Knowledge is the heart of Agility – the driving force of both proactive and reactive change. New knowledge demands to be acted upon; and when one business acts upon new knowledge others have no choice but to follow. This human thing we are distinguishes itself from other life by generating and applying knowledge. The increasing population is building upon an increasing body of past knowledge – which increases the frequency of new knowledge generation and speeds the decay of knowledge value – making the general business environment, which is built on knowledge, more unstable. Conscious knowledge management is the practice that will return general stability in the long run. Short term it will provide preemptive advantage to those who master it first.
Core competency knowledge is just one aspect of the total picture – but an important place to start. We’ll explore the design of a knowledge management practice here; in the context of the competency at the GM metal-fabrication plant. This plant stamps and assembles after-model-year auto body parts. But we won’t be talking about things unique to metal fabrication or even small-lot, high variety production – our business practice design will have application everywhere. As seen, the main issue has revealed itself: those with the competency can’t seem to articulate it instructively. Organizations employ tacit knowledge at the intuitive level that even they are unaware of. That’s pretty common everywhere – and only becomes an issue when you decide it’s time to explicitly inventory this kind of knowledge and spread it around. There are more issues that must be addressed by the business practice to design. First and foremost, the knowledge management process itself must be highly adaptable – able to evolve and accept deeper and better competency understandings over time, able to accommodate new applications for that competency, and able to incorporate new knowledge developed elsewhere. A perfect application for the issue-focused, principle-based design methodology we’ve been exploring.
Issue-focused design means we want to understand our requirements objectively before we commit to a solution. Additional key issues on the proactive side include:
* People must be interested and perceive value in order to learn effectively.
* The accuracy of knowledge, once it is captured, and the effectiveness of communicating it are both prime areas for constant improvement.
* With time, the product and process technology will change, as will the nature of the knowledge and the knowledge focus.
* Some knowledge pays dividends when understood by different types of employees: engineers, skilled trades, accountants, personnel, management, etc – each requiring a modified learning approach.
* Insular knowledge is dangerous. An effective core competency renewal process must be aware of and able to incorporate relevant developments outside the local and greater-corporate environment.
Key issues on the reactive side include:
* All knowledge does not necessarily good, e.g., know how to make a process highly adaptable when there is no value to the company to do so. A self-healing process eliminates both incorrect and poor-value knowledge.
* People in training are employees with front line jobs, and business priorities change daily. There’s no longer a “time-out” for training. Key points: flexible scheduling, and the training time should look like job time.
* A training procedure must accommodate large and small groups, from a few new hires to large groups of existing employees.
* Technology and applications change with time, so fundamental knowledge must be reinterpreted.
For the core competence perspective to take root in an organization, the entire management team must fully understand and participate in the five key competence management tasks: (1) identifying existing core competencies; (2) establishing a core competence acquisition agenda; (3) building core competencies; (4) deploying core competencies; and (5) protecting and defending core competence leadership.
A firm can’t actively “manage” core competencies if managers don’t share a view of what those core competencies are. Thus, the clarity of a firm’s definition of its core competencies and the degree of consensus that attaches to that definition are the most rudimentary tests of a company’s capacity to manage its core competencies. Whereas most managers will have some sense of “what we do well around here”, they may be quite unable to draw any kind of specific link between particular skill sets and the competitiveness of end products and services. The first task in managing core competencies is therefore to produce an “inventory” of core competencies.
Often observed in most companies attempting to define their core competencies, the process tends to be haphazard and political. The first attempt typically produces a lengthy “laundry list” of skills, technologies, and capabilities – some core, but most not. Every participant in the process wants to ensure that the activities he or she manages are regarded as “core”. A substantial amount of effort is required to fully disentangle competencies from the products and services in which they are embedded, to distinguish core from non-core, to cluster and aggregate the skills and technologies in some meaningful way, and to arrive at “labels” that are truly descriptive and promote shared understanding. The time it takes to arrive at an insightful, creative, and shared definition of core competencies is, in a large company, more likely to be measured in months than weeks. In my professional experience, it even took years considering issues e.g., culture, beliefs, generation-gaps, etc.
