Saturday, October 19, 2013
Core Competency and Ad Agencies
As I often am these days, I was at a driving range yesterday. It was a bit chilly so I had an old windbreaker on with a logo from a media property. The gentlemen next to me kept staring at me and finally said, “Are you in advertising?” I shook hands, introduced myself, and gave him the brief “elevator speech” about my background. He told me that he was in town for a wedding and was going to take three of the groomsman out for a round of golf to pass time before the rehearsal dinner that night. And, he told me that he ran a small ad agency a long way from Baltimore.
Between swings, he asked me my thoughts about the future of media and I was quite willing to oblige. I asked him a few innocuous questions about his shop and then asked, “What would you say that your core competency is?”
He smiled and said, “Why just one? We have so many I don’t know where to start?” I cracked up but realized immediately that he was not trying to be funny and was not happy with my good natured reaction.
Let’s back up for a minute. Today, many people use the term “core competency” or more frequently “core competencies.” The term first surfaced in a “Harvard Business Review” article back in 1990. Gary Hamel and C.K. Prahalad said that core competencies were the true source of competitive advantage in the business world. The authors made a lively case for companies to stop thinking about their many standalone businesses but rather to position and think of themselves as having a portfolio of competencies.
Hamel and Prahalad said that a core competency is something that you do better than anyone else. They said that to be authentic, a core competency had to leap three hurdles:
1) It is very difficult for a competitor to imitate
2) It provides access to a wide variety of markets
3) It adds mightily to the perceived customer benefits of the final product
The two professors stated that even the best organizations had no more than five basic competencies. If someone rattles off 20, then they do not know the meaning of the core competency concept. Or, I might add they are not telling the truth. :)
Some famous examples in the corporate world included Honda. They made arguably the best engines and power trains in the 1980’s. As a result, they had a big advantage in manufacturing and then selling generators, motorcycles, tractors, and, of course, cars. 3M (MMM) was known being experts with adhesives. Any number of innovative products came out of the Minneapolis based firm as customers recognized their competency in that arena.
The authors stressed that a well diversified corporation is similar to a big tree with its trunks and limbs as its core products. The tree’s root system was vital as it nourished the core competence. So, if one looks at the leaves, you only see the finished product of the tree (corporation). You do not see the underlying strength which is its core competence.
So, my new found friend at the driving range with the horrible duck hook may not be being honest with himself. The advertising world is going through a quick transition. More and more people and companies are getting left behind as digital grows and legacy media is at best stalled and, in most cases, shrinking in influence. Mid sized and smaller agencies may have to find their core competency or perhaps competencies and do so quickly. The days of trying to pretend to be all things to all people, even those who spend less than a few million dollars, are rapidly ending. Why do the mega-shops keep buying up specialty firms in mobile and design? Because they realize that, in some areas, they are weak and need to build up their strength or “competence” in that arena. The small fry can still provide great service, imagination and quick turnaround. They do need to narrow their focus and get really good at a few things if they are going to survive the next several years.
If you would like to contact Don Cole directly, you may reach him at firstname.lastname@example.org