Everybody’s talking about … core competency

16 May 2014 by in Business and finance

In the second of an ongoing series of explorations of key business ideas we investigate a much-abused and little understood term. Core competency is one of those over-used business phrases that often sneak out in high level meetings or when someone is trying to look a little more interesting than they really are. But is it useful or is it just stating the obvious?

Where did it come from?

The phrase core competency was coined by Coimbatore Krishnarao Prahalad, more commonly known as C. K. Prahalad (for obvious reasons) and Gary Hamel – both US based management ‘gurus’ and business authors. It was first referenced and described in a 1990 article they published in the Harvard Business Review called ‘The Core Competence of the Corporation.’

Both Hamel and Prahaled have been consistently regarded by major business publications such as Business Week, The Wall Street Journal and Fortune magazine as amongst the most influential business thinkers in the world.

But what does it mean?

According to Prahalad and Hamel core competency is a concept in management theory that relates to the specific attributes or factors that a business considers as central to the way it operates. A core competency is only a core competency when it meets three criteria:

  1. It’s not easily replicated by competitors.
  2. It can be widely used and re-deployed for many products and markets.
  3. It contributes to the customer’s experienced benefits and the value of the product or service.

appleCore competencies are particular strengths relative to the competition which provide added value in the eyes of the customer. They can relate to anything from technical expertise to processes and procedures to strong working relationships to innovation to customer loyalty. For example Apple’s user interface is a core competency. People who use Apple products love that they are intuitive and easy to use. So much so that people who are converted to Apple rarely leave Apple. Even though the products have their faults (such as low battery life) and are significantly more expensive than the competition their customers are passionate and loyal about Apple, something that’s not easy to replicate. Their intuitive operating system and user interface also translates across product categories and markets and definitely contribute to the customer’s experienced benefits and perceived value of the products.

Where will I find ‘core competency’ used?

Those who actually know what it means and understand Prahalad and Hamel’s definition use it to describe the ‘collective learning across the corporation’. This collective learning is only possible with outstanding cross-functional cooperation, and a willingness to coordinate and integrate diverse production skills and multiple technologies. Few companies are likely to create world leadership in more than five or six fundamental core competencies.

Those who don’t know what it means but like to throw the term around to impress people and look more knowledgeable than they are often simply use it to describe something a company is particularly good at. But being good at something does not necessarily mean that it’s a core competency. It’s only a core competency when it manifests into core products that serve as a link between the competency and the end user. For example 3M enjoy a core competency in the manufacture of substrates, coatings and adhesives that manifest as a product range that is being added to and developed all the time.

Basically core competency is just Darwin’s theory of evolution but applied to business. As a business grows and evolves it should get better at certain things that help it survive. Those evolutionary improvements that ensure the survival of the fittest should emerge from the collective efforts of the business not just from the individual strengths of the people in the business. That way, they are ‘baked into’ the business. The reality however is often very different: the core competencies within a business are, frequently, actually the core competencies of certain individuals within the business. When those individuals leave, so does the competency.

What’s my core competency?

Most businesses don’t operate around core competencies – they operate around business silos or a portfolio of independent businesses. As a result there is little incentive to share knowledge, experience and competency between the units. Prahalad and Hamel suggest this is an error and actively stops business from developing a significant competitive advantage.

Plus they argue that unless a business understands its core competency it is in danger of losing it without even realising what it’s lost until it’s too late. For example US manufacturers divested themselves of their TV manufacturing business in the 1970s because they believed the market was mature and low cost imports from Asia would render the sector obsolete. In doing so they lost their core competency in video which later handicapped them when everything went digital. Motorola divested itself of its semiconductor DRAM business at 256kb only later to realise they had divested a core competency in electronic data storage and were unable to get back in to the 1Mb market alone. Had they recognised their core competency and the time it took to develop and build it they would have made better strategic choices.

To identify what your core competencies are or could be you need to answer the following questions:

  1. Is there any part of your manufacture or delivery of your product or service that strongly influences your customer’s willingness to buy? If not it’s probably not a core competency.
  2. Is the value-adding competency difficult to imitate?
  3. Is the competency relevant and useful across different products and markets?

