Goodbye, core competence

Steve Jobs had no ‘core competence’ in making animation films. At Pixar Films, which he acquired, he began making animation films in a completely different way compared to Disney, which was synonymous with animation. Proving doubters wrong, Jobs revolutionized the making of animation films and the clinching evidence of that came when he sold Pixar to Disney!

The most challenging attitude to embrace is the rejection of the idea of background. The slogan today should be ‘Create your own background’. Think of those we call pioneers – individuals or companies who did not get bogged down by the baggage of (absence of) background, creating a new space where others enter, once they have seen demonstrated success.

Discard core competence

It was always inappropriate to think of a company or an organization the way we think of individuals, but clinging to this dubious concept today means giving up exploring profitable emerging opportunities and not fully exploiting whatever goodwill a brand enjoys.

One of the newest realty companies in India is Sundaram Constructions, from the famous Sundaram Finance group. There is a long list of new companies in construction – Godrej, Bombay Dyeing, Raymond, Piramal, to mention some of the most high-profile companies, all fine examples of brand extensions. Almost every Indian company, especially the older and (once) larger companies, sits on large tracts of land which furnishes the basis for getting into construction provided other factors are in place. It will be naïve to let go off the booming construction business, especially when it can be ‘outsourced’ to specialist companies, leaving the ‘promoter company’ to focus on ideas: residential construction in India has undergone a fundamental change over the last two decades. 

Yes, there are companies that have stayed with one business because they see enormous growth potential, in general and specifically in relation to their market share. Bajaj Auto, Gillette, LN Mittal, most Oil & Gas companies, to mention just a few, all grew the ‘same’ business as vast areas of the market are yet to be tapped. However, there are new entrants and therefore, core competence alone will not suffice for continued success.    

An individual can ask ‘Can I do this?’ but not companies, who must ask a different set of relevant questions – Is this a fleeting business or likely to grow? What is the extent of current competition and the ratio of entrenched companies to newcomers – concentration ratio, as the subject of industrial economics defines it? What are the enabling factors? What is the current and likely shape of future regulation? Once these are answered, you need to ask what skills are required and how to acquire them. There is another, probably the most important question but we will come to it later.

Internal to external

The more interesting example (than construction) is IT & IT services. Many of the most prominent companies of today began as internal divisions, as detailed by an excellent article in The Economic Times (Page 08, 24 September 2023). TCS (the pioneer) came out of Tata Sons, Cognizant came out of Dun & Bradstreet, WNS from British Airways India, EDS came out of General Motors, and many others. In the case of some companies, the critical aspect to evaluate is whether externalizing an internal software system will help competitors acquire a competitive edge; you don’t want to cannibalise your own business. E-commerce companies creating a business in logistics, central to their business, is an example.          

There is one fundamental dimension: a space has to emerge to accommodate or let flourish businesses. In the case of IT and software, the growth of data as a business, accessed through some form of cloud system and multiple devices created the possibility of different kinds of IT & Software based services. In a sense, a virtuous cycle began developing – the enormous investments made in the infrastructure of IT and Software such as in more and more sophisticated data centres has made possible the rendering of services without much capital investment, based instead squarely on knowledge and skill.

Span of control

All these leads to a critical, a limit question: how far can one company, one management go? Before we answer this question, we must recognize a fundamental dimension of any growing business – a CEO tends to lose touch with ground realties of the business as it grows in scale. The only way to manage this risk is to incorporate and operationalize an appropriate ‘span of control’ which, by definition, includes delegating.

The nerve centre of such a span of control is a GEIS – Group Executive Information System, of which I have already written (https://www.challengingintelligence.com/tech-info-data-analysis/geis-the-helicopter-and-the-trench-view/). Equally important, CEOs ought to develop multiple antenna which help them pick up the signals from the ground (and above, literally) – https://www.challengingintelligence.com/management-innovation/thinker-ceos-an-idea-whose-time-has-come/.   

Is it simple?

Of course not! You need to win the perception battle, which can be exasperating – just read about Tommy Hilfiger’s efforts at creating a women’s line of garments. Building a strong and credible corporate brand is the first step, an umbrella which can shelter and nurture different kinds of products and services. The caveat? The umbrella must always be free from pores, lest your ambitions get watered down or washed away.

Takeaways

Core competence is an intellectual cobweb

Evaluating companies on the lines of individuals is a flawed approach

Growing in the same business or different business: questions to be asked are different

Seizing opportunities should be the mantra

Umbrella branding is the first step