Death To Core
Competency: Lessons From Nike, Apple, Netflix
In a world of rapid disruption, the idea of
having a core competency--an intrinsic set of skills required to thrive in
certain markets--is an outmoded principle. Apple, Nike, and Netflix have better
ideas.
Known
for decades as a shoe company, Nike is undergoing a digital revolution. In recent years, it's
launched everything from apps that are standard issue on the iPhone to wearable
devices to web services. But why? Nike CEO Mark Parker laughs at the questions
and interrupts: "I think I know where you're going with this." He
grins and shoots back a quick answer to why Nike's so willing to transition so
far from the thing it's known for--shoes--to software. "Business models
are not meant to be static," he explains. "In the world we live in
today, you have to adapt and change. One of my fears is being this big, slow,
constipated, bureaucratic company that's happy with its success. That will wind
up being your death in the end."
Parker's
thinking goes like this: In a world of rapid disruption, having a core
competency--that is, an intrinsic set of skills required to thrive in certain
markets--is an outmoded principle of business. Just as Google needed Android to
attack mobile and Apple needed Siri to pursue search, thriving businesses need
to constantly evolve, either through partnerships, new talent, acquisitions--or
all three. Nike, No. 1 on Fast Company's
2013 list of Most Innovative
Companies,
proves this idea more than most. Last year, it launched FuelBand, a high-end electronic
wristband that tracks your energy output and signaled Nike's growing strength
in the digital realm. "Think about it: Nike is now included in
conversations around technology--it's shifted into an adjacent industry,
breaking out of apparel and into tech, data, and services," says Forrester
Research analyst Sarah Rotman Epps. "That strategic shift is incredibly
important to Nike's future."
Lead
Nike engineer Aaron Weast chalks up Nike's success in the space to the
company's willingness to disrupt itself (a core tenet of a group of innovators
we've dubbed Generation Flux). "The circle of
competency is blurred these days," Weast says. "You can't have a
barrier or restriction to that core competency. If we constrain ourselves by a
circle of competency, we'll do ourselves a disservice. You need a willingness
to punch through it."
Nike
has arguably been trying to break through its core competency since it first
began work on Nike+, its digital platform, in the early aughts. "Mark's
mantra then was, ‘Innovate or die,'" says Albert Shum, a founder of Nike's
digital team and now head of Microsoft’s Windows Phone design group. "We
had to change with the times, and he saw that [digital technology] was coming.
It wasn't just about manufacturing shoes anymore."
However,
Nike wasn't necessarily equipped for its deep dive into digital. It's why the
company worked with Apple for some of its earliest Nike+ products, and why it turned to outside partners
such as Astro Studios and R/GA for help with the FuelBand's industrial
design and user experience. Not that Nike outsourced the product development.
"You will never get good work out of anyone if you hand over a brief and
go, 'We have no clue what we want, but why don't you just do it for us,'"
says Digital Sport division VP Stefan Olander.
Ironically,
it was one of Nike's early digital partners that first
advised the company against straying outside its core competency. In 2003, when Nike
partnered with Philips for an MP3 player, Parker got a call from the Apple CEO Steve
Jobs. "Why the blankety-blank are you now in the MP3 business?" Jobs
is supposed to have said. "Why are you doing
this? It's not your core business!"
Jobs
may have been right then, but if he had followed his own advice years earlier,
would Apple have become such a dominant player in the music industry? After
all, who would've thought MP3 players were Apple's core business before it
launched the iPod in 2001?
Apple's
core competency, most would say, is design. It's that core competency which
allowed the company to attack all types of hardware and software. But it didn't
always own all the skills required for success--nor could it. Apple acquired
Siri to gain a foothold in search, and it went on a hiring spree in order to
prop up its struggling maps service. Would Apple have entered either space if
it stuck to the barrier of its own core competency? Some would even say the
iPhone demonstrates how Apple was willing to punch through its core competency
to enter the mobile world. "Apple is a great example," says Weast.
"They hired a great number of RF [radio frequency] engineers before anyone
knew they were doing iPhone."
Netflix
is another example. Some would argue its core
competency is content delivery. But it has expanded that competency to not only
include both physical and digital content but also original content. In 2011,
when the company announced it was testing the
waters of original content, it was clear CEO Reed Hastings was hesitant to acknowledge
the company had punched through its core competency. It had just spent a reported $100 million on a
new series (which it just released) called House of Cards.
It would also be investing in more original content ranging from series Lilyhammer
to Arrested Development. "When we start taking creative risks--that
is, reading a script and guessing if it was going to be a big hit and who might
be good to cast in it--it's not something that fundamentally as a tech company
or a company run by a tech CEO like myself is likely to build a distinctive
organizational competence in," Hastings said at the time. "We think
that we're better off on letting other people take creative risks, and get the
rewards for when they do that well."
In
other words, creativity was not Netflix's core competency, according to
Hastings. This, frankly, was just corporate boilerplate--a way to reassure
shareholders that Netflix wasn't stepping too far outside its own bounds.
"There's no creative risk for Netflix," Steve Swasey, then-VP of
corporate communications, told Fast Company at the time. "This is a business
risk, which is very, very slight."
The
fact is, in order to catch up to HBO and stay ahead of Hulu and Amazon, Netflix
needed to do original content. Netflix hates to acknowledge its creative
intuition. ("Nobody came to us with a script and said, 'What about buying
this?'" Swasey once told me. "They came with a whole package--David
Fincher, Kevin Spacey, a storyline--it was the perfect storm of great material
[and] great talent.") But in reality, the company is betting on a creative
idea, if not a script; a creative talent, if not a storyline. It had to. Otherwise,
the company would not evolve.
The
same could be said of Google. If it had followed its own core competency (which
some argue is an unrivaled expertise in algorithms), would the company have
entered the smartphone business? Or would it have embarked on any number of
projects at Google X, its innovation lab--self-driving cars, space elevators,
or its futuristic eyewear concept Google Glass?
Still,
there is perhaps a limit to how far a company should stray outside its core
competency. Parker, for example, acknowledges that music was too far from the
mark for Nike. "Doing MP3 players, even though runners would use MP3
players--it was a whole different business," Parker told me. He calls
Nike+ and FuelBand "a natural extension" that "relates more
directly to what we do and who we are as a company."
But
for how long?
By Austin Carr http://www.fastcompany.com/3005850/core-competency-dead-lessons-nike-apple-netflix?partner=newsletter
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