Core Competency vs. Compentency Trap

Developing a core competency is the business equivalent of the "Holy Grail". Few businesses have a true core competency, but all of them strive to develop one. For readers that are unfamiliar with the term, a core competency is defined as something a firm does well and meets the following requirements:

• It provides customer benefits
• It is hard for competitors to imitate
• It can be leveraged widely to many products and markets

Examples of core competencies would include:

• Black & Decker - small electric motors
• Carl Zeiss - optical lenses
• Honda - Gasoline engines

Developing a core competency makes a business successful. And the more success the business achieves, the more resources it is likely to put behind its core competency in an effort to leverage it fully. However, too often businesses focus on maintaining their core competency to the point that it actually hurts the business. This is called a "competency trap. Examples of competency traps include:

• Kodak film being a late arrival to the digital industry
• IBM allowing Microsoft to develop the PC operating platform (DOS and later Windows)
• Chrysler focused on minivans during the 1980's to the point of missing the rising popularity of SUV's

I believe it is impossible to justify to shareholders why a core competency should not be leveraged fully. However, firms should always be watchful to avoid a competency trap. Keys to avoiding a competency trap are:

• Avoid excessive specialization. If a firm can build a broad range of competencies and knowledge it will be better able to react to new or changing threats in the market.
• Businesses should pay attention to their respective markets. This seems obvious, but all too often major businesses miss key market indicators. Markets don't change suddenly. By listening to your customers, you will have your finger on the pulse of the market and be able to anticipate market changes.
• Be ready to change corporate culture. Businesses that fall into competency traps do so at least in part because of their own arrogance. When a core competency becomes a liability, be prepared to accept that and move on quickly.