Competing on Competencies

I attended a 2 day course at the Gordon Institute of Business entitled Competing on Competencies.  The process was 80% case study based which allowed for the sharing of divergent views and thus insightful debate. Great for learning.  The course drew on the Resource-Based View (RBV) of Strategy school of thought which I am particularly partial to.

Briefly the RBV view is that companies are unique collections of distinctive resources, capabilities and competencies that they have developed over time.  These competencies are historic path, business model and strategy dependent and are the source of entities competitive advantage in a given market place.  The RVB school argues that companies are better (excel) at solving certain types of problems and that management should always aim to exploit internal capabilities relative to external opportunities. An inside out approach to strategy.

 Competencies can be captured in this simple equation:

                   Competencies = ∑(Resources + processes + operating habits  + values)

For these competencies to be useful to the company they should support as many of the following characteristics:

  • Valuable: The competency must underpin some differential element of what you do
  • Rare: The rarer and more valuable the resource the more competitive leverage it offers
  • In-imitable: The more imitable the competency the more valuable it is as a potential differentiator
  • Non-substitutable: Regardless of  how valuable, rare and inimitable a competency it’s potential is significantly diminished if a competitor can substitute it with an alternative

Richard Rumelt introduced the concept of isolating mechanisms (complexity, causal ambiguity, durability…) that should be actively invested in order to make it difficult for competitors to replicate competencies.

That said, some of key high level take-outs from the course were:

  • Three of the most important competencies of any management team are:
  1. Asking the right questions – Not knowing what you don’t know is the source of many bad calls  
  2. Understanding the sources of and sustainability of your current competitive advantage
  3. Understanding what competencies you require to sustain and grow your business. (How you are going to acquire or build them is another challenge)
  • Assimilation of what’s happening strategically – Piecing together time lines, understanding what’s important, weaving a coherent story or picture within your teams mind is very difficult but essential
  • It’s usually not one decision that breaks a business but the sum of many small ones that lead the company to not grow and or fail
  • Many companies falter because they fail to recognise and interpret problems and challenges on time and correctly. Events that seem small “operational” concerns are large problems that different competency sets would flag and act on
  • A strategic position, regardless how good it is, without underpinning competency fails a lot more than it succeeds
  • Replicating, scaling and transferring competencies across an organisation are very difficult. Something that gets done well in region A may not in Region B despite similar resources and processes. This is particularly relevant when geographical growth is at play
  • Positions and business models can get copied by competitors but may generate significantly different outputs and thus returns. Often it’s the softer competency enablers like entrenched operating habits and values that create the differential qualities that are so difficult for competitors to grasp and replicate.
  • When you acquire other business’s for competencies, make sure you have a very clear understanding of what you need them for and how you are going to use them

 They all seem very obvious, but come from precedent setting mistakes made by previously successful and smart management teams.