell you why they are buying your product. They can point to the functionalities that are relevant to them. You have to make the connection between customer benefits and the competence needed to deliver those benefits. For instance, if you buy a Honda snowblower and someone asks why you bought that brand, you probably won’t respond, “Because of Honda’s competence in engine technology.” Instead, you might say, “When the first major snowstorm hits town and I pull out the snowblower, it starts with a roar even if it has been sitting in the garage for twelve months. The fuel efficiency is outstanding when we operate it. And it’s really quiet and safe.” So the question is whether the small-engine design has anything to do with the reliability of the snowblower and its performance. The answer is yes.
Is the core competency difficult to imitate in the medium term? Although other companies could recruit engineers to try to replicate Honda’s success, they couldn’t imitate Honda’s world-class design capabilities within a reasonable period.
The core competencies you identify must be something you do today, not a company belief from the past. In other words, be intellectually honest. Avoid assuming that the advantages that were relevant years ago are still current.
IDEAS IN PRACTICE
User experience has long been one of Apple’s most important competencies. When the iPhone debuted in 2007, its intuitive design and usability were dramatically better than competing products. It did not require reading manuals, and even young children could navigate the device. Apple has always paid attention to details, such as packaging and branding, to ensure that users have a great functional and emotional experience every time they engage with Apple products. From computers to phones to the Apple Watch, this core competency extends to all the company’s products, drives significant price premiums, and was defended by Apple for years despite other companies’ efforts to imitate it.
Other companies also enjoyed success by focusing on a core competency. For example, the NYTimes excelled in storytelling; before the dominance of the digital world, the company led the industry in this area of expertise. As described earlier, Canon challenged industry titan Xerox with the smaller company’s expertise in miniaturizing copiers. For FedEx, the core competency was logistics in express shipping. And 3M became a world expert in adhesives and dominates its market segment.
Wrap-Up
By taking the third step in ideation, namely, identifying your core competencies, you figure out what separates you from the competition. Keep the following observations in mind when trying to take strategic advantage of your competencies:
Because core competencies are knowledge-based assets, they are intangible.
Core competencies are more than just products, physical assets, or talent.
You need to develop new core competencies to future-proof your company.