Beyond Core Competence – You Must Keep Innovating

The Eastman Kodak Company was an iconic industry leader. For decades, it was synonymous with photography. But it got stuck in its core competence of traditional film products and missed the rise of digital photography and printing. To survive, it has stopped selling film cameras, focusing on the digital ones that dominate the market. But it arrived late.

In 2005, IBM sold its PC division to its former competitor, Lenovo. In the preceding decade, IBM appeared to be headed into extinction. From one SEC filing, it revealed that it lost nearly a billion dollars on the PC business over three-and-one-half years. It sold this money-losing division systematically evolved itself to become, once again, a respected technology competitor.

Organizations such as IBM and GE have adapted over the years to remain competitive in the market. They have gone through different cycles of disruptive innovations, leaving some businesses, and creating new ones. Others like Kodak and Nokia are re-strategizing in order to remain relevant in a dynamic global market. The latter just signed a partnership agreement with Microsoft to develop new mobile solutions, after the new CEO acknowledged that the phone maker has been left behind by its competitors. Here, Nokia understood that its sole strengths are not enough to win.

C.K Prahalad and Gary Hamel’s HBR classic Core Competence of the Corporation made popular the notion that knowing and mastering core business factors can be leveraged across products and markets. Yet the ways companies make products, especially electronics, have been disrupted and redesigned. As Nokia’s boss noted, Nokia’s core competence is in phone designs, but the trend in China, where manufacturers buy phone chipsets from vendors and make phones at unbelievable pace and price, controlling one-third of the global phone market, introduces a new dimension of competition.

From my experience establishing a small semiconductor company in Nigeria, I see consumer electronics design becoming a commodity. Companies that are too obsessed with design competence could suffer, especially in the developing markets. Businesses such as Cisco, Dell, HP, and Motorola have seen their R&D spending dropped as a percentage of sales; yet, most get products to market faster. Why? There are other firms like MediaTek and Flextronics that do to design what China’s Shenzhen district does to manufacturing. They develop chipsets and license to manufacturers who then produce and sell. Companies like Best Buy and Wal-Mart rely on these design houses for some of their branded tech products, enabling them to sell at competitive prices, with no R&D cost. Looking outside for new insights is everywhere: P&G expects 50% of new products ideas to come from outside the company.

With crowdsourcing services, lower wages, and improving designers in most emerging nations, multinational corporations must evaluate how to retool products to make them relevant to new markets. While core competence remains vital — differentiation offers a competitive advantage — firms must examine their organizational ambidexterity. They must be ready to let go, just as Kodak is doing on traditional cameras. They must be ready to go beyond their core competence and its associated core products and markets of today, which may be irrelevant tomorrow, to evolve and prosper. And the ability to do that may become a new core competence

Originally published in HB: Beyond Core Competence