Companies typically fall into one of several traps when attempting to identify core competencies. One of the most frequent is delegating the task to the technical group. There is a clear danger in taking such an approach. Core competencies are the soul of the company and as such they must be an integral part of the process of general management. When only the technical group feels ownership, the usefulness of the concept in building new business is jeopardized considerably. Too often the concept of core competencies is highjacked by the technical group in a bid for stature and resources.
Other traps include mistaking assets and infrastructure for core competencies and in inability to escape an orthodox product-centered view of a firm’s capabilities. Additionally, if executives are too rushed to “get the job done”, they may fail to generate a deep and common understanding of what the chosen core competence “labels” mean. A wide group of people in the organization must be capable of describing the competence in reasonably similar terms and share an understanding of just what constituent skills are embodied within the competence. There is yet another frequent pitfall. Companies often fail to apply the test of “customer perceived value” to their list of competencies. Understanding the link between competence and benefit is critical in identifying competencies that are genuinely core. We often recommend that several teams work on defining core competencies. Each team should encompass a broad cross-section of employees – functionally, divisionally, geographically, and hierarchically. Seeking a diversity of views ensures that the best possible definition emerges.
It is important not just to identify and agree on what the core competencies are but also to identify the elements that contribute to each core competency. For example, expertise in the science of color, inks, dyes, substrates, coating, paper handling, and a host of such elements or discreet skills adds up to the core competence in chemical imaging at Eastman Kodak. It is important that these discrete skills are identified and an inventory of people who possess those skills developed. One company succeeded in developing a hierarchy that extended from competencies to skills and technologies to individual employees – “competence holders”. This hierarchy could be accessed through a computer database so that if someone in the company needed to access a particular competence, he or she could locate the right person. Such visibility to a firm’s core competence resources is vital if they are to be fully exploited and easily redeployed.
Further, companies need to benchmark their core competencies with other firms. Senior managers must be full participants in the process of identifying core competencies. The process will involve many meetings, heated debates, frequent disagreements, unexpected insights, and a sense of excitement about potential new opportunities. The task of discovering a firm’s core competencies is not one that senior management can delegate; neither can it be squeezed into a two-or three-day “offsite” workshop. The goal of the process is to develop a wide and deep understanding of the skills that currently underpin the firm’s success, to escape the myopia of the served market, to highlight the “shared property” of the firm, to point the way to new business, to raise sensitivity to the reality of competition for competence, and to provide the basis for actively managing what, after all, are the firm’s most valuable resources. The exercise to identify core competencies cannot take a mechanistic, follow-the-checklist approach.
Given that it may take five, ten, or more years to build world leadership in a core competence area, consistency of effort is key. Consistency depends first of all on a deep consensus about which competencies to build and support, and second, on the stability of the management teams charged with competence development. Such consistency is unlikely unless senior managers agree on what new competencies should be built. Without such consensus, a company may well fragment its competence-building efforts, as various business units pursue their independent competence-building agenda, or the firm may simply fail to build new competencies. Stability to senior management teams and, correspondingly, strategic agenda is also a key.
To leverage a core competence across multiple businesses and into new markets often requires redeploying that competence internally – from one division or strategic business unit to another. Some companies are better at this than others, and hence get greater effective use out of their competencies. We sometimes define a company’s core competencies in the same way a country defines its money supply; stock (the number of bills printed, or the number of people who “carry” a particular skill) multiplied by velocity (how fast the bills change hands, or how quickly and easily competence carriers can be redeployed into new opportunity areas). Many companies have a sizable stock of core competencies – many people with truly world-class skills – but almost zero competence velocity – the ability to redeploy those individuals behind new market opportunities.
