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Posted on April 14th, 2016 by Michael D. Brown in Chemical R&D
The goal of innovation should not only be novelty and uniqueness, but to also to commercialize products (and companion products) that have long-term competitive advantage. Sustained competitive advantage can make a good innovation a great innovation. As an example, consider the great chemical product Teflon™ which was invented in 1938 and for years enjoyed a dominant market position in uses ranging from coatings and elastomers to plastics. This sustained success came about in large part because DuPont developed and exploited a strong competency in the chemistry of fluorine.
Competencies are those capabilities of which a business chooses to use to compete in a marketplace. Properly aligned, innovation can draw upon competencies for competitive strength. Competencies can be categorized as follows:
|What You Know||Market Knowledge; Customer and Application Knowledge; Technology and Science Knowledge|
|What You Own||Intellectual Property; Fixed Assets and Reserves; Brands; Goodwill (reputation, customer relationships, etc.)|
|What You Do||Business Processes; Manufacturing, supply chain; Sales/marketing; Innovation/research; Financial Risk Management; Mergers/Acquisitions|
|Who You Know||Joint Ventures/Alliances: Government Policy Makers: Preferred Customer/Vendor Relationships|
Of particular interest are “core” competencies, or those capabilities at which the business excels and does better than competitors and are at the heart of the business. “Core competencies” should meet all of the following criteria:
- Strategically important to the business
- Relevant to the markets the business serves or wishes to serve
- Superior to competitors with similar capabilities
- Creates sustainable value for customers
Importantly, these criteria should be considered through the eyes of customers. It is through this filter that a business can get an appreciation of how well their core competencies truly match up with customer needs and excel versus competitors.
Core competencies are relatively rare, and as a general rule, most businesses will have no more than two or three. More than that and you may be kidding yourself or diluting your efforts to excel in them.
Since core competencies represent the critical assets that differentiate a business from competition, they should be the source of “energy” from which business strategy and market plans draw their strength to compete. Therefore, innovation should also draw from this same source of energy so that new products can sustain long-term advantages in the market.
Notable examples of innovative new products with long-term sustainable advantages derived from core competencies are listed below:
|Innovation||Innovator||Invention Date||Core Competencies|
|Teflon™ polymers and resins||DuPont(now Chemours)||1938||Deep knowledge of fluorine chemistry; Strong corporate brand (DuPont); Application knowledge across many end-uses|
|Rhoplex™ AC-33 acrylic emulsions for waterborne paint||Rohm & Haas(now Dow Chemical)||1945||Deep and broad knowledge of acrylic chemistry; Integrated process with economic scale in both monomers and polymers; Customer relationships with deep application knowledge of paint formulation and use|
|Desmodur® isocyanates for crosslinking polyurethanes||Bayer(now Covestro)||1937||Deep knowledge of phosgene chemistry; Integrated process with economic scale in both monomer and polymer; Broad application development across several end-uses|
These products were developed decades ago and the companies that developed them enjoyed strong competitive positions that in most cases remain today. In all three cases the innovation and core competencies were developed simultaneously and subsequent innovations and new products continue to draw upon those competencies. Note also that the products remain leaders in their markets despite changes in ownership, a testament that competencies can be transferred.
Key thoughts for core competencies:
- Every business should take an inventory of its competencies and determine which are “core”. This exercise is best conducted by a third party capable of gaining customer insights as well as conducting competitive benchmarking.
- Successful businesses have the “right” competencies to meet the needs of their chosen customers (not too many, not too few). Too many competencies can result in wasted resources and lack of focus; too few may make a business uncompetitive in the market.
- Innovation should consider a business’s core competencies and draw upon at least one. If the innovation does not align to a core competency it bears questioning how subsequent commercial products will develop a competitive advantage. In some cases a competency can be acquired to bolster an innovation.
- Investment is required to improve and add to core competencies, often driven by changing customer needs and/or competitive actions. Furthermore, the costs of owning and maintaining core competencies must be weighed against the profit expected from those competencies. Certain core competencies may lose value with time and no longer make sense to own.
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Michael D. Brown
President, StrategyMark Inc
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