Developing Competitive Advantage
What are your firm's core competencies? What does your company do better than any other company?
Many organizations will readily answer this question with statements such as: "We make the best cars." "We provide the best financial advice." "We're the number one supplier of luxury homes." "We have the largest selection of furniture in the city." But many of these same companies may fail to capitalize on their core competencies. Let me explain.
The problem with being really good in one (or a few) areas is that sometimes being the best propels companies to expand into areas where they are unable to maintain their competitive advantage. In other words, they forsake their core competencies.
Consider, for example, Target. This company failed to capitalize on its core competencies of "low cost and high volume sales" in Canada. Its demise may be the result of poor due diligence or perhaps it cheekily assumed that Canadians would embrace its arrival despite its stores being under-par with those in the U.S.A. Either way, it lost billions of dollars.
According to the Business Insider, Target blamed its colossal failure on four key factors: its large-scale opening, supply chain problems, pricing and product assortment issues, and a lack of online presence. However, it's more than that: Target failed to provide Canadians with the same low costs experienced in the U.S.A. And, for this reason, it fell short on high volume sales.
The lesson from Target's demise and other organizations that experience similar fates is this: Pushing into areas where you are unable to sustain your competitive advantage is folly. The litmus test must be that your core competencies are difficult for competitors to copy or purchase.
To develop core competencies, Bain & Company suggest that the organization should do the following:
- Isolate its key abilities and hone them into organization-wide strengths
- Compare itself with other companies with the same skills to ensure that it is developing unique capabilities
- Develop an understanding of what capabilities its customers truly value and invest accordingly to develop and sustain valued strengths
- Create an organizational road map that sets goals for competence building
- Pursue alliances, acquisitions and licensing arrangements that will further build the organization's strengths in core areas
- Encourage communication and involvement in core capability development across the organization
- Preserve core strengths even as management expands and redefines the business
- Outsource or divest non-core capabilities to free up resources that can be used to deepen core capabilities
Core competencies are the collective learning in the organization and they do not diminish with use. Ignoring them is at the organization's peril.