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Managing your core incompetencies for corporate venturing.

All ventures require resources, so resource acquisition constitutes a major theme in entrepreneurship (Starr & MacMillan, 1990). Corporate ventures have access to an uncommon resource - the core competencies that have developed in the organization (Penrose, 1959; Wernerfelt, 1984). Connecting ventures with the organization's unique competencies can give ventures a competitive advantage (Barney, 1991), provide powerful capabilities in technology and design (Prahalad & Hamel, 1990), and enhance a venture's speed to market. Connecting ventures with competencies also enhances the organization's ongoing adaptation, since the linkage improves overall innovation management (Dougherty & Heller, 1994), enables the firm to reconfigure its resources, and provides a way to experiment with new ideas (Burgelman, 1983).

How managers can assure an effective connection between ventures and the firm's core competencies is therefore an important question. It is also a challenging question, because theories are not very clear about how core competencies in fact relate to corporate ventures. This article draws on an analysis of product innovation in four established organizations to learn more about the relationship between corporate ventures and core competencies. The goal is not to create more theory, since we have plenty of theory already. Rather, the goal is to integrate some existing theory around the particular practice or corporate venturing. Various ideas on core competencies and the dynamics of their relationship with new products are first outlined below, to provide a framework for the analysis of the field data.

CONCEPTUAL BACKGROUND

Reviews by Collis (1991) and Leonard-Barton (1992) indicate that the term "core competencies" has many facets. One facet comprises "resources," and refers to specific knowledge and specialized assets (Wernerfelt, 1984; Barney, 1991). Resources range from the relatively tangible, such as brand names and patents, to the relatively intangible, such as tacit knowledge regarding a particular process. A second facet comprises "capabilities," which are defined by Henderson and Cockburn (1994) as the ability to make use of resources. Theories of organizational knowledge and learning elaborate on the distinction between "know-that" and "know-how" (Kogut & Zander, 1990; Nonaka, 1994). A third facet is culture. Fiol (1991) argues that the management of competence involves not only acquiring the right resources, but also managing the cognitive decision rules that connect resources and capabilities. She suggests that shared decision rules are embodied in the organization's "identity," or what people define as central, distinctive, and enduring about their organization. Identity highlights the interpretive, meaning-giving side of core competencies.

How these facets combine into corporate ventures over time is undeveloped, however. In one of the few studies of the connection, Leonard-Barton (1992) found that the dynamics between competencies and ventures were rather complicated. She argued that core competencies have a flip side - core rigidities, which arise when certain areas of knowledge and skills are emphasized over others. Leonard-Barton also pointed out that core competencies are institutional in nature, so we can use well-understood institutional dynamics to frame this problematic connection. Through institutionalization, shared behaviors become "typified" into habituated actions (Berger & Luckmann, 1967), which come to be taken for granted (Zucker, 1988). Levitt and March (1988) argued that improvements in existing competence may make experimentation with other procedures less attractive. The result is that the firm develops a narrow set of abilities, called a competency trap. Success and stability can perpetuate this narrowness, as simplification turns strategies into simplistic recipes, and constrains the culture to reflect only one group's ideas (Miller, 1993). According to Sayles (1993), firms whose managers are removed from basic operations also evolve "core incompetencies," comprised of Rube Goldberg-like products that have excessive components, are difficult to assemble, and are vulnerable to failure.

Despite the emphasis on stability, institutionalized patterns of thinking and acting do change. One kind of change depends on the interaction over time between "deep structures" of shared but tacit understandings, like Fiol's (1991) identity, and the objectified rules which simplify and articulate those understandings. The deep understandings make changes meaningful so they will not be ignored or denied, while the rules help diffuse meanings. Hands-on practice is the medium of change, since it provides the context of "purposeful activity" within which knowing and understanding occur (Nonaka, 1994), and anchors a community of practice that enables the creation of new knowledge (Brown & Duguid, 1991). Fiol (1991) argued that culture can change if people use their shared identity to frame changing events as an instance of a more general rule. If managers sustain a common understanding of what the organization is, but decouple new behaviors created by the change from traditional values, the meaning of the new behaviors can emerge in the context of practice. Barley (1986) used similar dynamics to examine the change in the social order of work in a radiology department, as new technology altered day-to-day practice and ultimately the institutionalized occupational roles.

This brief summary indicates that the dynamics between core competencies and ventures are complex. However, by exploring how resource knowledge, capabilities, and cultural identities relate to ventures, one can understand which facet is more important. By examining the dynamics between tacit understandings and simple rules, one can develop a more complete understanding of how core competencies and product innovations interrelate.

METHODS

Tacit knowledge such as core competence does not exist apart from the people who develop it (Nonaka, 1994), nor from the social processes of interpretation and construction through which people make their experiences meaningful (Berger & Luckmann, 1967; Daft & Weick, 1984; Smircich & Stubbart, 1985). Therefore, the research needs to capture these processes in context as well as people's rationales for and understandings of those processes. To do so, in-depth interviews with people from a variety of departments who worked together on a specific new product effort was chosen as the primary data collection method, supplemented with analysis of archival records where possible.(1)

The Data

I approached four large established firms and asked to interview people who were or recently had been working on new products. The four firms and the 16 cases of new products selected for study constitute a theoretical sample, with variation around key issues. All firms were similarly large and established (over 3 billion $US annual revenues and over 40 years old), and had enjoyed a relatively stable market for decades. They varied on core technology (computers versus chemicals), which allowed me to contrast different "technology" aspects of core competencies, and on market versus technology orientation, which allowed me to contrast different managerial systems. The products all embodied new technology or were marketed to new segments or applications. They varied by commercial success versus failure, which allowed me to see if productive versus unproductive elements of core competencies were differentially related to successful efforts.

