In my last article, you were challenged to raise the bar for what you consider to be a core competency and start thinking of it as your super-power.
The basic idea is that you should treat as a core competency only “something your organization has done so well that it was responsible for a significant part of the value you created.”
Now, let’s examine one nagging question:
What if my organization is not creating a lot of value?
As I mentioned, over the past decade, financial services in mature markets have struggled to return its cost of capital to shareholders. Value is what is created on top of your cost of capital so, for many organizations, the question of whether this definition applies to them is an important one.
If your organization is not creating a lot of value, then 2 things may be happening:
1. Looking at different parts of your business you may realize that some of them are creating value – however, this value is being destroyed by the other parts.
I call these “parts” because it is not necessary that these are businesses or business units. It may be that commercial banking is thriving while low growth in investment banking is averaging results down. But it may be that your organization does a good job at selling despite poor product management.
Getting to these insights can be complex, especially when taking into consideration synergies, portfolio effects, and different risk profiles. However, since we are looking for significant pools of value, a shortcut is to focus on proving or disproving potential “competencies” from a list generated by management – which is easy than correctly quantifying this impact.
In this case, the strategic questions are: how can we capitalize on this “core competency” and how can we fix or get rid of the “offset” (a.k.a. do more what play to our super-strength and less on what does not)?
This often leads to strategically difficult decisions.
2. The second case is that your organization is uniformly not creating any significant value.
This is not that uncommon. The reason is that, contrary to popular belief, there are many businesses that do not require “core competencies” to be profitable.
“Are you saying that the company can be profitable without being competent on what it does?”
Absolutely not.
What I am saying is that there are many businesses where you do not need to have some super-power to succeed. And that is good news because the formula that could give you super-powers is hard to get but the path to making you competent is widely available.
The other piece of good news is that, if this is the case, then you can look at all potential opportunities equally, not just the ones that you see as aligned with your current capabilities.
In this case, the strategic questions become: what are the most attractive opportunities at our reach and what core competencies do I need to build to excel in these?
Here, the difficult strategic decision is broadening your strategic options to include opportunities in areas you have never considered before, which you considered outside your area of expertise.
Please let me know your thoughts on this.
