C.K. Prahalad in his seminal work on core competencies stated in his original work they are " still invisible to most companies ". He added companies " pay so much attention to capital budgeting and so little to core competencies and competency development." At THE DIGITAL TRUTH we have observed that in most small and medium-sized companies (under $1B revenue annually) this is still true.
Prahalad defined core competencies in saying " long-run competitiveness derives from the ability to build at a lower cost and more speedily than competitors, the core competencies that spawn unanticipated products." And his focus was on helping large companies create global best-in-class product and services development competencies. At THE DIGITAL TRUTH we use the term distinctive competency to both broaden on one hand and narrow on the other hand the definition of a core competency in the context of the strategic value chain. We broaden by looking at all people, processes, technologies, and assets and relevant cross sections within the business to understand weaknesses, basic capabilities, strengths, and distinctive competencies versus the competition. We narrow the definition by evaluating distinctive competencies versus competitors in a specific, precisely defined target market that may or may not be global in nature.
Distinctive Competencies are foundational to any successful business. Prahalad suggested that if products are the fruit, and the limbs are supporting processes, the trunks of trees are the core competencies that provide the sustenance and long-term viability. The same is true of distinctive competencies. They are at the core of our definition of the strategic value chain. (See Chart) Distinctive Competencies enable the creation of an effective go-to-market strategy for differentiated products and services to a specific target market. They are the basis for establishing a unique value proposition and positioning to a specific set of targeted customers. They extend beyond just product or services creation into competencies that can create highly differentiated ways of reaching your customers.
Now let's apply some analogies and examples to try to bring Distinctive Competencies to life. Michael Jordan was arguably the best athlete in the world in the mid-90's. When he applied his athletic gifts, his " distinctive competencies " to basketball he became what most people categorize as the best of all-time. However, when he applied his distinctive competencies to professional baseball he was barely a .200 hitter in the minor leagues. This speaks directly to the notion of understanding your distinctive competencies, applying them to the right target market, and creating the tightest coupling.
A direct experience I had while an executive at U.S. Robotics in the mid-90's speaks to the power of understanding your market environment and market forces and considering distinctive competencies in that context. U.S. Robotics and modem manufacturers were all being held hostage to the supplier power exerted by modem chipset leaders Rockwell and Lucent. They were extracting extra-ordinary margins and leaving little for their customers. They were exerting high supplier power on the entire industry. U.S. Robotics realized this, and understood there were a very limited set of modem modulation experts in the world. The company made the decision to hire the top modem guru's in the world to write it's own modem code to a very low-cost digital signal processor, thus changing the nature of supplier power impact on them, and creating a huge cost advantage versus all other modem players. It had a compounding effect on others forces also. It reduced competitive intensity since the company could produce at a much lower cost while increasing product differentiation with unique features like software upgradability. It reduced buyer power due to the increased feature differentiation. This enabled the company to drive its share position from about 20% to over 50% with the transition to 56K technology over a 2 year time period. All of this was enabled by one very important strategy decision on creation of a distinctive competency the company decided it needed to own. Other current examples include 3M and adhesives (technology, and patent assets). Amazon and on-line marketing , order processing, and distribution (process), Apple and Steve Jobs (people).
At THE DIGITAL TRUTH we have found that many small and medium industrial and technology business that struggle for growth fail to concisely define their distinctive competencies and their strategic value chain. Learning and understanding your distinctive competencies and how they couple to a precise definition of targeted customers allows focused execution on all supporting go-to-market strategies and processes. We have a proprietary process for helping gain this level of visibility into your business. That process starts with understanding management's perception of the companies' strategic value chain and distinctive competencies and doing the deep forensic analysis to gain the digital truth insights. These insights provide the basis for strategy, process, and people changes to drive growth. If you would like to learn more, click here to schedule a free Digital Truth introductory consultation.