A total of 80 people from different departments were interviewed about a particular new product effort that they had either participated in or managed directly. Table 1 summarizes the products and firms and shows the number of interviews.(2) The interviews took place in the individuals' offices, and lasted from one to two hours. People were asked to tell the story of the development effort, and then to describe how they were organized and worked with others, and what they knew about customer and technology issues. They discussed everyday events in the product's development, their understandings of and rationales for those events, the decisions made and criteria used, and why they thought the product did or did not fit with their company.

The Analysis: Identification of Underlying Patterns

The analytic approach combined the logic of comparative analysis (Bailyn, 1977; Eisenhardt, 1989) with the method described by Strauss (1987) to search for underlying patterns in the data. The analysis relied on a continuous interplay between the data and emerging patterns, during which I looked within each firm to identify competencies and key dynamics, contrasted cases in each firm to hone insights, and then looked across firms to clarify the themes, sort out firm-specific versus general insights, and assess alternate possibilities. Mintzberg (1979) refers to this kind of analysis as "detective work," or the tracing down of patterns and consistencies.
Table 1
People Interviewed by Department, Company, and Product


                           Tech.   Field   Manuf.   Planners
Total


COMPCO (chemicals)


Hardpoly                     2       2       0         1         5
Hotpoly                      1       1       0         2         4
Stretchpoly                  1       0       0         1         2
Others                       0       2       0         1         3
                                                                14


SALECO (communications)


System I                     1        1      0         2         4
System II                    2        0      3         2         7
Others                       0        0      0         2         2
                                                                13


TECHCO (chemicals)


Battery                      1        0      0         1         2
Video Device                 2        1      0         0         3
CRT Device                   3        1      1         0         5
Film Cover                   0        1      2         0         3
Medical Copy Sys.            2        1      0         1         4
Others                       0        1      0         2         3
                                                                20


OPCO (communications)


Voice System                 1        5      1         1         8
Text System                  4        1      0         2         7
Accounting System            2        0      0         1         3
Software System              1        0      0         2         3
Document System              2        0      0         2         4
Transmit System              1        0      0         2         3
Others                       0        2      0         3         5
                                                                33


"Others" refers to peers or managers who knew of the product or the
firm's product innovation activities in general, but who did not
have hands-on experience with a particular case being studied.


The analysis suggested three underlying patterns that addressed the substance of core competencies relevant to product innovation, and the dynamics through which they can be connected with new products. First, most people spoke at some length about "the company" and how things usually happened, what "management" usually looked for in products, and what processes and procedures were typically followed, even though they were not asked specifically to do so. Many people also gave a history of the firm, contrasted their experience with the product being discussed with experiences from past products they had worked on, drew pictures, and otherwise engaged in complex storytelling to provide a sense of "the company."

This pattern suggests that, while all three facets of competencies - resource knowledge, capabilities, and identity were important to corporate ventures, Fiol's (1991) idea of collective identity was central. People seemed to understand knowledge and capabilities in terms of "what we do here" and "how we work" - that is, their identity. "What we do here" was indeed a dominant theme in most people's stories. In addition, the core competencies were not limited to technology, as most authors suggest (Prahalad & Hammel, 1990; Leonard-Barton, 1992). Rather, they concerned the relationship of the firm's technology with user needs, or an appreciation of how the firm's technology could provide solutions for actual customer problems.

The second pattern emerged when successful cases were compared with the failed ones, which helped distinguish core competencies from their "downside," or core incompetencies. Consistent with other research (e.g., Cooper & Kleinschmidt, 1986), successful innovators carried out more of the activities necessary to successful innovation, such as developing insights into customer needs and working in interdisciplinary teams throughout the process, while the failed innovators did not. The successful innovators also connected their product to the more tacit aspects of corporate identity. They described how the product was right for their company, articulated what it did for the firm and how it fit in, and discussed how they drew on the firm's identity to design the product. At the same time, the successful innovators violated institutionalized rules that had evolved around this identity. Nearly all successful innovators noted how important it was that they violated these rules. In contrast, the failed innovators followed the rules rather than the richer tacit core of the identity. It was as if the successful innovators broke the institutionalized "letter" of the company's identity, but drew on its spirit, while the reverse was true for the unsuccessful innovators.

This pattern suggests that the core competencies were indeed associated with both rich, tacit understandings and simple, rigid rules of thumb, as Leonard-Barton (1992) and institutional theory suggest. I suggest that the tacit understanding of market-technology linkages for particular products be considered the core competencies. The rigid rules were like Sayles's (1983) core incompetencies, in that they embodied abstracted, unrealistic product features and development routines. These incompetencies were like a scaffolding of rules and expectations that had built up around the core competencies. The incompetencies seem to have evolved from what had at one time been the firm's core competencies, but they had become reified, which refers to the process by which conventions originally intended to represent a reality come to be seen as real in their own right. Since the four firms in the study had been in stable markets for years, it is not surprising that simplified rules both emerged and seemed to work well enough for routine activities. Building on the rich, tacit core competencies related to a venture's success, while following the more rigid core incompetencies related to a venture's failure.

