Companies have a powerful tendency to compete on the basis of their core competencies rather than on the basis of the attributes that truly distinguish them in their customers’ eyes—what William Putsis calls “salient differentiators” in the excerpt below.
There are clear reasons for this unhelpful bias. First, building a core competency in an area such as manufacturing excellence or employee training and development is utterly within the control of management. But the achievement of salient differentiators is far less certain. Customers decide whether the attributes of an offering are really differentiated, and management has no right of appeal!
Second, companies that focus on core competencies can always go to their board of directors, demonstrate their competencies, and blame the fickleness of customers or unforeseen shifts in the markets for their lack of success. But if company leaders tell the board that they plan to win on the basis of specific salient differentiators and customers respond with a big “ho hum,” it will be obvious that the strategy was wrong.
Core competencies seem safe, like the path of least resistance. But as Putsis makes clear, a singular focus on building core competencies is not the path to business success.
An excerpt from chapter 1 of Compete Smarter, Not Harder:
A Process for Developing the Right Priorities through Strategic Thinking
Imagine you are in the market for a color printer. Get out a piece of paper and a pen or pencil and write down all of the reasons and qualities that would make you choose one printer over another. Presumably, your list would include things like print resolution, print speed, the cost of the printer and “consumables” such as ink and toner cartridges, the ability to scan or fax, and so on. Now imagine you are in the market for a new automobile and write down the reasons why you would buy one automobile versus another. This list would likely include things like miles per gallon, body type, brand, price, safety ratings, repair costs, image, and so on.
These are all attributes of the offering at hand—the things that matter when we buy a product, be it at home or at work. Where in the world on these lists of attributes that you have created are the core competencies (capabilities) of Hewlett-Packard or General Motors? Nowhere. And this is because we decide what to buy based on the offering’s underlying attributes—not on the basis of the company’s capabilities or core competencies. Yet time and time again, companies attempt to compete on the basis of their core competencies.
We buy based on the offering’s attributes—not on the company’s core competencies.
It’s not that core competencies aren’t important; to the contrary, they are what enable a company to produce the attributes that customers seek out and value. However, the focus should be outward in, rather than inward out. A company must first concentrate on the qualities or amenities that customers value and then develop core competencies that deliver these key attributes—specifically, in a way that provides a competitive advantage on the key salient differentiators. Many companies in the B2B space focus on what they do well rather than focus on what customers want. It is a critical distinction.
A few years back, British Airways conducted an “intercept” survey of business travelers departing London’s Heathrow Airport. After screening to ensure that the respondent was traveling on business, surveyors asked travelers to imagine that they were flying from Heathrow to New York’s John F. Kennedy Airport. The surveyors had the respondents name the top three reasons why they would choose one airline over another. Think about what your top three would be. In the British Airways survey, the Heathrow travelers named the following three: (1) safety, (2) route, and (3) schedule.