As a strategic exercise it is essential to identify and foster core competencies. Not only will this knowledge help direct resources and assist decision making but it will also help to avoid expensive strategic mistakes such as those experienced by the US manufacturers and Motorola.

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Everybody’s talking about … Big Data

8 May 2014 by in Business and finance

Unless you’ve been living under a rock for a few years you will have heard of Big Data. But is it all hype and hyperbole or will it really change the world?

Where did it come from?

The term Big Data was probably coined by John Mashey, chief scientist at Silicon Graphics. In the 90s if you were a Hollywood producer looking for cutting edge special effects or an intelligence agency looking for state of the art video surveillance you went to Silicon Graphics. The company was dealing with a huge amount of a new type of data and Mashey frequently gave talks on how this data would change the future, including one with the snappy title ‘Big Data and the Next Wave of Infrastress’.

Big Data gathered traction, especially in tech circles (i.e. people who actually knew what ‘infrastress’ meant). For the rest of us – it took a little longer. In 2012 Big Data burst out into the mainstream – it was a featured topic at the 2012 World Economic Forum in Davos, Switzerland. The US federal Government announced $200 million in funding for Big Data research programs and even the satirical cartoon Dilbert had something to say about Big Data.

big_dataBut what does it mean?

Basically Big Data is the term used for the collection of very large, often very complex data sets that can now be analysed in non-traditional ways to provide insights that were unheard of a decade ago.

To give you an idea of just how big, Big Data is … if you take all the data that was created in the world from the dawn of civilization until the year 2010, the same amount of data will soon be generated every minute.

This explosion of data has come from advances in technology. The smart phone in your pocket is now more powerful than your desktop computer was just a few years ago and is capturing data all the time, including where you are (via GPS sensors). Whenever you are connected to the internet, via your phone, tablet or computer, data is being gathered about what are you doing – playing an app, listening to music, using the internet or social media. Every time you share a photo, tweet, update your Facebook page, shop online, walk past CCTV, call a recorded customer service line, send an email, use an e-reader, watch Netflix or upload video you’re adding to Big Data. There are 30 billion pieces of content uploaded to Facebook and eight years of video uploaded to YouTube every day! In fact there are now nearly as many bits of information in the digital universe as there are stars in the actual universe.

But it’s not the volume of data that is the potential game changer – it’s our ability to store, combine and analyze it.

Where will I find Big Data being used?

Big Data is everywhere and its impact can be witnessed in everything from sport to health and fitness to medicine to entertainment to crime prevention and business.

There are now smart TVs that remember your viewing preferences and use face recognition to ensure children can’t access age inappropriate material. Book e-readers are gathering data about your reading habits. There are wearable devices that track your activity, calorie intake and heart rate to help keep you healthy. You can get smart carpet which can raise the alarm if your elderly mother doesn’t make her usual morning cuppa. You can even get a smart nappy which will send a tweet when the nappy needs changing! Obviously a swift sniff of the offending backside would do just as well but there are sensors in the nappy which can check the contents for signs of infection. Sensors in a baby’s mattress which measure breathing and heart rate could herald the end of cot death.

Not only are we gathering information and data that we simply didn’t have access to before but vastly improved computer processing power and complex analytics is allowing us to combine large, messy and previously unconnected data sets to find out everything from the bizarre to the life saving. For example the US retailer Wal-Mart combined in-house sales data with external weather data and discovered that the sale of Pop-Tarts jumped as soon as there was a hurricane warning! No one knows why but the beauty of Big Data is that you don’t need to know why because the data does the talking. Now Wal-Mart move the Pop-Tart display to the front of the shop when a storm is approaching and Pop-Tart sales skyrocket. The FBI has also combined data from social media, CCTV cameras, phone calls and texts to track down criminals and predict the next terrorist attack. There are apps that alert police to gunfire in real time. It’s also now possible, based on their twitter posts, to predict which mothers will suffer from postnatal depression. Professional sport is using big data analytics to find talent and improve performance and politicians are using it to figure out where they need to campaign to win elections.

