What if you woke up one morning and everything you learned about business in college and graduate school was turned on its head? That would be pretty weird, right? All those years of thinking something is a certain way, just to have the carpet pulled out from under you…
If you don’t want this to happen to you, then be sure not to read Clayton Christensen and Michael Raynor’s book, The Innovator’s Solution. Shout out to Rob May for hipping me to it.
The Myth of Core Competency
I know that you hear the term Core Competencies at work and you’re told that you really need to focus on them, and nothing else. However, the one idea in this book to rally around is that the term Core Competency is just a buzz word because Core Competencies can not be defined by you:
Competitiveness is far more about doing what customers value than doing what you think you’re good at. – The Innovator’s Solution p162
I got into a friendly debate with my colleague Chris Palmisano at lunch the other day regarding this concept. He held to his guns that organizations should unequivocally stick to what they’re good at… At the time, I was unable to give a good example of what I was talking about. After reading more of the book, I’m only two thirds through it, I think that there is an assumption that the customer inherently finds value in what an organization thinks they do best. The million dollar question then is, should there be that assumption?
Have you made that assumption?
If the dilemma businesses are faced with is: how will the organization continue to grow in the future to maximize shareholder value, then we all need to stop making that assumption. The customer determines what the organization’s core competencies are by having needs. Here is a case in point:
ibm The behemoth company that helped make computers accessible to the everyman, once did it all. They designed and built component parts and operating systems, while also assembling the personal computers that were sold to the public. At some point, IBM decided that their core competency was selling computers because that’s where the money had been.
However, the market changed. Computers became nothing more than a group of commodity component parts. And we all found out that where the money would be was in microprocessors, operating systems and software. Subsequently, IBM left two separate multi-billion dollar growth opportunities on the table, with that one decision. Outsourcing the design and development of the personal computer’s processors and operating system directly allowed Intel and Microsoft to become the companies that you see today.
Skate Where the Puck Will Be
The authors use a quote from the Great One, Wayne Gretzky, to drive a point home about innovation within large organizations. Going where the money will be, as opposed to where it has been sounds like common sense, but it is a really important concept that can’t be overemphasized. Without getting too into the weeds, disruptive growth starts either down market or in new markets, typically at the low end of customer requirements and price points. These are pretty unattractive places for large organizations to spend resources, as they try to sustain their current growth trajectory at the upper end of the market. They’re also places where disruptive innovation historically occurs.
ernest & julio gallo There is a great CNBC Biography on the brothers that made a global, American wine industry illustrating this point. After the end of prohibition, wine makers struggled to get American’s to drink wine. To combat the fact that they were in a new market, Ernest and Julio Gallo went down market with brands like Night Train Express and Thunderbird. The Gallo brothers were competing against non-consumption more than they were competing with other wineries. And as they were able to gain low end market share, they were also able to move up market and eventually become one of the world’s most award winning wineries.
Like you, I had been conditioned to think that it is always the right answer to focus on an organization’s core competencies. That it never made sense to spend significant resources on something that is small and isn’t “the core business.” Then I started working on myTPSreport.com in a health insurance company and saw the need for developing in house talent around an important new communication medium that has the potential to grow multiple aspects of the business.
What I really like about The Innovator’s Solution is that the authors stress that there are business theories that need to be explored and applied to individual situations. Be sure to check out this book if you’re serious about innovation.