The third pattern concerned the dynamics through which competencies and incompetencies affected product ventures. Practice was indeed central, as Nonaka (1994) and Brown and Duguid (1991) argue. The hands-on development of a product to solve a real need brought out the richness of the shared knowledge and indicated critical product attributes. The core incompetencies were detached and abstracted from practice, representing an historical practice that did not relate to current experience. Another part of the dynamic was how difficult it was for successful innovators to break out of the incompetencies before they could use core competencies. This suggests that the core incompetencies had, metaphorically speaking, "grown over" the core competencies like vines, trapping them and in some cases hiding them. The incompetencies had to be "hacked back" before the core competencies could be accessed. At the same time, the failed innovators fell quite easily into the core incompetencies, and were not particularly aware that the incompetencies hurt their efforts.

I infer from this pattern that the core incompetencies dominated day-to-day action in these firms. The presence of the core incompetencies per se is not remarkable, since it is predicted by institutional as well as organizational learning theory (Zucker, 1988; Nonaka, 1994). The negative consequences of these incompetencies stem from the fact that they are emphasized, indeed over-emphasized. People did not link up core competencies and product innovations because they could not iterate between rich but tacit understandings and simple rules. My basic conclusion is that the core incompetencies must be managed to restore the dynamic interplay between deep understandings and objectified routine.

To suggest how incompetencies can be managed, it is important to consider the rich, complex details of the innovation action in context. The next section summarizes seven innovation efforts, to understand why competencies were so hard to use, why incompetencies were so easy to fall into, and what perhaps can be done to improve the situation. First, two summaries of the data provide an overview.

To summarize the content of the core competencies and incompetencies for each firm, passages from each of the 80 interviews that reflected both were written out onto separate coding sheets.(3) I also wrote out any descriptions of how the rules were either violated or followed for this project, and why. Each firm's core incompetencies were inferred straightforwardly from the statements of standards and rules. The core competencies had to be interpolated by contrasting the rules versus more tacit descriptions of "what we do well," and by examining people's rationales for why rules had to be violated to do the product "right."

Table 2 summarizes the core competencies and incompetencies for each firm that are relevant to new product development. One cannot argue that these competencies and incompetencies would generalize to all activities within these firms, since only the activity of product innovation was studied. Indeed, it might be reasonable to assume that if any "generic" competencies existed, they would be manifest in different ways for different activities. In the core competencies outlined in Table 2, note that the market-technology connections vary in emphasis by firm, but in three firms the connection is there. The core incompetencies are a simplified, shadowy representation of core competencies.

To verify that the key relationships noted in the analysis existed across the data, I coded each interview for whether or not the incompetencies were violated. The coding was replicated by research assistant on a subset of interviews, with 88% inter-rater reliability. I also coded for the amount of market-technology knowledge that each person described (coding verified by another research assistant on a subset of interviews; inter-rater reliability was 85%; see Dougherty, 1990, for details). Table 3 shows that the majority of successful innovators discussed violating the core incompetencies (81%), while the majority of the others discussed following these rules (52% for uncertain, and 77% for failed). Table 3 also shows that successful innovators had more market-technology knowledge for their product.

CASE SUMMARIES

COMPCO Chemicals

COMPCO is a major producer of a certain type of plastic, and held a significant market share for it in the US and abroad. The emphases of chemical companies run the [TABULAR DATA FOR TABLE 2 OMITTED] gamut from being focused on research to marketing. COMPCO's core competencies were rooted in the development of useful applications for their basic chemical material, which made them very competitive and aggressive. These competencies had emerged in the firm's early days from a practical experience, when, as a newcomer to the plastics business, COMPCO was able to solve a big problem for a very big customer. About 40 years ago, a cosmetics firm developed indelible lipstick, which wreaked havoc at AT&T's Western Electric because it seeped into the plastic then being used to make the telephone hand set, leaving an indelible stain. COMPCO's material met Western Electric's need for an impermeable plastic, and provided the additional user benefit of color variety. COMPCO got this huge account, and quickly grew.

Their core competencies for product development comprised the ability to rapidly appreciate customers' material needs, figure out how to apply their basic plastic material to those needs, and help customers understand why plastic could provide value to them. Over the years, COMPCO people honed their applications-focused core competencies by working closely with customers to proactively solve their problems. COMPCO's material could replace metal in durable goods (from sewer pipes to vacuum cleaners), but these applications had to be developed. Plastic costs more per pound than metal and requires different product design and manufacturing, so to get users to switch to plastic, COMPCO had to show how plastic produces economies for them. The core competencies as well as people's descriptions of them were strongly grounded in practice, in doing.

The following two comments illustrate the complex, practice-centered skills that were comprised by this core competence:

[TABULAR DATA FOR TABLE 3 OMITTED]

If you are not inside (in the customer's shop) with a product and talking on a daily basis with their engineers you are not going to have a good feel for their needs. And also you can tell from the way they might make changes in their requirements what the competition is doing. You need to get in with a material, to keep your foot in the door.

[Once the technical group gives you a product] you have to go out and try it. You have to learn how to do that, to work with customers to develop techniques to use the material. So, once you have a customer and a conceptual use of the product, you take that product around to others and get them to say: 'Hey! I really like that.' So then you work together and build a tool. . . .

The technical and manufacturing work supported this basic thrust. The engineer in charge of the applications development lab explained that speed to market and quick response to customer needs permeated his work as well. He also described "chemical alchemy," an applications-focused approach to the development of new materials:

If the salesperson works with a customer and the material doesn't work properly, they call in a technical guy to change it. We do some work, you know, eye of newt and hair of frog, and we see if it solves the customer's problem. If it does, then we also give the material a new name, add it to our list of products, and sell it to others as a new product.