Can I use Big Data?

It is easy to be overwhelmed by Big Data especially when you consider that most businesses don’t even use the small data they currently have access to never mind harnessing the potential of Big Data.

There is already a backlash as people increasingly question just how useful it’s really going to be. It’s certainly true that most businesses will never be able to compete with the Big Data giants like Amazon, Facebook and Google. Luckily they don’t need to.

The trick for turning the hype into practical business savvy insights is to be really clear on your strategy, work out what questions you need to answer in order to deliver that strategy and focus on collecting and analysing only that data. Unless you’re an analytic powerhouse, collecting too much data is as useless as collecting too little.

Plus you don’t need to have Big Data to benefit from Big Data. It’s now possible to source external data to cross reference with your own internal data. For example many retailers are combining their own sales or loyalty card information with weather data or GPS data to send out targeted promotions.

Like most innovations Big Data has potential but only if you don’t allow yourself to get bamboozled by the media furore and wacky stories of futuristic ‘smart living’. Find out what you need to know in order to be better and establish what combination of traditional data and Big Data will help you to deliver that outcome.

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Winter Olympics 2014 –
a view from the sofa

27 January 2014 by in Lifestyle

Winter is here (if you’re in any doubt just ask most of the USA) and this year it brings the special excitement of a Winter Olympics. The 22nd Winter Olympic Games take place in the Russian city of Sochi, and from 6th February we can look forward to over two weeks worth of wintry thrills, including twelve new events.

snowboarding

From the start I should probably confess that I have never skied, snowboarded or luged and I doubt I ever will. I did once spend an afternoon on the ice* at my local ice rink, and that was enough to convince me that frozen water + sport + me did not equal anything good. The thought of taking part in any of these sports terrifies me. The way I look at it, if the universe had wanted me to hurl myself round a track on a tea tray or throw myself off a mountain with only two planks and a couple of sticks to aid my descent it wouldn’t have invented Ski Sunday or made my sofa so comfortable. But I love watching those professional sportsmen and women cutting their way through pristine snow or executing a perfect triple Axel on the indoor rink. Add a glass of schnapps and a few toasted crumpets and you can count me a very happy bunny.

I think the first Winter Olympics I really paid any attention to were the ones that took place at Lake Placid, NY, in 1980. In school we each did a project on the games and I remember the cover of mine featured a very large picture of Robin Cousins, Team GB’s gold-medal winning figure skater (hey, I was 7, don’t judge me). Of course all Brits remember the pairs figure skating from the games that followed, as Torvill and Dean romped to victory to the strains of Ravel’s Bolero (a tune we all soon grew heartily sick of). Astonishingly we had to wait eighteen years for another winter gold, which was finally brought to us at Salt Lake City’s games by the women’s curling team (and oh how the Scots enjoyed pointing out to us Sassenachs that the team was made up entirely of women from north of the border). During our long wait we were kept entertained by the likes of Eddie ‘The Eagle’ Edwards and his good-natured but hopeless ski-jumping attempts and the most unlikely team in history, the Jamaican bobsleighers.

If you’re still sighing at the prospect of blanket news coverage of ice-hockey, skating and snowboarding remember that the Winter Olympics has also kept us enthralled off the ice, with controversies such as Tonya Harding’s attempt to scupper the figure-skating hopes of Nancy Kerrigan, her Team USA rival, with a plot to break her legs – if you saw it in a movie you’d think it was too far-fetched.

Now, while I warm up my slippers and make sure I’m well stocked with hot chocolate and teacakes, I realise there are some folks out there crazy enough to want to venture out on the mountains and actually DO some of these sports. If that’s you, you could do worse than check out Skiing and snowboarding or Win at winter sports, both of which are available as ebooks so won’t take up too much room in your luggage as you head to the slopes.

However you choose to do it, enjoy the snow!

 

*most of it on my arse