Knowing what you need to know

Knowing what you need to know


Understanding which core competence is at the heart of your company’s value creation, is one of four areas where strategic thinking is necessary to grow.Understanding which core competence is at the heart of your company’s value creation, is one of four areas where strategic thinking is necessary to grow. 

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In one of my jobs, I headed a small investment fund that over five years analysed 300 companies and invested in five of them, meaning we said no to 295 hopeful entrepreneurs. I often got somewhat carried away by the enthusiasm displayed by the people coming to us with their ideas and I wondered why the owners of the fund mostly seemed very sceptical. When I asked about this, the answer I got was this: “We see the enthusiasm and it is a necessary fuel – but we are looking for the difficult part, which is the engine."

I took that insight to my heart and I have since tried to figure out what a really good engine looks like – what does it take to channel that entrepreneurial enthusiasm into making a company a successful growth case? When you talk with leaders that have spent most of their career in one industry, you often hear them saying that “this industry is so special, it does not work like other industries”. Or even, “this is a very special company, it does not work like other companies”. Obviously, each industry has its peculiarities, but are the success factors really that different? Having worked in big and small companies, start-ups and mature organizations and in different segments like electronics, oil&gas, drilling equipment, intelligent transport systems, maritime services and software, I have come to the conclusion that the basics are the same for all. There are bound to be many ways to look at this, but over the years I have found that there are four main areas any growth company needs to be strategic about – its core competence, its positioning strategy, its organism and its brand. In this first of four articles, I’ll focus on core competence.

 

When I meet a growth company, the first thing I look for is their understanding of what core competence is necessary; what knowledge, skills, experience, methods need to be controlled, possessed, nurtured and developed to set the company apart and constitute real and durable value. One sector that can illustrate this is the oil industry. Oil companies are found in all shapes and forms, some are fully integrated and do absolutely everything inhouse, while others outsource all they can. When I in my early career managed the R&D portfolio of an oil major in Norway, I noticed how willing oil companies were to cooperate and share cost in R&D projects, except for projects concerning subsurface understanding. It became clear to me that the core competence that is absolutely needed for an oil company to be successful and prevail over its competitors, is exactly this, the understanding of the subsurface. You can have others carry out seismic campaigns, drill and run all sorts of operations, but the understanding of the data coming from exploration is what really sets one company apart from another. The ability to see what others do not see and successfully find that needle in the haystack, that is what makes an oil company truly great. The rest is sweat. 

 

A well-known example of what happens when you do not understand what core competence you need, is the sad story of KODAK. Once synonymous with catching the best and most important moments of our lives, the 55,000-employee company with one of the most valuable brands in the world, went belly-up in 2012 - 124 years after its inception. Why? By not understanding what the core of their business was. Although they practically invented the digital photography, top management clung to the idea that they were in the “photo film, chemicals and paper” business, an industry all the top management team came from. In hindsight, it is incredible that they did not see the real core competence – the ability to catch the moment, which was even the tag line in their ad campaigns. Obviously, photo film was the technology that had brought KODAK to the top but their brand was not connected to the technology, it was connected to what they did for people, preserving the best moments of their lives. Although KODAK has come back as a company, the power of that brand is gone, all because top management did not understand exactly what business they were in and what core competence was needed to develop their position. 

 

In Norway, many start-up companies are based on technology developments rooted in University and technology environments. Core competence is often interpreted as specific technology competence, and for most of these companies that is exactly right – at least in the beginning. New methods, algorithms, applications, bringing existing technology from one industry to be applied in a new way in another, all this may bring a degree of disruptiveness that creates value. When a company develops its brand and customer base, the deep understanding of the value that the company creates for the customer may lead to the introduction of other technologies or services that require different core competence.  A good example of this is the development of the cell phone into the smart phone. While the invention and the proliferation of the cell phone was a technological achievement and smart phone manufacturers still focus a lot on technology in their branding, the real revolution is how technology made it possible to fundamentally change other segments and industries and how this made a tremendous impact on the core competence needed in the affected industries. 

 

One of the most mind-blowing examples of how smart phone technology has changed another sector is banking. I remember going regularly to the bank with my parents in the Seventies and how cash and bills were exchanged over the counter. Just recently, after having some difficulty finding the place, I entered a bank in the city where I live to open a banking relationship for my new business. The front desk did not quite know how to handle the apparently unusual situation of having a live customer in their offices. They finally let me talk to a very nice and understanding person that gently told me to use their digital services to establish such a relationship. I did have a smart phone, didn’t I? 

 

To create a growth company takes a lot of energy and enthusiasm, the very fuel of turning a good idea into a successful business. However, the best of fuels is only as effective as the engine it powers. One of the most important parts of that engine is the understanding of what core competence is needed in the company today and tomorrow. To understand and act on this may be the thing that prevents you of having the wrong kind of KODAK moment. 

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