BA 850
Sustainability Driven Innovation

Core Competencies v. Innovation Competencies


Hard v. Soft Competencies

In our consideration of organizational competencies in the earlier topic, "Identifying Competencies," you'll note that "innovation" itself is listed as a single of the eleven competencies.

We are good at doing something new in both content and process. Innovation—whether in products, administrative processes, business strategies, channel strategies, geographic reach, brand identity, or customer service—focuses on the future rather than on past successes. It excites employees, delights customers, and builds confidence among investors. This capability may be tracked through a vitality index (for instance, one that records revenues or profits from products or services created in the last three years).

But, consider what may be a more traditional definition of "competency" in an organization, those based in product and differentiation. We may call these "hard competencies," as they are highly tangible, quite evident within the organization, and well-recognized by those external to the organization.

From "The Core Competence of the Corporation," by Prahalad and Hamel:

At least three tests can be applied to identify core competencies in a company. First, a core competence provides potential access to a wide variety of markets. Competence in display systems, for example, enables a company to participate in such diverse businesses as calculators, miniature TV sets, monitors for laptop computers, and automotive dash-boards—which is why Casio's entry into the handheld TV market was predictable. Second, a core competence should make a significant contribution to the perceived customer benefits of the end product. Clearly, Honda's engine expertise fills this bill.

Finally, a core competence should be difficult for competitors to imitate. And it will be difficult if it is a complex harmonization of individual technologies and production skills. A rival might acquire some of the technologies that comprise the core competence, but it will find it more difficult to duplicate the more or less comprehensive pattern of internal coordination and learning. JVC's decision in the early 1960s to pursue the development of a videotape competence passed the three tests outlined here. RCA's decision in the late 1970s to develop a stylus-based video turntable system did not.

Few companies are likely to build world leadership in more than five or six fundamental competencies. A company that compiles a list of 20 to 30 capabilities has probably not produced a list of core competencies. Still, it is probably a good discipline to generate a list of this sort and to see aggregate capabilities as building blocks. This tends to prompt the search for licensing deals and alliances through which the company may acquire, at low cost, missing pieces.

When considering the more traditional definition of competency in an organization, we can begin to see where an organization with expertise in "hard competencies" may function as such without the ability to actually innovate in those same competencies. For example, consider a long-term market share leader in a given industry, defined by its portfolio of products, and perhaps launching one major product rollout every three years. While this organization may absolutely be a powerhouse in its domain of expertise and loaded with core competencies that allow that advantage, it may not have "innovation competencies."

While we examine the organization's competencies, it is important to layer both the "soft competencies" (such as Leadership and Speed) with the "hard competencies" (such as domain expertise). If we do not consider both hard and soft competencies, we may neglect to understand how the organization may be fully leveraged in the innovation offering.

The purpose of adding this lens to our consideration of organizational competencies is to help us understand not just general "competencies" within the organization, but specifically those soft and hard competencies which we may leverage in service of taking our offering to Beta.

Five word summary - Org competencies must be accessible