Core Competencies: When Your Abilities Become Disabilities
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Your organisation's greatest strength could be its hidden weakness.
In the previous two instalments we discussed the core idea of Theory of the Business and followed up with how Steve Ballmer made key assumptions. Now we move to understanding core-competencies.
In strategy, core competencies matter a lot. They are the distinguishing factor that companies excel at. It is a sum total of knowledge, skills, technology, culture, and history.
Earlier, I said: Apple’s core strength was its design chops and relentless focus on the human. The emotional consumer. Microsoft’s core strength was the focus on the business and the rational decision maker sitting there.
These different capabilities meant Apple’s strengths in the 1990s of design plus it’s wayward strategy after Steve Jobs left were determining its anaemic growth and success. On the other hand, Microsoft was growing and being successful. In the 2000s, as the environment and markets changed and things moved from computers to music players and phones — Apple’s design chops mattered more in a consumer-centric world.
Resources, Processes, Values
Why does this matter? It’s an important thing to understand, and I will come at this from multiple angles. Let’s start with the great Clayton Christensen, who popularised the notion of disruption, the idea of the innovator’s dilemma.
Christensen suggested that an organisation’s abilities or core-competencies are a function of its resources, processes, and values.
Resources refer to the tangible and intangible assets an organization possesses, such as financial capital, human resources, and technology. Processes are the routines and procedures an organization follows to transform inputs into outputs. Values are the standards by which an organization makes decisions about how to allocate its resources.
And at the same time, when disruption happens or as Drucker would say, if the environment changes — assumptions about “society and its structure, the market, the customer, and technology” — strengths or core competencies “no longer fit reality”.
In this scenario, abilities become disabilities. What actually worked in one environment no longer works. Often, the challenge is understanding when?
Let’s look at this in future articles on how we can overcome this. But for now, let’s delve deeper into why abilities can become disabilities.
Path Dependency
Path dependency at its core is the idea that the decisions that we have made over time lock us into a specific outcome. Oxford Reference has a more detailed explanation:
‘Path dependence exists when the outcome of a process depends on its past history, on a sequence of decisions made by agents and resulting outcomes, and not only on contemporary conditions’ (Baláž and Williams (2007).
Due to these sequences of decisions, you are locked into a particular path—financial considerations, institutional constraints and cognitive limitation of decision makers stop this from changing.
Look at the QWERTY keyboard we use everywhere. Where did this come from? In the time of mechanical typewriters (who remembers that!) keys would jam all the time. To slow down the typing speed and ensure keys don’t jam, the QWERTY keyboard was created. And now we are all stuck to using a slower design because of path dependency. DVORAK is supposed to be a better approach. I tried, but it’s too difficult to change now. We are stuck!
Chaos Theory and Dynamic Systems
An organisation is a complex system. So, initial conditions matter. Chaos Theory is a branch of mathematics that studies the behaviour of complex and dynamic systems that are highly sensitive to initial conditions.
Small changes to initial conditions create drastically different outcomes. The same goes for abilities.
Founder, team, market, technology, culture, environment, country, specific time in history—a range of factors enables initial conditions and which means we can have drastically different capabilities overtime for an organisation.
Apple and Microsoft
Steve Jobs shares a story of when he was studying at university. He would randomly go into various classes in the university and sit there. One day, he ended up at a calligraphy class. He learned about fonts, about sans and sans-serif, the artist angle and the value of thinking like this. Many years later, when he was leading the creation of the Mac, he ensured that the Mac had beautiful fonts. Along with Adobe software, this created a new industry. Steve jokes that since Microsoft copied Apple, they had good fonts too. How a seemingly random (chaos theory sense) calligraphy class can shape core competencies in design. Initial conditions matter.
For Microsoft, IBM gifted the DOS software to Microsoft, since they believed hardware was everything. That assumption, as we know now, turned out wrong. Building on DOS, they created Windows. After enormous success for many years, they tried to control everything with the power of Windows — the browser, MS Office, Zune music player and later Windows Phone. This assumption worked until it did not. Path dependency can be difficult to overcome.
Core competencies matter a lot. They matter more in terms of their fit to the environment. They matter in the context of assumptions we make. How we change them is a different matter. Theory of the business matters.
“The measure of intelligence is the ability to change.” - Albert Einstein
Readers Pointers: Has your organisation become overly reliant on a single core competency? How might this pose challenges for the future? What strategies can leaders employ to identify potential vulnerabilities within their organisation's core competencies? Is there a company you've observed that seems trapped by its existing core competencies? Share your thoughts in the comments!