If your responsibilities include strategy or creating new businesses, you have probably used the concept of “core competencies” a few times. The basic idea is identifying a couple of things your company could do really well, on which you should capitalize when pursuing opportunities.
I’ve always found that the idea of “core competencies” was lacking. It sounds promising and it is definitely useful but, at the end of the day, it fails to deliver real strategic insight.
On the positive side, thinking about core competencies does help prioritize opportunities. But on the negative side, it is often vague and ill-defined, often working better as the proverbial pat one gives on his own back than as a guide to facilitate a difficult decision.
So why not upgrade the concept and make it about your super-power?
Here is Core Competencies 2.0:
“A core competency is something your organization has done so well that it was responsible for a significant part of the value you created.”
I will break it down on a separate article. But first, why is this definition better?
First, because it requires evidence of real, quantified impact. You raise the bar from “providing customer service because our clients tell us they love us” to “great customer service has led to higher retention, premium prices and earlier adoption, which accounted for 80% of the value created in the past 5 years.
Second, because considers competency as a factor for competing. Competition erodes companies’ ability to create value above its cost of capital. Your bank knows how to assess risk, but most banks do. Can you show that your risk management yields lower losses (at the same cost) or lower cost (at the same risk) without compromising growth?
Finally, because it sets the bar very high. Most companies do not produce any significant value above its cost of capital. In North America and Europe, banks have struggled to return its cost of capital. In fact, this bar is so high that most organizations will have a hard time finding one or two. Instead of selecting from a long list of things you do well, which typically results in favorites which look good on a PR message (e.g. “being client-first”), you can find what you are doing that really brings the bacon.
I would love to hear your thoughts on the matter.
