As a young boy, all my friends went to a beautiful wooded summer camp where they swam, shot arrows and frolicked. Being highly allergic to frolic, I was sent to strategy camp instead. One night around a bonfire roasting spinach and tofu on sticks, the strategist-in-training camp counselor wearing a tan short-sleeved dress shirt, plaid shorts, black socks and Cordovan wingtips told us this horror story:
“Years ago, two managers were hiking in these very same woods when they became lost. Night settled in and they wandered aimlessly from one project to the next, with no awareness of what was the key driver of their business strategy’s success. Suddenly, they heard a strange noise coming from the forest around them. It was the sound of customer’s voices, but they paid no attention because they didn’t want to go through the hassle of updating their plan.
Gripped with the fear of having no strategic direction, the two managers frantically leafed through their sixty-five slide PowerPoint deck in search of a way out. But, in the pages of eight-point Arial font and clipart, there was no mention of the core competencies and capabilities that could have saved their strategy from impending doom. Their screams were eventually drowned out as they were buried alive by the laundry lists of strategic objectives, critical success factors and tactics that looked good on paper but had no real effect on their long-term success.”
Needless to say, after that terrifying tale I couldn’t do a good SWOT Analysis for a week. However, it did drill into me the importance of understanding just what drives our strategies. We often spend so much time working through a market analysis, goals, objectives, strategies, tactics and metrics that we lose sight of exactly what will make or break our strategy. A ten-year study of 103 companies with at least $1 billion in enterprise value showed that strategic blunders were the cause of the greatest loss of shareholder value, an astonishing 81 percent of the time. As strategy is “how” we’re going to achieve goals and objectives, core competencies and capabilities are what will drive our ability to successfully fulfill strategy’s potential. Let’s take a closer look at these two critical concepts.
A core competency is a primary area of expertise. It is your collective learnings built on knowledge and skills that lead to differentiated value for your customers and competitive advantage for you. One of the reasons companies lack competitive advantage is because they don’t have a core competency. If a core competency hasn’t been identified and developed, the resulting lack of resource focus ensures middle-of-the-road products and services. Consider your group: what’s your core competency?
Simply put, a core competency is what you know. Common examples of core competencies include Honda’s engine design and development, McDonald’s food delivery system and Canon’s optics and imaging. Keep in mind that a core competency isn’t just something that you know pretty well. It’s competitively important knowledge embedded in a group that results in the ability to develop and execute to a world-class standard. Sounds daunting, doesn’t it? While we may not currently have a core competency that produces that level of excellence, wouldn’t it be productive to talk about what it could be and work on building to that summit?
Often confused with core competencies is the term capabilities. Capabilities refer to the competitively relevant activities performed with key resources. They are the purposeful configuration of your resources through activities designed to drive your strategy’s success. Simply put, capabilities are what you do with what you have.
Common examples of capabilities include Wal-Mart’s point-of-sales data analytics, eBay’s alignment between software developers and marketers, and General Mill’s brand management. When attempting to identify capabilities, it’s easy to fall into the trap of listing a bunch of stuff that you do until you have seventy-nine capabilities. Keep in mind that capabilities are the “competitively-relevant” activities–the ones that use resources in a way that creates unique value for internal or external customers.
Any discussion of strategy must first begin with an honest assessment of your core competencies and capabilities. Does everyone in your group understand what the core competencies and capabilities are and how they contribute to their evolution? If not, your group may find itself lost in the managerial woods with no map, no flashlight and a funny looking rash. Better get that checked.