There was a pretty good article a few days back in the NY Times about the rather obscure topic of business processes and process innovation. It was entitled “The Unsung Heroes Who Move Products Forward” and argues that while the final products sold to end users may get all the glory, it’s invisible process innovations behind the scenes that are largely responsible for their success. (Thanks to the NY Times now making everything free, it’s easy for anyone to check out.)
Process innovations like Google’s computer network are often invisible to the public, and impossible to duplicate by rivals. Yet successful companies realize that maintaining competitive advantage depends heavily on sustaining process innovations. Great process innovators often support basic research in relevant fields, maintain complete control over the creation of every aspect of a product and refuse to rely on outside suppliers for important components. Certainly, there are exceptions to these patterns, but even companies like Apple that buy essential processes on the open market nevertheless invest in gaining a working knowledge of the technologies and an understanding of their future arc.
Processes should be considered core competencies, along with IP on technology. If anything they are even harder to replicate.
I was was doing some reading on the concept of core competencies a little while back, as originally formulated by Gary Hamel and C.K. Prahalad, and there was an interesting shading to the concept that I hadn’t heard before; that is that core competencies should be hidden from the competition even if the end results are not. A lot of companies talk about their core competencies, but in many cases they are things which are quite obvious and not that unique to them. Instead, Prahalad and Hamel pose a more specific definition for core competencies:
The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller brances are business units; the leaves, flowers, and fruit are end products. The root system that provides nourishment, sustencance, and stability is the core competence. You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves.
(C.K. Prahalad and Gary Hamel, “The Core Competence of the Corporation.” Harvard Business Review, May-June 1990, p82)
Hidden core competencies allow companies to diversify into new, unpredictable and seemingly disconnected categories, much as Google and Apple have been doing. As descried in the Times article, it’s the marshalling of processes and knowledge that allows firms to create great new products, not just as lucky breaks but over and over again. And because these competencies are hidden (as the roots of a tree are invisible under ground), they are extremely difficult for competitors to replicate, and tends to force them into constant catch-up mode.
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