Do Customers Even Care About Your Core Competence?

by Michael Schrage | October 17, 2013

A provocative—possibly apocryphal—story has the late C.K. Prahalad, the guru of “core
competence,” doing a strategy audit for a huge Indian conglomerate. The company,
Prahalad tells the CEO, is simply too complex and diverse. It needs to shed a few
divisions and nd and focus on an integrative core competence. “Actually,” the CEO
responded, “we do have a core competence that unites us: we’re very, very good at
winning government contracts.”
The fundamental challenge around strategic core competencies today is that too many
of them appear designed, debated and deployed from the enterprise-out rather than the
customer/client-in. When Prahalad and Hamel published their classic HBR article The
Core Competence of the Corporation in 1990, they called out three essential criteria:
dif cult for competitors to emulate or imitate; reusable throughout the enterprise for
enabling products and service; and, last but not least, a contributor to perceived and
experienced customer value and bene t.
Unfortunately, the core competence criteria make it too easy for organizational leaders
and even entrepreneurs to be more introspective about how they create value for
customers than more externally aware of how customers can drive value creation for
them. In other words, the focus understandably centers on measurably improving the
perceived core competence—selling better, manufacturing better, marketing better,
hiring even better talent, cutting costs better. The customer is the ultimate bene ciary of
these enhanced core competencies—not the driver or determinant.
So WalMart’s gargantuan core competencies of buying power, supply chain
management and logistical superiority guarantee the “everyday low prices” its
customers crave and demand. FedEx’s competencies in digital and transportational
networks are its innovation platforms. Disney’s core competencies of characters and
creative storytelling shape virtually everything it does.
But serious problems of disconnect arise when customers and clients turn out to be
more consumers of core competencies than active contributors to them. Who doubts
Microsoft’s technical core competencies in software, networking and gaming
technologies? But who authentically believes the one-time juggernaut is better
understood, better appreciated and better connected to its users? The same is equally
and painfully true of Nokia and Blackberry, as well. JC Penney and its failed CEO Ron
Johnson had many admirable and effective core retailing and merchandising core
competencies. But no one would seriously argue that the company’s efforts were
determined by a “customers-in” rather than a perceived “competencies out”approach.
This destructive drift and disconnect are challenges that Web 2.0 companies like
Amazon, Google, Twitter, Facebook and Net ix simply don’t have. Why? Because, as
Web 2.0 companies, both their strategic and technical architectures are rmly rooted in
network effects and real-time feedback. The customer is intrinsically woven into the core
competence and the core competence is strengthened and enhanced by increased
customer participation.

1 of 2
fi
fi
fi
fl
fi
fi
 Incidentally, this holds true even for a quasi-Web 2.0 company like Apple. From the
moment Jobs saw the Alto in Xerox’s Palo Alto Research Center, he grokked that digital
technologies had to be more than beautifully designed devices—they needed to be
vehicles for superior UI and UI-User Interfaces and User Experiences. By making
design and software subservient to UX, rather than the other way around, Apple’s core
competence in design is more accurately described as a core competence in committed
user engagement.
Net ix offers a cruder but simpler core competency clari cation. Reed Hastings would
have been foolish to de ne Net ix’s core competence as the ability to just-in-time
deliver desired DVDs through the mail—even though that was undeniably a core
competence for a decade. His company always de ned its value proposition from the
customer viewing experience in rather than the delivery vehicles out. Core
competencies began with the desired and desirable customer experience, not the
cultivation of proprietary and/or inimitable internal expertise.
The super cial interpretation would declare this a call for customer-centricity. But it’s
not. The real takeaway should be around re-thinking and re-architecting how you can
empower customers and clients to add value to your core competencies—however
broadly or rigorously de ned.
Core competencies should be platforms for customer—and customer-sensitive supplier
—collaboration, not proprietary silos of exclusive expertise. How do you get your best or
most typical customers to willingly, cheerfully and innovatively re-engineer themselves
around your core competencies in ways that enhance both? (This theme is examined in
greater depth in my eBook.)
Exploring how to creatively and cost-effectively externalize core competencies is now as
much an insurance policy as invitation to innovate. If you’re not making more customers
more core to your competencies, you are defaulting to enterprise drift. Give your
customers the tools and the opportunity to make your core competencies more valuable
to the both of you.
Michael Schrage, a research fellow at MIT Sloan School’s Center for Digital Business,
is the author of the books Serious Play (HBR Press), Who Do You Want Your
Customers to Become? (HBR Press) and The Innovator’s Hypothesis (MIT Press).
https://hbr.org/2013/10/do-customers-even-care-about-your-core-competence accessed
on 04062023

2 of 2
fl
fi
fi
fi
fl
fi
fi