Another technical person explained: "That's the kind of company we are. Give us a sale, and we will work weekends to produce it." COMPCO had developed a capability of being "master mixologists" - as the director of technology put it - to support this customer responsiveness. He noted that COMPCO has become very good at mixing and blending raw materials:

Our culture is built on mixing and blending things in many different ratios and putting in other additives. . . . We are a responsive service-oriented company. We'll sell you any amount of material from a bag to a boxcar, for a price. . . .

COMPCO's core competencies of customer appreciation, chemical alchemy, and master mixology had also been reified into core incompetencies over the years. COMPCO's dominance of their industry seemed to have allowed people to rely on abstracted rules of thumb rather than the rich, in situ reality. One abstracted expectation was that ideas for new products always came from salespeople. This rule meant that others who might also develop good ideas usually did not. Since field people asked for products they knew they could sell, this rule meant that any new product idea was already grounded in specific needs. COMPCO therefore had no need for market analyses, so they possessed few market analysis skills. A second aspect of their core incompetencies was that not much investment would be made in manufacturing or basic research.

Working on the basis of these core incompetencies in place of the more complex, rich core competencies was okay as long as the marketplace remained stable, since it facilitated rapid reaction and was easy to pass along to succeeding generations of COMPCO people. But the market changed, because customers now required properties that COMPCO's basic material could not provide. In the two innovation efforts described next, COMPCO attempted to address these new customer needs by designing products with new properties.

The failed innovation. HARDPOLY combined certain materials with COMPCO's basic material to form a plastic that was harder than similarly priced polymers, and could be used in certain applications for which COMPCO's basic material was not suited. The idea for the material had been kicking around the plastics industry for some time, however, because it had two flaws: the material did not hold colour very well and it did not flow smoothly in moulding equipment. A COMPCO engineer overcame these two flaws by "messing around" in the lab. He prepared two sample plaques of HARDPOLY to show to the field people, but since he had no particular application in mind, he and the others in engineering did not build into the sample quantity any other potentially desirable properties, such as heat resistance or flexibility. Their plan was to get sales to arrange for field trials so they could learn about possible uses and the properties that were needed.

Note that the development deviated from COMPCO's rules, which assumed that the product's desirable properties were already given by the field organization. When sample plaques of HARDPOLY were casually shown to the ever-zealous field people, they themselves assumed that desirable properties had already been designed into the material. They easily imagined a number of needs that HARDPOLY's enhanced hardness might meet, as this technical person recalled: "Field is under great pressure to hit a window. So when Carter flashed those plaques he made, field said: 'Oh Boy!! Let's go sell some!"

HARDPOLY's development was assigned to the usual project team made up of representatives from all units, whose official charge was to ascertain applications and the properties. According to the team's leader, the group did not meet very often since everybody was busy with other work. He pointed out that they didn't bother with "any fancy market research," because HARDPOLY was just another enhancement of the basic material. Note that the team fell quite easily into COMPCO's core incompetencies.

The core incompetencies got in the way when they tried volume production. HARDPOLY could not be manufactured in COMPCO's usual way, but rather than stop and think about the possibility that new manufacturing processes were necessary, people assumed that these difficulties were just mistakes. The exasperated manufacturing engineer who was asked to repeat his tests explained:

We need a specific kind of equipment for HARDPOLY. The development work had lab equipment but that was not adequate for production. I had to spend lots of my time proving to people that we couldn't make HARDPOLY on our equipment. The engineers who work on the basic material just could not understand why we couldn't make this stuff on our usual equipment.

"A lot of energy was bled off dealing with this manufacturing problem," explained an equally exasperated field person. He pointed out that manufacturing people always said that they couldn't make something, so after a year of what he called "wailing and gnashing of teeth," he said he was "proactive." He and his colleagues introduced the material at an automotive trade show, and arranged for a major trial at an auto firm to build body parts with HARDPOLY and test them. These major trials are very expensive, and failure could cause a firm to miss other opportunities at these accounts. Unfortunately, HARDPOLY failed the test, because it did not have adequate heat resistance - it melted.

The field people were apoplectic. They had assumed that the technical people had put in the right performance capabilities, and were very embarrassed about the failure at a major customer's shop. The technical people, however, were also apoplectic that the field group had taken the sample material for the test. Plastics are sold with a long list of specifications. For COMPCO's basic material, a high measure on the hardness specification related directly to a high heat resistance. However, as an engineer pointed out in retrospect, HARDPOLY was fundamentally different, so its "specs" in his words "didn't follow the rules." While it was very hard, it would also deform in an unfamiliar way.

The people involved offered many rationales for the failure: no actual market need for the product; poor design; not enough attention to the development process; poor planning that let the field people get their hands on enough of the material to introduce it; inadequate information from the technical people. No one noted that these difficulties were in part caused by following their usual reified rules of thumb unthinkingly. Indeed, one person said instead: "We have a very good system. It just broke down in this case."

