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10 Feb 2020|by Danielle Kost
Even though the internet has been publicly available for almost three decades, executives at just about every company are wrestling with how to use digital technology to advance their business strategy.
We asked professors from Harvard Business School’s Strategy Unit how emerging technologies involving artificial intelligence (AI), data analytics, and the Internet of Things are changing the way business leaders think about strategy. Here’s what they said:
1. Talent and data are more critical than ever
“Traditionally, companies focused on technology they own and have exclusive rights to use as a critical driver of competitive advantage. However, increasingly cutting-edge technology is developed as a shared resource where the core technology is freely available to anyone who wants to use it and it is frequently released as open source software.
Therefore, instead of the technology itself, companies are considering their user data and their tech employees as the primary drivers of competitive advantage.”
2. Technology is propelling business transformation
“While some firms think about technology merely as a different type of capital investment that does not impact their way of doing things, others are adopting new technologies as they make significant changes to the customers they serve, the skills they employ, and their organizational structures. The latter approach involves higher costs and time horizons, but most likely also much higher returns.”
3. Algorithms are changing the pricing game
“Firms are increasingly using pricing algorithms to set prices, especially in online markets. Pricing algorithms can enable better-targeted prices, but they also can fundamentally alter how a firm competes.
A firm that adopts a pricing algorithm can change the nature of price competition in its market and change the focal set of rivals. In addition, adopting a pricing algorithm may change the direction of a firm, requiring additional investments in IT, modified production decisions, and different personnel, among other changes.”
Alexander J. MacKay, an assistant professor of business administration who studies the economics of competition.
4. Platforms are upending traditional business models
“Emerging technologies of all types and forms are helping companies exploit new business models. Classic competitive strategy (as its name suggests) has focused more on value capture and competition within existing business models, and yet the most valuable companies in the US today simply did not exist 30 years ago. The technology they exploit creates enormous value for customers through the novelty of the ‘job to be done’ and by monetizing their offerings in very different ways.
The fact that many of these digital firms are based on a ‘platform’ business model—a term that only applied to railroads a few decades ago—only goes to show how far the new technologies have transformed the strategy landscape.”
David J. Collis, adjunct professor and author of International Strategy: Context, Concepts and Implications.
5. Companies can test everything
“Firms can now rapidly and cheaply experiment with crucial competitive decisions like pricing, product positioning, and which markets to serve. Historically, these decisions relied on master plans and involved time horizons measured in decades. Now, online platforms, algorithms, and ubiquitous data allow firms to test these decisions quickly, sometimes in a matter of months or weeks.
Recent work (pdf) by myself and colleagues at Duke University’s Fuqua School of Business suggests these ‘experimental strategies’ improve performance in new ventures, but questions, such as whether experiments bias firms toward easy-to-test and measure ideas and markets, remain.”
6. Cloud computing is lowering barriers to entry
“Competition will intensify in many digitally enabled industries as the cloud makes it ever easier for competitors to enter a market, which we’ve seen with Disney and HBO streaming to compete with Netflix. The major cloud providers will themselves inevitably compete with and threaten their own customers and partners as they expand their offerings.
As companies incur increasingly massive cloud usage costs that threaten their own profitability, they should make sure they do not get locked in with one cloud provider. Using multiple cloud providers ensures that they can always switch to the lowest cost option.”
In the second of his lectures for Saïd Business School, Clayton Christensen gives an insight into the ‘panda’s thumbs’ of management thinking- dated practices that hinder management decision-making and the profitability of companies. He gives the examples of managers focusing too heavily on gross margins rather than net profit and refusing to reduce their production costs as a way of avoiding disruption by smaller companies. He then gives an insight his Job to be Done theory.
Core Competency Analysis – An Overview
A clear identification and thorough understanding of an organization’s core competencies is central to obtaining a competitive advantage and sustaining performance excellence. Understanding core competencies and using them well….frequently results in marketplace differentiators that deliver greater returns on the capital a firm invests. In addition, decisions about core competencies are integral to how senior leaders align strategy and translatate executive decision-making into operational management.
What are Core Competencies?
The term “core competencies” refers to an organization’s areas of greatest expertise. An organization’s core competencies are defined as either those internal capabilities that are essential to fulfilling its mission or those distinctive competencies that provides a firm with competitive advantages in its industry. Core competencies are challenging for competitors and suppliers imitate. Absence of a needed core competency can make a company vulnerable to threat in the marketplace.