For more and more companies today, the ratio of market value to asset value is 2:1, 4:1, even 10:1. The difference between asset value and book value is not goodwill, it is core competence – people embodied skills. The numerator in the ratio reflects investors’ beliefs about the uniqueness of the firm’s competencies and the potential value that can be generated by the exploitation of those competencies in the marketplace. The allocation and management of the assets that appear on the balance sheet is an elaborate, time-consuming ritual, infused with analytical rigor and attempts at numerical precision. But what about the other three-fourths or nine-tenths of corporate value? Through what mechanisms are core competencies allocated? How explicit are the choices about where to put talent? How much pressure is put on divisional managers to justify why they should have preferential access to some particular competence pool? Although human resource executives will proudly proclaim that “people are our most important asset”, there is seldom any mechanism for allocating human capital that approaches, in its sophistication and thoroughness, the procedures for capital allocation. In most Western companies the chief financial officer has more organizational status and raw power than does the head of personnel. In many Japanese companies the situation is precisely reversed – as it should be if a company truly believes that competition for competence is the highest order of competitive rivalry, and if it understands that access to competencies, rather than access to cash, is the most critical driver of growth. We sometimes carry out with a company’s divisional managers illustrates a critical precondition to the capacity to redeploy competence assets. We provide each divisional or strategic business unit manager with a product-geography matrix, and then ask each executive to rank, 1 through 10, their company’s near-term growth opportunities. There is usually little correspondence between one manager’s rankings of growth priorities and any other manager’s rankings. Yet, in the absence of a corporate-wide consensus on new business opportunities – that is, agreement on what projects truly are “urgent” or deserved to be labeled “gold” – there can be no logical basis for the internal reallocation of core competence resources.
One Japanese company regularly publishes a list of the company’s top market and product development priorities. Obviously, there is great status attached to working on a high-profile, critical program. If an individual somewhere in the organization believes that he or she can contribute to one of the high priority projects, that individual can “self-promote” himself or herself onto the team. The team leader may not choose to take the applicant, but if the skills offered are critical to the project’s success, the team leader can ask that the individual be transferred. At this point, the employee’s boss has to justify why that individual’s talents are of more value to the corporation in the current job than in new job. As one might expect, the existence of such a system helps ensure that unit managers do their best to keep key people occupied with truly challenging projects. It also ensures that the best people end up working on the biggest potential opportunities.
The mobility of competencies is also aided when the employees who comprise a particular competence meet frequently to exchange ideas and experience. Seminars and conferences are important for instilling a sense of community among people working in the same competence. The cross-fertilization that results accelerates competence-building. The goal is a group of people who see themselves as corporate resources, and whose first loyalty is to the corporation and the integrity of the company’s core competencies, rather than to any single business unit. Geographic proximity can also aid competence mobility. Where a competence is spread across facilities in a dozen countries or more, collective learning and the reallocation of individuals to new projects are difficult. A company should avoid unnecessary geographical fragmentation of its core competencies.
Core competence leadership may be lost in many ways. Competencies may wither through lack of funding; become fragmented through divisionalization, particularly where no single executive feels fully responsible for competence stewardship; be inadvertently surrendered to alliance partners; or be lost when an underperforming business is divested.
Protecting core competencies from erosion takes continued vigilance on the part of top management. Although most senior managers can easily dredge up competitive measures of sales performance, market share, and profitability, few are able to offer a quick and convincing judgment on whether their company is staying ahead of competitors in core competence development. There is no way to protect a firm’s core competencies from erosion if the health of those competencies is not visible to top management. Divisional managers should be assigned cross-corporate stewardship roles for particular competencies, and should be held responsible for the health of those competencies. Regular “competence review” meetings should focus on levels of investment plans for strengthening constituent skills and technologies, internal patterns of deployment, the impact of alliances, and outsourcing.
It is not to be argued that the core competence perspective should supplant a product-market perspective; rather, it should complement it. Given how deeply engrained the strategic business unit perspective is in most companies, it will take substantial effort from senior management to build the complementary core competence view. The goal is not to “hardwire” the core competence into the organization through structural changes, but to “soft-wire” the perspective into the heads of every manager and employee. This means (1) establishing a deeply involving process for identifying core competencies; (2) involving strategic business units in a cross-corporate process for developing a strategic architecture and setting competence acquisition goals; (3) defining a clear set of corporate growth and new business development priorities; (4) establishing explicit “stewardship” roles for core competencies; (5) setting up an explicit mechanism for allocating critical core competence resources; (6) benchmarking competence-building efforts against rivals; (7) regularly reviewing the status of existing and nascent core competencies; and (8) building a community of people within the organization who view themselves as the “carriers” of corporate core competencies.
Having safeguarded the firm’s existing competencies escaped the myopia of existing served markets, and built a forward-looking competence agenda, a company can move on to the finals tasks in managing the migration path to the future: expeditionary marketing and global preemption.