Wanted: Genuine Core Competencies for Authentic Success
Here’s a situation many product leaders will find familiar. You think you’re clear on your firm’s core competencies. You pride yourself on being very customer-centric and effectively gather insights and “big problems to solve”. As a result, you get excited at the idea that you might be the only one who spotted such critical issues.
You do your best to express the requirements, but then your engineering team’s response is: “No, we can’t do that. No idea how to solve this”. Or more insidious: “Yes, we can, but it will take three years and $10M to address”.
This is a well-known story. One might say this is part of the negotiation game between functions, and yes, there’s some of that. But how can you avoid losing such cycles in the first place and have everyone in your aligned on your Firm’s core competencies? Here’s a quick guide to give you more ammunition and filter any opportunity that comes your way as a business leader.
Core competencies are essential to your success
Any firm has its own competencies, but what matters (in the spirit of the 80/20 Pareto principle) are your core competencies. Understanding your core competencies will help you be on point with your customers and compete effectively. It will also help you assess better what you do and what you don’t.
Many of us have practiced the “core” vs. “context” principle that lets you grow and improve what you consider as core expertise in your company. At the same time, you outsource the” context” expertise as it does not contribute to your competitive edge. For example, a common practice for hardware companies is to “delegate” to external players (like OEMs) some of the product design and manufacturing capabilities.
Every business needs to have at least one core competence to thrive and survive over time. If you don’t, you are stuck in “commodity” land, will need to compete on pricing, and won’t last. So how do you spot core competencies? Here’s a proposed sequence of steps to identify your core competencies:
Step #1 - Know what's critical to your customers
To identify the relevant problems customers want to address, don’t take it lightly. A brainstorming session within the four walls of your company will not make it. You need to get out there, talk to real customers, and let them express their stories.
As you gather the facts, make sure you focus on the “Big Hairy” problems (see my other post on this topic). They need to be pervasive enough, and customers need to be willing to pay for someone to fix these. Also, look at the whole customer journey. It’s not only about obstacles your product could solve; see how they make decisions and what is influencing them.
Then, associate these insights with actual competencies. For instance, if a customer values smaller form factors for their earbuds, the associated competence will be in engineering miniaturization and component integration.
Step #2 - Assess your business competencies
The difficulty here is to be objective enough to assess where your pockets of excellence are. I have often seen teams engulfed in legacy thinking here. They believe they’re shining in product quality or design because they were once recognized, but it might no longer be valid.
One way of properly doing it is to assemble a group of key stakeholders who know your business well. Don’t limit it to your team, include partners (distributors, resellers), outsiders (analysts), other groups, board members. Get at least a dozen perspectives on the perceived competencies.
Try to avoid asking the CORE competence question. You’d risk ending into “opinion-trading” land. Just ask them what they consider you’re doing well and why, based on what they know.
Step #3 - Compare and apply your competition filter
Once you have narrowed down the competencies required by your customers and your internal assessment, compare both lists. You will likely end up with a shortlist of the shared ones.
The final step is to review the shortlist and assess which existing competitors might already have such competencies, or how difficult it is for a competitor to replicate. To help, just think of how much investment is required to establish and maintain such competence. You’ll determine the barrier of entry for new wanna-be competitors.
When no one else has particular competence that is hard to replicate, you have a CORE competence.
You've done the core competencies analysis. Now what?
Do you have core competencies identified? Then congratulations! You’re in good shape to both serve your customers’ needs and compete effectively. Make sure to nurture these core competencies to maintain and grow your competitive advantage. You also need to regularly check if no disruptive forces occur that would make your core not as relevant.
If you have not identified any core competence, you’re not necessarily doomed. There might be other elements that make you thrive, like unique expertise in dealing with the retail channels. But make no mistake, if you cannot identify at least one core competence, you’re in for some challenging times ahead. In such a case, it’s best to look into the competencies your customers have valued and build them over time.
At any rate, look at all the other competencies you have developed that are not considered core by your target audiences. You don’t necessarily need to ditch them. Still, it’s a perfect opportunity to find whether you should outsource such capabilities and focus on the core. It’s a zero-sum game, and resources will always be limited.
Want to dig more? An article published in the nineties “The Core Competence of the Corporation” by C.K.Prahalad and Gary Hamel, is an essential reference (HBR subscriber-only). One of the central learning to me was that the winners were companies that understood their core competencies well and doubled-down on growing these competencies.
I’m genuinely interested in getting your feedback on this topic! How successful have you been in identifying your own core competencies? Which other considerations worked for you? Just comment on this blog or drop me a note on The Product Sherpa site!
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