The successful innovation. HOTPOLY is an engineering polymer, entirely new to COMPCO, with more heat resistance and strength than their basic material. Another competitor was selling the material at the time, so, true to its noninvention orientation, COMPCO did not invent this material. The participants explained how HOTPOLY fit with COMPCO despite its new technology, and all felt strongly that the product was anchored in COMPCO's core competencies. According to a planner, customers were asking for higher performance in materials, which accorded with their core competence of proactively understanding and solving customer problems. He pointed out that the fact that COMPCO did not invent the material also fit with their core competencies: "Our culture is built on responsive service. We are good at developing and commercializing, but we don't invent."

A sales manager explained how HOTPOLY fit COMPCO from his perspective:

The product was not forced down. We got this input from users and that was filtered up - "we need something like this." Then we explored the technology. Everyone recognizes that HOTPOLY satisfies a business need. All my people tell me.

And the technical director's explanation for how the product fit the firm:

This was the kind of market we had the most experience in, so we said: 'Why not advance our technology?' This product fits our capabilities.

In addition, HOTPOLY developers deliberately excavated beneath COMPCO's incompetencies to get to the core competencies. They recognized that they did not have the capability to develop or manufacture the product, so they set up a special technology unit and hired in new people with the necessary technical know-how. They also entered into a joint venture with another firm to develop a pilot plant, learn about the product and manufacturing technology, and make enough material to develop their market. Some would say that COMPCO acquired new competencies, but I suggest that they renewed their existing competencies of solving customers' pressing materials needs, or leveraged their identity.

Even though COMPCO's competencies had been deliberately highlighted, put on center stage, their incompetencies were waiting in the wings to fill in for activities that were not carefully connected to the competencies. For example, true to their incompetencies, the developers did not analyze the competition for HOTPOLY because they assumed that their competitive prowess would enable them to out-compete any competition. They also assumed that customers would flock to COMPCO, and saw their biggest problem as satisfying this overwhelming demand with their limited pilot output. It turned out that buyers did not switch to COMPCO, because they knew the competitor's material met their quality standards. Also true to its incompetencies, COMPCO did not pay much attention to the selling process, since this area was always given. When they began to introduce the material, however, they discovered that the selling process would be different since now they must work with the end users' technicians to design parts.

COMPCO responded to these problems by altering the incentive system to encourage salespeople to work on HOTPOLY, bringing in more new people, and training everyone. All of these adjustments took about two years. The pilot plant is selling at "what we should have expected in the beginning," said one business planner, and COMPCO has come to appreciate the new kinds of applications for HOTPOLY.

One important insight from COMPCO is that a firm renowned for its customer responsiveness and clearly not a stodgy old bureaucracy nonetheless became mired in its incompetencies. These incompetencies worked well enough for years to help people with the complexities of new product development. But COMPCO's incompetencies had ensnared its core competencies, making the firm's vaunted flexibility ironically inflexible. These cases suggest that the incompetencies dominated because they were like habit, easy to use without thinking, and allowed people to go about their complicated work of selling or designing without worrying about communicating or interacting with others. Another important insight is that COMPCO's core competencies were still there beneath the incompetencies, and when the incompetencies were deliberately cut back, the competencies could play an important role in framing a successful development. COMPCO people carefully anchored HOTPOLY in their historical practice of meeting customer needs, and developed the new technological capability within their customer orientation. Even though each person tended to see the fit with COMPCO's core competencies a bit differently, they all felt that HOTPOLY was "right" for the firm.

TECHCO Chemicals

TECHCO is a technology-driven chemical products firm whose core competencies centered on a deep knowledge of certain chemical technology and on continuous technological creativity around specific sets of user needs. These core competencies were also rooted in historical practice. The firm began with a technical breakthrough in a particular chemical process, and TECHCO's founder built this breakthrough into a large business. The founder also dominated the firm for several decades, inculcating his particular view of the business into TECHCO employees. TECHCO people became very adept at attacking technological problems and working out inventive solutions. Even though their market-technology link was tilted toward technology, TECHCO's core competencies embodied an appreciation of customer needs, focusing on inventive, high-quality, and low-cost solutions for real wants or problems. Their successful products truly fit customer needs very elegantly. Again, the importance of practice can be seen in both their understanding of their core competencies and their use of them.

Over the years, again perhaps lulled by market dominance and limited competition, these competencies had evolved into detached incompetencies. Customer needs became abstracted and simplified into technical properties of quality, low cost, and convenience of use. The first incompetence was that any product whose technology was "neat" and unique and which met the properties above would sell. An engineer explained:

Our job is to create a good quality product at low cost. TECHCO is in that business - producing the best performance for the lowest cost.

Another incompetence was that the emphasis on technology had become a preference for research and engineering over marketing, so TECHCO's product development process was dominated by scientists and technologists. Years of technology focus and inattention to marketing had turned TECHCO into a stereotype of a "technology push" organization:

Under the founder, the company was very much product oriented. We always developed a product and then worried about selling it. We felt that we were developing unique products, so they would sell themselves.

Again, these incompetencies seemed to work well enough for years. But again, the industry had changed. In TECHCO's case, the core business they had dominated had become a mature market with declining sales. TECHCO had to develop new applications for its technologies if it was to prosper in the future, and so for several years had been attempting to carry out a strategy of developing new industrial uses for its technology.

The failed power source. One of TECHCO's product lines packaged certain chemicals along with hardware and some electronic circuitry. The power source used to run the system had to be packaged so that it would not leak inside the machinery, and TECHCO had invented and patented a special package that met these requirements. TECHCO found that they had excess capacity, so a group proposed that TECHCO sell the power packaging system as a separate product.

