In defining your core competencies, we focus on three essential factors that are characteristics of a robust core competency:
- It provides consumer benefits.
- It is not easy for competitors to imitate; and
- It can be leveraged widely to many products and markets.
“Consumer benefits” are not always readily apparent or easy to define, even by the consumers receiving them. A Honda customer may enjoy the brightness and modernity of the local showroom and the wide variety of automotive paint colors offered, but at the most basic level the customer benefit is a vehicle with a reliable engine that will get them where they want to go. Honda began many years ago with competence in engine design, and it used that Core Competence to grasp expanding opportunities, taking it from motorized bicycles to top-ranked automobiles.
“Competitive uniqueness” can exist even where the particular capability spans an entire industry. Every fast-food chain must provide food fairly quickly and at relatively low prices, but some fast-food chains clearly do this better than their competition. What makes the competence “core” is that the level is above that of other companies.
The requirement that the competence be capable of being “leveraged widely” means it must be extendable—able to be applied to new service areas. A Core Competence is truly “core” when it forms the basis for entry into new product or service markets and inherently points the way to new business possibilities—it can spawn unanticipated products and services. If the competence is limited to the current product or service realm, it is NOT “core.”
One beauty of a Core Competence is that it transcends any particular product or service and can even outlive the products that embody it; it is NOT product- or service-specific. It provides a broad class of customer benefits.
In the not-too-distant past, a company could aim its efforts at a particular end market and strive to be a world leader. But now, markets and their boundaries are moving targets. Companies require a new kind of foresight and agility to get to the top—and stay there.
The importance of the third element of a Core Competence, “leverage-ability”—Extendability—can’t be underestimated, and this brings up a closely-related topic: The strategic vision that “stretches” what an organization currently believes it can do. This “stretch” is the polar opposite of the idea of “fit.”
If an organization plans and strives only to do what is sees as currently “fitting” comfortably into its Core Competencies, there will be no forward progress. Hamel says company leaders must be willing to speculate about business arenas in which they are not—as yet—experts, and to envision markets other than the ones currently served.
It has been said that customers are notoriously lacking in foresight, and must be led to new products and services. An entity that allows itself to be customer-led will miss out not only on serving those needs not yet articulated by current customers, but the needs of the entire customer population it hasn’t yet tapped. Companies that introduce customers to needs they didn’t know they had are the ones that race past the competition.
The following is designed to depict segments of opportunity (percentages are for illustrative purposes only):
One interesting example of “Extendability/Stretch/Strategic Vision/Leading the Customer” is the story of the minivan. There was no articulated customer demand for a minivan before it was invented. Ford turned the idea down, reasoning there was no current market for it, so it wouldn’t be profitable. Chrysler took on the new innovation, consumers discovered a need, and demand exploded. Highly-successful corporations “invent new markets, exploit emerging ones, delight customers with products they hadn’t even imagined—but definitely needed.”