Enough? When is a Corporation at Risk of Outstripping its Core Competencies?

• Author: Lipinski, John

INTRODUCTION

One of the key concepts of the field of strategy is core competencies. Core competencies lead to organizational capabilities which in turn form an organization's competitive advantage. Core competencies date back to the work of Andrews (1971) but were formalized by Prahalad and Hamel (1990) and took on the competencies-based approach with Teece and Pisano (1994) and expanded by Eisenhardt and Martin (2000). Recent work (Peteraf et al., 2013) demonstrates that even though there has been extensive writing on core competencies and dynamic capabilities, there is little in the way of a common understanding of dynamic capabilities.

Capabilities and strategy are broad realms, lending themselves to a range of perspectives (Pisano, 2017). In this paper we look at companies who rely on technical innovation for their core competencies and explore both what is required for an organization to maintain their core competency and translate said competencies into dynamic capabilities that continue to drive competitive advantage.

Where once business models were built with the assumption that information costs were high (Tushman & Nadler, 1978), today information costs are rapidly approaching zero and organizations have the ability to engage with their stakeholders in unprecedented ways. Big data is a reality. It seems that almost every year the world is storing more data than all of history produced prior to it. Storage cost is becoming nominal. In 1961 a 28 Megabite IBM diskdrive cost almost $1 Million in 2018 inflation adjusted dollars. Today in 2018, Hewlet Packard will give you 500,000 Megabites of cloud storage for free. Whereas once the ability to handle large amounts of data were a core competency that could lead to dynamic capabilities, today data scientists who extract insight and designers who can quickly bring new products and services to market are critical.

BUSINESS MODELS AND STRATEGY

As more free and extremely low cost assets become available (and customers also expect more free services) it becomes more difficult to identify which core competencies must be owned to differentiate oneself from the competition. When data and knowledge were expensive to obtain and process, organizations could use this capability to create dynamic capabilities. Teece (2007) posits that knowing how to use free and open assets is becoming the most important asset of an organization.

Dahlander and Gann (2010) demonstrate that taking advantage of knowledge assets requires the adoption of new strategies and the development of new dynamic capabilities. Such an entrepreneurial model can develop new innovative capabilities while a company continues to exploit their existing capabilities (Bresnahan, Greenstein, & Henderson, 2011) but a company must have the needed resources for such an endeavor. In an environment where consumers often have no intention of paying for new dynamic capabilities (e.g., Facebook accounts, YouTube videos, Twitter messages), companies face a dilemma of using their core competencies to develop new dynamic capabilities while being able to monetize the products and services that they launch. Capability identification, selection and creation are important strategic decisions (Teece & Pisano, 1994; Teece, Pisano, & Shuen, 1997) as they are in competition to create technological, operational and organizational capabilities to produce competitive advantages in their product markets. Companies must make capability enhancing investments where they will choose between deepening their existing capabilities and broadening their offering (Pisano, 2016). All of this must be done in the light of very real resource constraints.

TECHNOLOGY SHIFTS

Technology Shifts are among the most lethal threats to any successful business (Tongur & Engwall, 2014). There are...