This product idea met TECHCO's reified incompetence rule of being a "neat" technology with unique performance features. The product provided for a power source that had a stable and long shelf life, was high in quality and reliability, and less likely to leak than regular alkaline batteries. TECHCO people felt that these features gave their product obvious advantages over batteries, certainly enough to justify its higher price and odd shape. True to its incompetencies, the developers never worked closely with customers to find out if these "neat" features were actually desired. And, as may be the case with truly neat ideas, some customers were positive about the possibilities for this product, which egged them on, as the marketing manager recalled:

We had lots of people who wanted to do lots of things with the product. Everyone had a good idea for a way to use it. One guy was going to develop a pocket TV that would run on our product. Unfortunately, he still hasn't come out with it.

The abstractly conceived plan was to target the largest users of batteries as their market, which turned out to be the toy market. The first hitch in the plan was the discovery that regular batteries produced more energy than their product. So, drawing on their technological prowess, the developers invented a new way to manage energy in their product. Six months and several patents later, the next hitch arose. According to the market director: "We went out and we said here's our product and here's what it does. . . . We just went out and made the pitch." They devoted little effort to understanding the toy industry's concerns around batteries, and did not really know who would be the primary decision maker. After a year, it finally sunk in that toy makers did not need the features their product provided, and were quite happy with the cheaper, less neat batteries, as this chemist found out:

Then you find out a surprising thing about the toy industry's marketing process. We would say to the marketing executives: 'We can save your customers a lot of energy looking for batteries by including our new power source in your product.' They would say: 'Yes, but we would have to charge more for our product. Customers buy on price, and they don't connect the difference in price to the fact that batteries are not necessary.'

After about three years of effort, TECHCO decided to get out of this business. The marketing person summarized their experience:

We should have learned more about what went into the design of products that use batteries. It turns out that the question of what power to use is an afterthought. It is not important at all. If we had known that we might have managed the business differently. You need to consider the procedure people use so you can sell them on your product. You need to know where your product is in their thoughts. Is it driving decisions or is it just an afterthought? We never got to the right people.

As with HARDPOLY at COMPCO, behind these explanations one can see a reliance on core incompetencies, in this case of developing and pushing neat technology onto unarticulated and unstudied needs. While the TECHCO people certainly were adept with technical breakthroughs, the person quoted above indicates that their approach to the product innovation process overall was very much removed from the practice of applying their technology to solve customer needs. The link between technology and user needs was broken in their core incompetencies.

The successful photography kit. The photography kit developers excavated beneath TECHCO's core incompetencies, and built on the firm's core competencies of providing creative, inventive, and elegant solutions to real customer problems. For years TECHCO sold specialty chemicals to professional photographers in a relatively small product line that complemented TECHCO's main business. TECHCO had invented treated paper that provided a lightproof cover for the chemical supplies it sold to photographers. The photography kit idea was to purchase sheets of professional grade film from a film manufacturer, cut it to the correct size, wrap the pieces in TECHCO's special paper, and sell packages of the wrapped film to professional photographers.

The product champion had developed a thorough understanding of users' problems by investigating the market and gathering information from professional photographers regarding their specific needs. He found out that photographers had considerable difficulty managing their film, because the film pieces had to be packaged into lightproof cassettes. A long "shoot" might require hundreds of cassettes made of the exact same film, which had to be packed in a dark room. Film packing could take hours, and it often allowed dust to get into the film. The champion also worked with people at one of TECHCO's plants to invent a way to produce samples of the product. He carefully connected user needs with possible technical solutions, including the ability to produce the product with enough quality at a low enough cost. Note that this product was grounded thoroughly and realistically in the practices of using and making it.

But the product idea was very low-tech and its main ingredient would be sourced externally. The idea so violated the core incompetencies that had grown thickly over product development that the product champion did not bring his idea up formally for several years. "It would have been political suicide," he said.

After one of several reorganizations, however, he did receive informal approval to go ahead. He recruited a purchasing specialist who would use the years of sub rosa data gathering about user needs to negotiate with a film company to provide the product's main part, and a manufacturing liaison who would handle the development of a manufacturing capability. Hands-on practice was also important to this development, so all three visited professional photographers together to develop a joint understanding of their market and their product. The product was a bootleg project for most of its development life, but while in test market it had sold out several months sooner than anticipated, so TECHCO decided to introduce it ahead of schedule. This bizarrely conventional product idea in fact was a creative, inventive, low-cost solution for real customer problems, and drew on TECHCO's core competencies effectively.

In both TECHCO and COMPCO the excavation of the core competencies required the people to re-center their collective knowledge on both their markets and technology. COMPCO had slipped into an overemphasis on its selling rules and routines, while TECHCO had slipped into an overemphasis on its technology development rules and routines. TECHCO's experience also highlights the need to apply the core competencies creatively to a new opportunity. Invoking the core competencies for the film product was a stretch rather than a simple, straightforward process. In addition, TECHCO's experience shows that leveraging the core competencies could be a real struggle if the practice of linking technology with actual needs was not used much. We see this struggle get harder and harder in the next two cases.

SALECO Computers

SALECO manufactures computing equipment and systems. SALECO's core competencies centered on applications with users, like COMPCO. In SALECO's case, however, they had become very adept at appreciating the workflows in offices and industrial sites, figuring out how data processing could enhance the productivity of those flows, and then designing computer systems to effectively meet those concerns. SALECO's competencies concerned developing data-processing systems to both fit into and increase the productivity of industrial and commercial users' work. To complement these core skills, they developed both a very knowledgeable sales force to install and maintain these large systems at customer sites, and an array of sales offices that maintained detailed profiles of all customers so SALECO could track needs and problems quickly. Since computer systems required that multiple units be developed in tandem, SALECO also became adept at orchestrating a very complex system development and design process. SALECO had come to dominate a segment in the computer business, and for years sold large computers that were used in a "turnkey" fashion in data-processing centers. One manager explained:

SALECO grew up as a company that sold through direct sales. We knew who the customer was, where they lived, what their business was, what their needs were, everything about them.

This deep knowledge of customers had also become reified into several core incompetencies. One was that the extensive contact with the installed base had become transformed into an abstracted, costly direct sales structure. The second core incompetence was a controlled, almost paternalistic approach to customers, which focused SALECO on their established customers and blinded them to emerging computing needs elsewhere. The third was an abstract approach to product planning, in which new products were based on product specifications rather than on actual customer problems. One market researcher said that they would look at the price performance curve to come up with a new product that sits further down the curve. Another explained that their market requirement was usually seen in a narrow corridor of volume, price, and revenue expectation, and that technical people were always given specific targets for development. A primary goal of product planning was to assure that a new product generated enough revenue to meet its share of the costly sales structure. The fourth incompetence was a thoroughly controlled, formal matrix structure to manage the development of their systems. In this structure, everyone knew her or his role and place, and outside vendors were rarely used. They relied on uniformly high standards of quality, with a uniformly high cost. "We built products you could drop off a ten-story building," said one insider.

The world of computing had changed, however. Customers were developing new applications, their needs were no longer uniform, the technology was evolving, and many new competitors were entering. Some people at SALECO recognized that they were not responding to these trends, and needed to develop new products for new users or applications. The cases described below represent two such efforts.

Success and failure: SYSTEM I and SYSTEM II. The successful product built on SALECO's core competencies of connecting closely with user applications, designing computing equipment to fit specific applications, and responding directly and thoroughly to customer needs. SALECO also took the product to its established business market, thus virtually creating a large new market. SYSTEM I was a small desk-top computer. Its technology was not new to the world, since microprocessors had been around for years, and several companies were selling similar systems, but not to business users. People at several SALECO divisions had been pushing a small computer for some time, and had developed prototypes. However, the SYSTEM I idea did not fit SALECO's entrenched core incompetencies, just like TECHCO's film cover. The performance specs did not fit on any familiar curve, and the product violated SALECO's rigidly high standards of quality. Most egregious, a whole new sales channel would have to be used to reach these customers.

A planner finally developed "numbers" that made SYSTEM I appear lucrative enough for SALECO to try. She also linked the idea carefully to emerging market needs in accounting, word processing, and other uses, consistent with SALECO's core competencies. The senior management committee approved the idea, put together a project team, and gave the team a year to produce a viable product. The venture's organization and development violated core incompetencies from the beginning, according to one observer:

The unique thing was they cut the SYSTEM I group away from the SALECO culture. Basically, a few senior executives decided to play Daddy Warbucks, so they disconnected the team leader from the normal process of building cases.

The SYSTEM I team created a comprehensive understanding of the product in its new market, again clearly building on SALECO's historic competencies of getting close to customers. The SYSTEM I engineer's comment reflects the essence of being focused on hands-on problem solving for customers:

The first thing was to define what the product was, who would buy it, and what they would use it for.... You have to get into the hearts and minds of the users. If you can't explain your product in thirty seconds, you're dead.

The team also broke out of SALECO's detached rules for product design by emphasizing the development of a variety of software by a variety of outside vendors. Some of the software was not perfect, but it made the product usable and therefore sellable immediately. The team also violated SALECO's traditional secrecy rules by using an open architecture. The team was organized differently from the highly controlled routine, as well. They followed an iterative, emergent process: "It was all evolving very rapidly and we constantly adjusted," said one. Another noted: "There were many scary Saturday morning meetings where we knew we didn't have it together." The product was launched about on time, and became one of SALECO's most successful ventures.

Less than a year later, the same business group started work on SYSTEM II, which was a newly designed, smaller version of SYSTEM I but focused on a different segment of customers. Many of the same people using the same new technology worked on SYSTEM II, and they also used the same new sales channel, so this product was not much different from the breakthrough SYSTEM I.

Comparing the two sets of stories, however, revealed that this time the team relied on SALECO's core incompetencies to manage the project. The SYSTEM II team did not emphasize close contact with customers, and instead built on demographics and other abstracted market analyses, as usual. They did not get into the "hearts and minds" of users, as they did with SYSTEM I. They also reverted to SALECO's usual process of giving the technical people a fixed set of design specifications that did not allow customer-focused iteration as new insights were acquired. One engineer said:

We built the product exactly as designed. That is nice from a technology point of view, to have a firm charter at the front end, although it may not have been accurate.

Their organization had reverted to the core incompetencies as well. When asked to describe how the SYSTEM II project was organized, one person went to the writing board in his office and drew a separate circle to represent SYSTEM I. He then drew SALECO's usual matrix structure, and showed how SYSTEM II was a horizontal line in that matrix, along with several other projects. Another engineer explained how their abstracted planning hurt their development:

We did not get the system into real scenarios and test out our premises. We all thought we were very smart.... We made a lot of decisions daily to change the product based on what we thought we understood about the marketplace.

