If the transformation process is the core of the business, it is necessary to protect, control, and improve the process. That may not mean the core competency is the actual production of product. Some companies have superior skills in the area of product design, others in processing documents or sales, and still others in delivering a service. The key is determining what the “transformation” process is that exists as the core competency of the business. Many companies have patents and trade secrets that protect their core competency. So what is your business’s core Competency? The following questions will focus your thinking.
1. What does our customer want? This question is for established businesses and pushes to examine customer desires. With a new product offering or a startup business, it means crystallizing the value proposition that we expect the customer to pay for.
2. Is our business unique in offering this product or service? If no one else can make the same offer in the marketplace the business has a powerful position. However this needs to couple with #1., above, to make sure the offering is not only unique but desirable. A monopoly on something no one wants is worthless.
3. Is it difficult for “would be” competitors to enter the same market? Obstacles to entry can be technology, capital investment, skills, geography, etc. These keep entrants out but if the perceived reward is great enough they may invest for the later pay out. A corollary to this is: Can an unrelated offering fill the customer need as well or better?
4. Can the business continue to evolve the offering to stay ahead of potential competitors? This focuses on the business’s ability to move down the learning curve rapidly and stay ahead of competitors. As competitors try to match the business’s competency the business has moved to a new higher level of competency.
5. If an outsider were allowed to do this task for the business, could they meet the needs of our customer without our business? If a business allows a core competency to be performed by an outsider it exposes itself to creation of a competitor. The computer and electronics industry is filled with examples of this. Overseas suppliers are often the ones who can most easily introduce a competing product to the ones that have been outsourced to them.
If a business wishes to be the master of its own destiny, it must not give its core competency to others to perform.
Thursday, October 15, 2009
Thursday, October 1, 2009
Core Business Fundamentals
The fundamental core of any business is a transformation process. That transformation is embodied in manufacturing as a physical change to a product. In a transportation or logistics business it can take the form of movement of items or people from one location to another. In a service industry it can be more difficult to discern. Education, for example, is the transfer of knowledge to the student. A lawyer, as another example, uses specialized knowledge to replace that of the client to represent the clients interest.
What makes the transformation process important is that someone else, a customer, is willing to pay for that process. In the eyes of the customer the process adds value. Business is based on this value to the customer. It sets the market price for the output of the process. It can also indicate, when the business listens to the voice of its customers, what they want or for what they are willing to pay. Applying some advanced business tools will allow a business to focus on the parts of the overall process that add value in the eyes of the customer and eliminate those that do not.
The object is to perform the process at the lowest cost and yet fulfill all the customer’s desires. The difference between what the customer is willing to pay and the processing cost is the profit that keeps the business in operation. Business systems such as ERP (Enterprise Resource Planning), the disciplines of Lean and six sigma, and the root cause analysis or Theory of Constraints are tools to use in improving the cost versus price ratio. That improvement means improved profit or lower total cost.
What makes the transformation process important is that someone else, a customer, is willing to pay for that process. In the eyes of the customer the process adds value. Business is based on this value to the customer. It sets the market price for the output of the process. It can also indicate, when the business listens to the voice of its customers, what they want or for what they are willing to pay. Applying some advanced business tools will allow a business to focus on the parts of the overall process that add value in the eyes of the customer and eliminate those that do not.
The object is to perform the process at the lowest cost and yet fulfill all the customer’s desires. The difference between what the customer is willing to pay and the processing cost is the profit that keeps the business in operation. Business systems such as ERP (Enterprise Resource Planning), the disciplines of Lean and six sigma, and the root cause analysis or Theory of Constraints are tools to use in improving the cost versus price ratio. That improvement means improved profit or lower total cost.
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