Why Trying to be the Best at Everything is Wrong
Intuitively, we think getting our company to be the best at everything it does is right. Why wouldn’t it be? But business reality, especially during the past ten-years, tells us no company has reached, let alone sustained this achievement. Paradoxically, and perhaps controversially, I argue trying to transform all internal company functions (e.g. procurement, HR, marketing, to name a few) into best-in-class functions, is wasteful. The strategy should determine which functions and capabilities need to become best-in-class.
- Companies have finite resources and can’t afford to invest to be the best at everything they do;
- Customers choose to buy from the company because they seek specific value, whilst different customers choose different suppliers for different benefits/reaons.
- The company is pursuing a unique strategy and management have described a handful of key capabilities needed to execute the strategy efficiently and effectively.
- Often legacy programmes continue to be funded even though their strategic importance to strategy execution is limited.
- The typical budget process of last-year’s numbers, plus 3-5%, results in there being greater resources available to non-strategic functions, for example, more people in purchasing than sales.
Conclusion? Internal strategic functions that form key capabilities can be starved of investment over time as Business Leaders try to raise the performance standards of all functions to best-in-class status – which can be exacerbated by the budget process. The success of the strategy is jeopardised or diminished.
Strategic functions come in three forms:
- Differentiating Capabilities – internal functions that contribute directly to the creation of customer value that distinguish the company from competitors in ways that are meaningful and valued. They enable the company to seize opportunities that arise in the future that match the strategic direction, for example: research and development, marketing and brand building for a company that wants to grow revenue by launching innovative new products with a premium price position.
- Core Capabilities – internal functions are important to the company because they have an impact on the cost structure if not done well but they’re not, by themselves, directly critical to strategy success or failure, for example: procuring raw materials in a manufacturing operation is critical to minimising the cost of new products but won’t govern the overarching strategy’s success, necessarily.
- Supporting Capabilities – internal functions that only exist to support differentiating and core capabilities, for example, the legal or finance function. They are necessary parts of the organisation infrastructure.
Conclusion? Wanting to have a best-in-class finance function and thus choosing to invest in the latest systems and processes and hiring the best talent, instead of increasing the sales team or improving competencies, whilst knowing that winning customer accounts with new technical products is critical to future success, is a wasteful allocation of finite resources. Business Leaders should prioritise investment in differentiating capabilities and core capabilities – especially differentiating capabilities that create future competitive advantage and core competencies that reduce operating costs associated with the differentiating capabilities. Investing to win.