Building Core Competency for Long Term Survival

Theory of evolution says continuous change is inevitable and if one does not evolve, they will perish. This is true for businesses and corporations. If corporations do not evolve then their survival is in jeopardy. One thing key to survival is a core competency that the company has built over time.  Yes, it is important to make and sell products or services. However, I believe products and services are just the end product or end result.

Corporations that are successful and continue to survive have shown that they focus more on building core competency. Based on their core competence these corporations have build products or services that can be applied to variety of applications. Successful companies are more eager to build competence that will help them become world leaders.  They do not solely focus on products alone.

Among others, one place to look for such corporations is the list of dividend aristocrats. Many in this list have built some competency around which they make and sell products. Proctor and Gamble, Clorox, McDonalds, Sysco, Family Dollar Stores, Coca-Cola,  and PepsiCo are corporations that have strong brand value, franchise network, cost controls, distribution network that it is hard for competitors to eat away their lunch.

In the technology sector, companies like IBM with is enterprise level integration, Qualcomm with its communication technology, Analog Devices and Linear Tech with their high performance analog technology have built core competency. Even in these recessionary global economic conditions, these companies are able to garner 40%+ or 50%+ margins on their products. In case of LLTC, its margins are in excess of 65%.

Contrarily, corporations that focus or start focusing on products and services are the ones that start flattering over time. Microsoft, GE, and many banks are examples in this category. Microsoft keeps paddling away from operating systems, GE lost focus of building infrastructure and poked into financing, banks wanted to grow beyond banking and started wearing economics hat (trading, investing, M&As etc.). The trio in Detroit started dabbling in financial schemes to sell their product, while foreign manufacturers continued to make better fuel efficient and quality cars. These are just few examples where focusing on short term product focus (instead of building long term competency) leads to their downfall and, in some cases, threatens their survival.

Therefore, whether it is running a business or individuals’ investment portfolio, it is important to build a core competency for long term sustainability. In my case, I focus on good quality companies that consistently pay or have potential to pay growing dividends over time. I also know that chasing 100% success rate is an allusive dream. Corporations will face difficulties and they will cut dividends, but the key is to manage them by asset allocation and keep looking for newer opportunities. It may seem to be an ambitious approach but worth pursuing as it is paved with relatively less risk.

As an after thought: Google is a company that has built its competency around web search. What about Apple? Is it a product company?

4 Responses to “Building Core Competency for Long Term Survival”

  1. Denise says:

    Great article. Thanks for sharing!

  2. Bret says:

    I think Garmin should have partnered with someone like Nokia, instead of creatng it’s own phone.

  3. Apple’s the one to beat in the smart-phone market: that I can say. I don’t like to say it, but Garmin may be an example of a company drifting from its core competency. Instead of joining the iPhone boom by placing an app in the iStore, like TomTom’s doing, Garmin is planning to build its own cell phone.

    Unless it can be the Baidu of European cell phones, I see an “ouch” coming its way.

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