We just finished talking about strategic intent as one important building block.
The second important building block is core competencies. I believe without
core competencies, organizations can't sustain over long periods of time. It's a
very very important concept. But people tend to overuse this concept. If you
overuse it, it loses all meaning. If you are playing golf and you meet an
executive from another company and that executive says I got five core
competencies in my company. You don't want to look foolish so you say I got
100 core competencies in my company. If you overuse this word, it loses all its
meaning. Therefore we need to understand what exactly do we mean by core
competencies and what are our current core competencies. But more importantly
what new core competencies do we need to launch box 3 initiatives.
First let me tell you what is not a core competency. A core competency is never a
product. Sometimes when I ask executives to say what are the core competencies in
your organization they point to products where they are making a lot of money. I'm
making a lot of money in Xyz product, that's my crown jewel,
that's my core competence. But that may well be good news, but that's not core
competence. Products are never competencies.You got to go underneath
and say what is it that allows you to make these profitable products? Sometimes
when I ask executives to name their core competencies, they point to customers
from whom they are making a lot of money. X Y Z customer is my most loyal and
profitable customer, that's my core competence.
Well customers per se are never competencies. Again you gotta go beneath
and say what is it that allows you to access these loyal customer base.
Sometimes when I ask companies to name their core competencies they point to
physical assets. They say I got this piece of equipment which is absolutely
state-of-the-art and no other company in the world has this. That piece of
equipment is my core competence. Well physical assets can never be
competencies. What you can touch can never be a competence.
Core competence is always about know-how, it is always the intangible asset. Core
competence has to have a verb in it. You do something, not you buy something.
Sometimes when I ask companies to name their core competencies, they point to
their technical staff. I got this Nobel prize-winner
in my lab, that Nobel Prize winner is my core competence. Core competency can
never be a single skill. It is only when you link one skill with another skill
you create a competence. Let me give you an example. One of the core competencies
of Honda is their ability to design engineer and manufacture small engines.
Now let's assume for the sake of simplicity in their R&D lab they have
got thousand R&D engineers say in three underlying technologies: combustion
technology, electronic controls and microprocessor controls. Suppose you went
out and hired thousand engineers in combustion technology, electronic
controls, and microprocessor controls. My question to you is will you be able to
design, engineer, and manufacture small engines at the same world-class
capability in which Honda can do? The answer is no, because Honda has a
system. Honda has a culture. Honda has a methodology by which these thousand
engineers have learned to work together in an integrated synergistic way over
long periods of time. It is the collective and cumulative learning that
you cannot replicate over night with just recruiting thousand people. But Honda has
not just only integrated their technical skills inside the R&D lab. They have been
able to integrate R&D with manufacturing so that you design for manufacturing, R&D
with marketing therefore customer problems are fed into
engineering design. If product per se, customers per se, physical assets per
se, individual technical skills, they are not core competencies, how should we
think about a core competence. Core competence is an organizational level
concept. Individual skills may be needed but that by itself is not a core
competence unless you integrate multiple skills. Now how do we think about core
competencies. I say there are three tests for core competency and then I will
illustrate those three tests with an example. Test number one is something is
a core competence only if you can leverage that across multiple growth
platforms. You should be able to extend that core competency and create new
revenue streams from multiple areas. So test number one is can you leverage
your core competence across multiple products. Test two is when you are
leveraging across multiple products it must add significant customer value in
each and every one of those products. And test number three is you should be
able to defend it in the medium term.
I'm not saying your core competency you should be able to different forever,
because nothing can be defended forever. Everything is going to be copied at some
point. For instance one of the core competencies of Toyota in the early 70s
was lean manufacturing know-how. Today no automobile company will say that's a
core competence. Even Toyota will not say that because people have caught up with
that. But what I'm saying is if someone can replicate your core competence
within a week, that's not a core competence. Can you at least defend it
within a reasonable period of time, say medium term. Let me give you an example
to drive home these three tests. Let's again go back to Honda's small engine
design know-how. Test number one: leverage ability. Can you leverage that core
competence across multiple products? And you would agree with me they can do that.
Certainly the small engine design know-how enables them to create a small
engine they can put in a motorcycle, another small engine they can put in an
automobile, a small engine they can put in snow blowers or lawnmowers etc.
Test number two is when you leverage your core competence across multiple
products, does it add significant customer value. By the way, customers
never see your core competence so you can't ask your customer, is my core
competence adding value to you. What the customer can tell you is why are they
buying your product. That they can tell you. These are all the functionalities I
see in your product. Then you have to make the connection between the customer
benefits and the competence it takes to deliver those benefits. Let me illustrate
this with an example. I happen to buy a Honda snowblower.
If someone asked me VG why did you buy a Honda snowblower, I'm not going to say
because of Honda's core competence in their ability to design, engineer and
manufacture small engines. What I'm more likely to say is when that snowblower
has been sitting in the garage for 12 months and the first major snowstorm and
I take out that snowblower and pull the chain it starts with a roar, I kind of
like that. When I operate that snowblower the fuel efficiency is outstanding, I
like that. When I operate that snowblower, it doesn't make too much noise,
I like that. When I operate that snowblower, it is safe, I like that. I can
list the functionalities, I can list the benefits of that snowblower that I
appreciate. Then the question is the small engine design, does it have
anything to do where reliability of that snowblower, the noise level, its
performance etc. You would agree with me, it has got a lot to do with it. And test
number three, is it difficult to imitate. That we already answered. Then I ask the
question can you just hire thousand people today and simply replicate that?
Because Honda has got a methodology, a process by which these skills are very
in a very complicated way interwoven over a long period of time. That is why
it's not going to be that easy for people to imitate.
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