Innovating within or outside the Core? Let's Start with What Is the Core?

futurelab placeholder website

One interesting dilemma about strategy and innovation is how far we move away from our core and more importantly how do you define the core? What are the core competencies of Gap? Netflix? LVMH? BMW? Hermes? Canon? Nike? Marc Jacob? Blackberry? Samsung? HP? Target? Starbucks? Do they even have anything in common?

Do you see core capabilities as distinct capabilities or deeply embedded values? Or special access to buyers or assets? There are hard core competencies and soft core competencies and people need to understand the difference and that they are not mutual exclusive. Core competencies are double-edged sword. How do you define ‘core competence?’ It is currently seen as a unique capability/know-how that provides some type of competitive advantage for an organization and it is not easy for others to replicate. It is not only one thing; it corresponds to organization design, and involves underlying skills, systems, technologies and knowledge in specific industries or markets.

A simple test to see if something is a core competence, ask yourself, “Does this ‘thing’ give the company a unique advantage over its competitors and create value through a differentiated offer or extreme cost advantage or both?”

When my staff comes to me for career advice, I always ask them about their core. Who are you and what are you really good at? I advise them to find out what they like to do and what they’re good at, and if you combine skill, passion and strength, you are going to excel. You need to understand and align all those three. Likewise, companies gravitate towards their core competencies, capability and values.

Successful organizations adopt a rigorous approach to identifying and defining their core competencies and then single-mindedly pursue them. When market shifts and suddenly their core competencies and strategic assets all become strategic liabilities. It happens fast these days. The most important thing is to put innovation at the core and use design thinking to drive continuous renewal and reinvention. There is only one game – new game.

Auto makers have for years restricting themselves to a few tasks they do best — designing and assembling automobiles — offloading all other value chain activities to others. A web of suppliers produces the components that go into the car and a web of dealers sell, deliver and service the cars bought by consumers. By limiting their focus, auto makers are able to perform the tasks they undertake extremely efficient using Six Sigma. Apple is doing just the opposite.

Luxury goods companies for years restricting themselves to a few tasks they do best – designing collections, fashion shows production and retail management – offloading other value chain activities to others. The question is what seems to be very creative (won’t use the word innovative) industries are mostly very old fashion companies that have done very little to transform the category, the industry and the economics. There are very few notable exceptions. The reality is that innovation and design thinking rarely happens in the fashion and luxury goods world. They need to break out of their current creative mode and start innovating. The new affluent luxury goods consumers are less interested in traditional status symbols and more interested in ‘content-rich socially-validated self-identity creation experiences’. It is more than the logo, price and exclusivity. Many will wake up to this shift and realize these are not the customers they used to know for many years.

Today, organizations must confront the dilemmas of how to manage their core competencies and capabilities. These are systems, assets and skills that need to be continuously monitored, evaluate and ensuring they are up-to-date aligning to the company’s innovation agenda. This has been becoming increasingly complex especially with so many uncertainties. When you start thinking about putting ‘design thinking’ as your core competence, suddenly the idea of core competencies gets new meanings.

We are going beyond the narrow definition of core competencies and you can think of ‘design thinking’ as your cultural capital: an organizational wide appreciation and practice of design thinking skills that can be leveraged across solving channel problems, product development, marketing and operation challenges. It is time to rethink the core definition of ‘core competencies’.

Original Post: