Do Customers Even Care about Your Core Competence?
October 20, 2013 Editor 0
A provocative—possibly apocryphal—story has the late C.K. Prahalad, the guru of “core competence,” doing a strategy audit for a huge Indian conglomerate. The company, Prahalad tells the CEO, is simply too complex and diverse. It needs to shed a few divisions and find and focus on an integrative core competence. “Actually,” the CEO responded, “we do have a core competence that unites us: we’re very, very good at winning government contracts.”
The fundamental challenge around strategic core competencies today is that too many of them appear designed, debated and deployed from the enterprise-out rather than the customer/client-in. When Prahalad and Hamel published their classic HBR article The Core Competence of the Corporation in 1990, they called out three essential criteria: difficult for competitors to emulate or imitate; reusable throughout the enterprise for enabling products and service; and, last but not least, a contributor to perceived and experienced customer value and benefit.
Unfortunately, the core competence criteria make it too easy for organizational leaders and even entrepreneurs to be more introspective about how they create value for customers than more externally aware of how customers can drive value creation for them. In other words, the focus understandably centers on measurably improving the perceived core competence—selling better, manufacturing better, marketing better, hiring even better talent, cutting costs better. The customer is the ultimate beneficiary of these enhanced core competencies—not the driver or determinant.
So WalMart’s gargantuan core competencies of buying power, supply chain management and logistical superiority guarantee the “everyday low prices” its customers crave and demand. FedEx’s competencies in digital and transportational networks are its innovation platforms. Disney’s core competencies of characters and creative storytelling shape virtually everything it does.
But serious problems of disconnect arise when customers and clients turn out to be more consumers of core competencies than active contributors to them. Who doubts Microsoft’s technical core competencies in software, networking and gaming technologies? But who authentically believes the one-time juggernaut is better understood, better appreciated and better connected to its users? The same is equally and painfully true of Nokia and Blackberry, as well. JC Penney and its failed CEO Ron Johnson had many admirable and effective core retailing and merchandising core competencies. But no one would seriously argue that the company’s efforts were determined by a “customers-in” rather than a perceived “competencies out”approach.
This destructive drift and disconnect are challenges that Web 2.0 companies like Amazon, Google, Twitter, Facebook and Netflix simply don’t have. Why? Because, as Web 2.0 companies, both their strategic and technical architectures are firmly rooted in network effects and real-time feedback. The customer is intrinsically woven into the core competence and the core competence is strengthened and enhanced by increased customer participation.
Incidentally, this holds true even for a quasi-Web 2.0 company like Apple. From the moment Jobs saw the Alto in Xerox’s Palo Alto Research Center, he grokked that digital technologies had to be more than beautifully designed devices—they needed to be vehicles for superior UI and UI-User Interfaces and User Experiences. By making design and software subservient to UX, rather than the other way around, Apple’s core competence in design is more accurately described as a core competence in committed user engagement.
Netflix offers a cruder but simpler core competency clarification. Reed Hastings would have been foolish to define Netflix’s core competence as the ability to just-in-time deliver desired DVDs through the mail—even though that was undeniably a core competence for a decade. His company always defined its value proposition from the customer viewing experience in rather than the delivery vehicles out. Core competencies began with the desired and desirable customer experience, not the cultivation of proprietary and/or inimitable internal expertise.
The superficial interpretation would declare this a call for customer-centricity. But it’s not. The real takeaway should be around re-thinking and re-architecting how you can empower customers and clients to add value to your core competencies—however broadly or rigorously defined.
Core competencies should be platforms for customer—and customer-sensitive supplier—collaboration, not proprietary silos of exclusive expertise. How do you get your best or most typical customers to willingly, cheerfully and innovatively re-engineer themselves around your core competencies in ways that enhance both? (This theme is examined in greater depth in my eBook.)
Exploring how to creatively and cost-effectively externalize core competencies is now as much an insurance policy as invitation to innovate. If you’re not making more customers more core to your competencies, you are defaulting to enterprise drift. Give your customers the tools and the opportunity to make your core competencies more valuable to the both of you.
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