The Case for Core Competencies

Simultaneously posted at “Ask a Manager” http://www.managerqanda.blogspot.com

Whether large or small, what keeps a business going is its’ core competencies. Those one or two things the company does best that distinguish it from its competitors should be, with customers, its top focus. In three cases, Topps baseball cards, Quiksilver surf merchandise, and Dial-A-Mattress, straying from core competency either ruined, or nearly ruined a successful business.

Topps, a multi-generational, family-owned business, was known in the industry as one of the top two producers of baseball cards. It was successful in the business because it had exclusive rights with players and clubs to the images used on the cards. Additionally, they also were successful selling the formula and base materials for the chewing gum that went into the packs of cards. RingCentral Online - Free Trial plus 10% Off

However, as the founding members passed away and the younger generations took control, the company began to change. No longer satisfied with business as usual, it was decided the business should rapidly expand and begin competing with larger confectioners, such as Wrigley’s and Beech-Nut. This proved disastrous. As the expansion and new products, such as chocolate flavored gum failed, the company neared bankruptcy. In 1984, the firm was bought by the leveraged buy out firm of Forstmann Little & Co.

Quiksilver, a popular surfboard and surf merchandiser is currently suffering from its expansion into Rossignol skis and Cleveland Golf equipment. Rossignol was purchased in 2005. Its recognizable name in Europe and among ski aficionados appeared to fit with Quiksilver’s sports brands. However, the manufacture and marketing of skis and golf clubs proved radically difficult to integrate into the other product sets. Both units have been sold, and in 2009, according to multiple sources, is on Moody’s Bottom Rung list of companies unlikely to pay back their debt. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Finally, Dial-A-Mattress, the firm started in 1976 allowing customers to order mattresses over telephone is being sold to it rival, Sleepy’s Inc. The Wall Street Journal reports in the July 14, 2009 print edition that “…the two major changes in his business were largely to blame: an expansion into brick-and-mortar sales and a culture clash brought on by new management.”

While the story from the Journal sheds light on how new, big company executives squashed the entrepreneurial, employee-input driven culture, the real story is that Dial-A-Mattress strayed from its direct sales model into competing with other established storefronts. Find high-end jobs on Doostang. It takes 30 seconds to join. JOIN TODAY. www.doostang.com

In these three cases, failure to adhere to core competencies has ruined or nearly ruined the businesses. While many find a core competency approach too conservative and not growth-oriented, it can be clearly argued that in many cases, such a conservative approach rewards businesses and investors. While I don’t discourage risk taking, it should be done fully understanding the consequences. While Boeing was able to radically change air travel with the release of the 747, many other companies failed miserably. For companies, understand the risk and prepare for it. Investors, do the same. However, don’t be ashamed to make a profit from doing that at which you do best.

Hydrogen Fuel-cell Bus, Another Loser Drives By

**Read the follow on articles, "Big Green Trucks" and "Hybrid Hummer Hums!"**

Alternative energy is great, so long as it is cost effective. As reported in Green Car Journal, and written about by Bill Visnic at Edmunds Auto Observer, in one 3 bus test, hydrogen fuel cells are a bust, big time.

Here is the background:

"To fulfill a California Air Resources Board requirement that operators of large bus fleets participate in a Zero-Emission Bus demonstration program, in 2005 the Santa Clara Valley Transportation Authority purchased three buses powered by early versions of fuel cells developed by Ballard Power Systems Inc. of Vancouver, Canada."

OK, I am all for pilots, prototypes and testing. Sometimes it leads to very successful outcomes, and other times they just miss the mark. That is why Boeing and Airbus do destructive testing of airplanes. However, before these pilots take place, there is usually a fairly accurate prediction of the outcome. Additionally, good business practices provide that if the predictions and assumptions are wildly off, the pilot is canceled.

In the case of Santa Clara, these buses were a complete flop. The article states that the usual cost per mile to operate a diesel bus is $1.61, however, with the hydrogen fuel cell system, it is $51.66. Further, the hydrogen fuel cell buses broke down with greater frequency and the cost to repair were significantly higher. A diesel bus has a per mile part cost of $0.34, while the fuel cell bus per mile part cost was $34.40. Wow! As if those figures weren't enough, the fuel cell bus broke down six times more than the diesel bus. So, about every 1000 miles, the fuel cell bus broke down. Would you tolerate that in any of your personal or fleet vehicles???

Not that this test was all bad, the company who made the bus, Ballard, has decided to exit the vehicle fuel cell business and sell the assets to Ford and Daimler. That my friends, is economic efficiency.