Is Your Competency Still Core? Or Have You Given Away The Store?

Here’s a little something I’m noticing as a trend, particularly with businesses that possess both a “bricks” and “clicks” presence. The idea of “core competency” – the main product or service your business delivers and charges money for – is getting confused with “market differentiation” – the element that would cause a customer to select your business, service or product over your competitor’s. Confusion arises when the business owners/managers are blind to the fact that their market differentiation has evolved and rests upon their online customer interface rather than remaining closely aligned with their core competency.

Let me give you a mock case study to illustrate. Imagine you and your business partners have a passion for growing and distributing organic bamboo for use in a wide variety of products. You develop specialized facilities and soon are producing the highest quality organic bamboo available for use in clothing, household products and flooring. Your production facilities are close to your major markets. Business flourishes as demand for this new renewable raw material increases and you have proven to be able to deliver reliably. This is a very exciting time and you and your business partners are proud to be producing an environmentally-sound product that is so well-received.

Over time, you notice that the bulk of your orders are coming in through your web-based ordering system, something you hired a third-party to develop at start-up on a whim. It is stable and relatively error-free. Everyone in your company is focused on producing this top quality raw material and learning more and more about this product and what it can do. No one has been hired to, literally, mind the online store. No one “in-house” has developed, or been hired for, their technology expertise. After all, the online ordering interface is working fine, right? If it ain’t broke, don’t fix it.

Time passes and competitors begin to crowd your previously-lucrative market. Not surprising, really – if you can go out and learn about this product and invest in its production, so can they! Soon, your customers have a choice between six producers, each of whom can supply identical quality product and deliver it equally as reliably. Your core competency (high quality bamboo delivered reliably) is no longer differentiating you in the market. It is likely that your competitors will be trying to knock you off on price – but there is one other differentiator here. The online customer interface which, in your case, likely does not measure up to the interface developed by the more recent market entries. The newer sites provide faster interaction, the ability to repeat previous orders with a few clicks, and easier “sub and switch” options. A customer ordering with your competitor can do so in five minutes or less where the same order on your site can take 10 minutes or more.

Here is the thing that makes this trend really interesting to me: many businesses start out focused on their core competency and outsource their technology support, including their web presence. Conventional business wisdom suggests that it is possible to outsource all but your core competency. I would argue, based on what I have seen repeatedly over the past while, that companies that choose to outsource the element that becomes their market differentiation are in a deeply weakened competitive position.

I have three things to say about the tension between core competency and market differentiation:

Understand that market differentiation can shift. The paternal side of my family descends from generations of village butchers in rural England. My father, who became head of the meat department at Harrod’s before the age of 30, eventually traveled the world before settling in London, Ontario to open a butcher shop on Richmond Street. He knew his stuff – breeding, livestock, animal husbandry, care of meat products, preparing meat products … you name it.  If he were still alive in this more fast-paced age and suddenly observed his customers switching to the meat counter at Loblaw’s, he would be at a loss to respond, I think. He would be inclined to respond within his comfort zone, to do more of what he knew, but do it better. Higher quality, cleaner displays, more variety. This response, while admirable, would overlook what has become the market differentiation element now – convenience.  Of course, there has been another shift towards a niche market of “green” meats – organic, hormone-free meats. Dad might have been able to jump back in on this differentiator.

Know your business model. I mean, really know it. What are your customers paying for? Is your core competency really as strong as you think it is? Or is there some other distinguishing element – customer service, online access/interface, corporate culture/brand – that your customers are really paying for? When in doubt, ask! There is a multitude of online survey and polling tools ready to be deployed for this very purpose. Learning what makes your customers pick you over your competition may be critical to your long-term survival. Understand that the answers could change rapidly, depending on competitive forces.

Where technology has become a critical differentiator, acquire in-house expertise. You don’t need to develop an entire IT department – in fact, I still support the outsourcing of IT functions for most small and medium-sized enterprises. However, you need one senior person in-house who knows your business model inside-out, who knows your market, and who understands the critical elements of your technology infrastructure. This person needs to be able to represent YOUR critical business needs when managing your IT suppliers and needs to be able to speak “tech-speak” fluently enough to be able to negotiate and manage a portfolio of IT requirements. I have seen this go two ways. Either a non-technical manager becomes interested in the technological aspects and develops the experience and expertise, or a technical manager is hired and has to learn the business.  Ask yourself which is easier – learning about deployed and available technologies, or learning about your business?

Companies that let their outsourced IT suppliers “lead” their tech development without adequate in-house knowledge can face situations in which the solutions provided are deeply inadequate in terms of supporting core competency or delivering continued market differentiation. This is a costly outcome, both in terms of the simple bottom line ROI of a tech solution, and in terms of the potential loss of market share. If you feel too close to properly analyze where you stand in the tension between core competency, market differentiation and technology infrastructure, an unbiased third-party review might help.

Posted in Business Strategy, Entrepreneurial Strategy, Managing Technology, Technology
Tags: business model, core competency, differentiation, infrastructure, market differentiation, market forces, online customer interface, outsourcing, Technology