- Your core competency is not your strategy.
- Compete on core capabilities, your set of business processes integrated throughout your value chain.
- Make hard choices. Decide what you will not do.
- Focus on customer outcomes. Design your strategy through the customers’ eyes.
- Analyze and design for the industry forces.
- Understand and analyze the landscape of possible customer outcomes.
- Know your competitors and their strategy profoundly.
- Diversify around your core capabilities.
- Balance the stakeholders.
- Strategy is dynamic. Adjust as necessary, but with caution..
Here is the second of these Tenets:
Tenet #2. Compete on core capabilities, your set of business processes integrated throughout your value chain.
Your long-term defendable differentiation is your set of core capabilities, the set business processes that are integrated throughout your value chain to deliver a unique customer outcome. This is not the same as a core competency. To illustrate, here are some examples:
- Your ability to design low noise circuits: A competency
- The result of the processes you set up throughout your value chain to deliver cutting edge technology first to the market: A capability
- Your ability to create the industry-leading inventory control system: A competency
- The result of the processes you set up throughout your value chain to assure shelves are always stocked with the most popular items for purchase: A capability
- Your ability to spot trends in consumer electronics design: A competency
- The result of the processes you set up throughout your value chain to deliver winning designs at half the cost in time for the winter shopping season: A capability
Competencies are fairly “point focused” where capabilities are the holistic gatherings of processes used throughout the value chain to (ideally) deliver a unique and highly desired customer outcome.
Unless you are consciously aware of creating a core capability, it is probably easier to identify your firm’s core competencies. Those competencies may be all you talk about. But if you shift the conversation to what core capabilities you have and need in order to deliver a unique and essential customer outcome, you will be on the path toward a stronger business strategy. Starting with the core capabilities you need, and then finding the core competencies is much more powerful. In fact, as you will see in tenet #4 and 5 a better start is to understand the industry and competition, and in tenet #7, to design your strategy with customer in mind, identifying a unique and valued customer outcome.
I worked with one company that started a new division to go after an emerging market. Starting with a nearly fresh sheet of paper, it was a rare opportunity to design an entire business strategy. We started by developing a deep understanding of what the customer had to do to be successful, the forces in the emerging industry, who the competitors were and how they were serving the market, and the landscape of un-served needs. From that picture it became clear as to what business processes were necessary for us to deliver a unique, differentiated and critical outcome for the customers. We built all the necessary capabilities to deliver value to the customers. And our unique business processes made it hard for a competitor to duplicate. From this plan flowed our organic new product and service development strategy, our acquisition strategy, our process development strategy and much more. In order to be fast to the market and to be seen as the key partner for these powerful customers, we developed:
- Much tighter relationships at all organizational levels with the end customers for better understanding of their changing needs,
- Agile development tools, platforms and culture in or research and development organization, and
- Better tools for predicting technology and market trends (papers, conferences, standards committees, etc.)
Your core capabilities are the set of business processes that allow you to deliver a unique customer outcome, one that is in support of your overall strategy. These capabilities are far more powerful, much more defendable, and much harder to duplicate than your core competencies. Compete by creating the best core capabilities.
Next time on this blog, I will discuss Tenet #3, and show you how strategy is at least as much about what you won’t do as it is about what you will do.