Core competencies may involve technology expertise, unique service offerings, a marketplace niche, or a particular business acumen (e.g., business acquisitions). They focus on an organization’s internal capacities and deep proficiency which enable it to deliver unique value to its customers. Core competencies also contribute substantially to the benefits a company’s customers experience. The distinguishing characteristic of organizational core competencies are that they develop overtime and represent the continual accomplishment of a firm’s strategy.
Core Competency – An Example, Southwest Airlines
Southwest Airlines enjoys the US Airline industry’s best cost advantage. This advantage is not solely due to its production and efficiencies but also due to many other internal competencies that are distinctive to the company – including the industry’s fastest turnaround time.
Fast Turn Around Time: defined as the time from when a plane lands to when it leaves again. Due, in part, to a variety of factors such as the use of un-congested airports, minimal food service, and early check-in, the company can turn around a plane in less than 30 minutes – compared to the industry average of more than 45 minutes.
Consider the financial impact if this 15 minute advantage –
A carrier with 2,000 flights per day that uses each of its planes for 10 hours per day. The carrier with a 15 minute advantage would save 500 hours per day turning its aircraft. This carrier would need, perhaps, 50 fewer airplanes (500 hours saved/10 hours per day of flying per plane) to offer the same number of Revenue Per Passenger Miles. If each plane costs approximately $50 million, this would translate into a savings of $2.5 billion in assets.
This is an example of how understanding core competencies can allow a company to invest in the strengths that differentiates it in the industry.
To develop core competencies a company must:
- Determine which internal capacities are key strategic factors for creating and sustaining value.
- Conduct an organization wide core competency assessment and isolate strengths and weaknesses.
- Benchmark against other companies with the same capacities to ensure the firm aims to develop the right key factors.
- Isolate these key factors and hone them into enterprise-wide strengths.
- Create an organizational road map that sets goals for competence building.
- Encourage involvement in core competency development across the enterprise.
Core Competency Analysis – Rates of Usage and Satisfaction:
Source: Bain Management Tools 2011
Since 1993, core competency analysis and management exists as one of the 25 most popular and pertinent management tools. In a recent Bain & Company survey, core competency analysis and management is a management tool consistently used by close to 80% of executives, with an overall satisfaction rating range averaging almost 80%. Decision makers achieve better results by championing this method as part of a realistic strategy rather than just viewing it as a tool to simply achieve a strategic goal.
Analyzing Core Competencies:
Though realizing core competencies has its rewards, what is just as important is the other side of the coin – core in-competencies. Whereas core competencies can empower an organization to create and sustain value, core in-competencies disable an organization’s ability to achieve its mission. Too often core in-competencies and their related dysfunctions are tolerated or swept under the rug. They need to be found, rooted out, and replaced by competent and functional methods for managing an organization’s resources.
TPMG’s multiyear research gathered data regarding the most proven methods and best practices in industry. The research has provided a number of key insights. Among them includes the need for an organization to analyze and build core competencies around the following areas:
- Leadership Effectiveness: how senior leader’s actions guide and sustain a firm. The insights give attention to how senior leaders communicate with their workforce, measure organizational performance, what performance indicators they regularly review and how their performance review findings are used to drive improvement.
- Workforce Capability and Engagement: a firm’s systems for engaging and empowering its workforce with the aim of enabling their employees to contribute effectively to the company mission.
- Organizational Systems and Structures: the use of a firm’s work systems, technology, and work process decisions with the aim of creating value for customers and sustaining organizational success.
- Operational Performance: how well a company’s core internal functions accomplish their respective strategic objectives. And…how effectively a company’s internal operations contribute to profit objectives along with how efficiently a company’s core operations deliver its value proposition to its customers.
- Customer Satisfaction and Relationships: how companies determine customer satisfaction and how they build relationships to retain current business and develop new opportunities.
- Innovation: how a firm’s ability to satisfy the voice of the customer based on its current strategy and long-term plans. This insight is directly related to the alignment of new additions of a firm’s product portfolio with corporate business strategy as well as the management of the product life-cycle.
- TPMG LLC Manual, “The Performance Management Balanced Scorecard, A Practical Guide to Strategic Planning, Strategy Deployment and Performance Management.” TPMG LLC Publications 2010.
- Bain & Company, “Management Tools 2011.” Published by Bain & Company Inc. 2011
- TPMG Educational Services, “Knowledge Space Research Project” Published by TPMG Educational Services 2008 – 2012.
- Harvard Business Review “The Explainer: Finding Your Company’s Core Competencies.” July 2, 2019
For more information regarding Core Competency Analysis & Consulting Services, contact TPMG LLC at www.helpingmakeithappen.com.