You’d think it would be an easy question to answer, but oftentimes, it’s like we’ve asked them to remember the date of their spouse’s birthday or something! They get nervous, fiddle around with their pens, and try to stammer out an answer.

Eventually, they get around to saying that it’s not just one thing they do well; rather, they do many things well. They spew competencies like Mount Vesuvius erupting again until we have a long list of supposed capabilities. Then, they stand back, take a look at the list, and like they’re in some stupid infomercial, they say, “But wait! There’s more!”

After we compile an even longer list, I have to ask myself why my firm was hired in the first place. If the company does all these things so well and has an advantage in the market, why in the hell are we there? But my experience tells me there’s a reason we were brought in, so I ask CEOs to focus hard and pick just one thing from the list of competencies; just one core strength that the company does better than anyone else in the industry. Much to my chagrin, they usually can’t pick just one.

Next, we take the list to the management team, which debates it for a while, but usually ends up picking different competencies than the CEO picked. Then we take the list to the employees, then to the board of directors. You can probably guess what happens: We now have four or five first choices. Could this be why the organization needs some help?

Focus on Your Strengths

Defining your short list of core competencies and knowing the number-one thing you do better than anyone else is critical in today’s hypercompetitive environment. Unfortunately, many organizations focus on doing the wrong thing, such as being the low-cost producer in the industry. What happens when someone else comes along who can beat your price? Perhaps a better focus would be to be the producer who adds the highest value, and to determine what it is that the market values, such as delivery or convenience.

Another sign of trouble is when a company has what I like to call “core competency de jour”: The definition of its core competency changes more often than Minnesota weather.

Sometimes companies believe their core competency is their ability to produce products and services of the highest quality. Then someone else figures out a way to do it better and kicks their backsides hard. A smarter emphasis would be to recognize, develop, and focus on core competencies that are sustainable over time as a competitive advantage.

In other words, core competencies aren’t simply low-cost products, strong research and development capabilities, or brand dominance.

I’m going out on a limb here (just a joke), but try to imagine your organization as a tree. The trunk and limbs are your core products, the branches are your business units, and the leaves and fruit are your end products. The roots, however, are the core competencies that provide nourishment and strength to the organization, year after year.

Some examples of core competencies would be the collective learning and knowledge of the organization, the main processes that structure the organization’s work, and a strong commitment to a common vision. Very few organizations have more than a handful of core competencies; in fact, most have one or two on which they focus the laser beam. If you’re having trouble defining a short list of core competencies for your organization, this list of characteristics may help:

• Core competencies are sustainable.  Unlike physical assets, which depreciate, core competencies improve as they are shared and applied throughout an organization, and are therefore sustainable over a long time.
  
  Consider 3M, which has seven business groups that make products as diverse as Post-It notes, Scotch brand tape, pharmaceuticals, film, abrasives, and adhesives. As different as these products are, 3M has applied its core competencies in substrates, coatings, and adhesives across divisions, year after year, to create innovative new products and markets. 3M’s history of technological competency is a Minnesota legend. The company just keeps growing and posted record sales of $18 billion last year. And the future looks promising; CEO W. James McNerney, Jr. has said that 3M will grow in the next five years by focusing on organic growth fueled by its technology, not by cutting costs or making acquisitions. I’d say those are some deep roots.
  
• Core competencies provide access to a variety of markets.  In a competitive environment, businesses can’t survive by dominating a narrowly defined or small market. You’ve got to figure out a way to be a bigger fish in a bigger pond.
  
  Consider Medtronic, which we all know was born in a garage with the vision of applying biomedical engineering to improving health. But instead of narrowing its technological focus to pacemakers, Medtronic has expanded its core competency in medical technology to a variety of markets, including cardiac rhythm management, cardiac surgery, vascular disease treatment, and neurological, spinal, and ear, nose, and throat surgery. By leveraging its core competence in medical technology, Medtronic has grown into a $7.6 billion company with 30,000 employees.
  
• Core competencies are difficult to duplicate.  My firm recently worked with a very large manufacturing company that had plants throughout North America. It had been operating on the assumption that its core competency was the ability to produce large volumes, and it was being forced to compete on price.
  
  After a thorough analysis, however, we learned that the company’s true core competency was its ability to produce with high added value, and to service them like nobody else can. The company focused and expanded its efforts in markets that value high quality, where customers are willing to pay for that quality. With this new focus, our client isn’t competing on price anymore and has a significant and sustainable competitive advantage in its industry.

Dominate Your Market

In each of my examples above, the organizations have defined their core competencies and continue to nurture and protect them. Core competencies are the things that they are willing to put up a formidable fight to sustain; they invest in their strengths. 3M and Medtronic invest heavily in research and development, and our client has invested heavily in its manufacturing plants.

When core competencies are defined and sustained, diversification and entry into new markets are guided by those competencies, not just by the attractiveness of new markets.