Core competency” is a buzz phrase generally employed as a post-facto rationalisation for strategic decisions. The B-School mantra is that a focus on core competency generates more economic value (EV) while unrelated diversifications destroy EV. This theory is applied selectively in practice.
Somebody who wishes to invest in, say, Asian Paints (APL), will trot out the core competency argument. APL makes and sells paints and has done very well at it. However, somebody who wishes to invest in a conglomerate such as, say, Reliance Industries (RIL), will conveniently forget about core competency. RIL has its fingers in many pies of entirely different flavours and it’s done well despite all the unrelated diversifications.
It’s interesting to flexibly apply this matrix of core competency to the global IT industry. Let’s start with some history. In the 1970s, IBM (International Business Machines) dominated the IT industry. Big Blue’s core competency was in servicing corporate computing needs — Business Machines, after all. It made the BMs and it wrote the software.
So when IBM put together a line of personal computers (PCs) for hobbyists, it didn’t bother to write an operating system (OS) and stayed focused on its core competency of corporate computing. It licensed an OS from two college dropouts, Bill Gates and Paul Allen. They ran a company called Microsoft (MSFT) out of a garage owned by Gates’ parents.
IBM’s focus on core competency had an excellent outcome for Microsoft, which rode the exponential growth in the PC industry to mega-billion status. MSFT also had a clear focus on its own core competency, which served it well.
MSFT did not do hardware. It wrote software — operating systems, office suites and, post-internet, browsers as well. It licensed that software to all and sundry. MSFT offered software development kits (SDKs) and application programming interfaces (APIs), which made it easy for independent programmers to write applications. MSFT products became industry standard because they were convenient and cheap, even if they were buggy.
Meanwhile, another personal computing business decided to offer integrated hardware-software products to ensure end-to-end quality control. Apple was run by another bunch of college dropouts. One of them, Steve Jobs, was a manic-depressive with a stream of unusual ideas. The other, Steve Wozniak, was a genius at design; brilliant at marrying hardware and code. By retaining tight control of every component in their products, Apple offered lovely devices. But Macs were expensive; independent programmers steered clear of writing apps given an anally-retentive attitude to SDKs.
When Apple ran into trouble, Woz retired. Jobs was sacked. Jobs returned. Apple switched focus and became a digital entertainment company instead. It still sold marvellous devices with the same insistence on putting everything together. But it also started distributing music, movies, e-books, and so on. It rented out cloud computing space to customers. It created APIs to allow independent programmers to write apps. It even started selling its OS separately.
Meanwhile, several other IT businesses had taken off, along with the Internet. Google’s core competency lay in its dominance of the search space. Amazon was the biggest e-retailer in the world selling books, music, dildos, tarot cards and whatnot.
MSFT, Apple, Amazon, Google: Each started with a clear focus on core competency. Segue to today. MSFT makes the X-box. It’s just launched Surface — a range of tablets that could go head-to-head with the iPhone.
Google created the Android OS. It has its Nexus range of phones and tablets. It has bought Motorola Mobility to create the required in-house hardware competencies. It also offers cloud computing services. Amazon sells its Kindle range of devices. Amazon also offers cloud computing services. So does MSFT.
The business models of these four are increasingly convergent. Everybody is trying to eat the others’ lunches. I’ve read, or rather skimmed, reams of turgidly learned analysis about the implications. Nobody is talking core competency any more in the IT space.