When SYSTEM II was introduced, customers complained that the keyboard was mushy, the memory too small, the software inadequate, the price too high - all design flaws that could have been anticipated through close interaction with customers. SALECO spent a year redesigning the product, but finally cancelled it because sales were not enough to sustain the manufacturing facility.

Again in this instance, one can see a disconnection between technology and needs, in this case a tilt toward planning in the abstract. Again, one also sees the extraordinary effort necessary to break out of the core incompetencies. In addition, SALECO highlights the staying power, the tenacity, of the core incompetencies, despite the obvious success of breaking out of them. SYSTEM I's remarkable violation of the core incompetencies did not keep those incompetencies from creeping back in, almost unnoticed, to ensnare SYSTEM II. The planner who sold the SYSTEM I idea to managers reflected on the fact that the SYSTEM I experience was in fact an anomaly:

Almost everyone associated with SYSTEM I is not respected. It is on my bio that I worked on that project, and I can't think of anything more important that I'll ever do. But my work with SYSTEM I is hardly ever noted. When it is, people here think it was just a fluke. I got a promotion to general business manager, but I was successful with SYSTEM I because I am an innovative synthesizer, a doer not a manager. I would summarize my last three years as painful.

OPCO Communications

OPCO seemed to have no core competencies that were relevant to product innovation, or they were so deeply buried that the product innovators could not access them. The trouble I had with finding core competencies at OPCO may have been due to the fact that my data did not include any clear successes: the contrast of successful cases with others helped to reveal core competencies. However, this case also raises the possibility that large, long-stable old firms can indeed lose their core competencies. One of the uncertain product cases from OPCO shows that innovators still had to break free of core incompetencies, but without core competencies to connect to, the product never really became a part of the firm.

OPCO is an operating phone company in the US. The large phone system had broken up about four years prior to the time that the interviews were held, and OPCO was still feeling its way into the post-monopoly era. Many of the firm's businesses had been under government regulation for years, and the core telephone network business still was. This detachment fostered an abstracted, hands-off view of customers, products, and technology, the antithesis of a practice orientation. The firm understood its customers, markets, and products from its historical role as a public utility, committed to providing continuous and essentially "faultless" service without regard for cost (except as governed by utility commissions). OPCO's product-market definitions, organization, and strategy processes and procedures all centered around the maintenance, development, extension, measurement, and auditing of core operations, called "telops." All activities had an extensive audit trail, programs were subjected to quarterly "operations reviews," and all senior managers were evaluated quarterly based on their achievement of specific goals. Customers were referred to one and all as "subscribers." Since a real sense of specific needs and problems was never necessary, over the years OPCO had learned to "know" its customers through abstracted statistical analyses.

A person who worked on one product described the persistence of the utility frame on customers, even with products that were no longer regulated:

We are weak in obtaining for ourselves a thorough understanding of [how users operate]. We say 'We will give you the technology and we don't care what data you run on it.' Or: 'You need to move X bits of data and we'll charge you Y dollars.' ... We have a philosophy of customer autonomy - we will give you the capabilities but you figure out how to use them.

This abstract sense of products and customers was echoed in OPCO's still very bureaucratic organization, which had strong functional boundaries and hierarchy. OPCO's basic capability seemed to be run like a giant machine. It was almost as if OPCO had become "telops."

The voice system. The voice product was based on a packet-switching technology, which encodes digitized bits of a message into "packets," sends (switches) them over a network, and captures and reconfigures the message at the other end. It can also capture and record a person's voice. This technology is the basis of the now widely used voicemail systems, but OPCO's product was one of the first in the market, so it was a pioneer.

Fred, who first developed the voice product business idea, was working as a marketing person for "telops." His job was to develop ways to expand usage of the phone network, and he conceived of the voice product with that purpose in mind. Fred could find no one willing to help develop the technology inhouse, and so worked out an agreement with a small start-up to use their voice computer.

The product's early development and initial test market became thoroughly mired in OPCO's core incompetencies. No market data were gathered except for the technology-focused industry reports, and no one talked to possible users to develop any insights into specific applications. The product was configured based on the premise that it would be used for intra-office messaging, so it had limited send features and could not work as an answering machine. A location was selected as a test market based on the local operating unit's willingness to participate. Corporate staff spent over a year devising detailed tactical plans for running the test market, including selling scripts (even though specific users had not been identified), and precise formats and due dates for the weekly reports that were to be submitted to corporate.

A summary memo from the person in charge of planning for the market test hinted that all was not well. This memo pointed out that: "Due to the timeframe established to get this test up and running, some of the groundwork for establishing the record-keeping and analysis requirements for the test were not completed." Therefore, the person requested that "effective project management" be developed and implemented. However, the files contained two written corrections to this memo from higher-ups. One changed the due time for the weekly reports from noon to 8:30 am with the comment: "No! Report must be on executive's desk at 8:30 am!!" Another manager crossed out the request for effective project management, and changed the wording of the sentence quoted above from "not completed" to "deferred until the test started." These file data suggest how strongly detached the planning process was from the actual practice of product development. Rather than respond to the planning manager's clear request for help, the senior people made her memo "corporately correct."

The people who would execute the test were hired (internally) during the month prior to the beginning of the test. According to George, hired from elsewhere in OPCO to direct the test market, a VP had on his performance evaluation for the quarter that the test would start in January, so it started then, ready or not. George noted that they had priced the new product "with the mentality of a phone company - charge up front." They also had to run the billing through the regular billing system designed for thousands of users: "It was like trying to mow the lawn with a D-9 Caterpillar tractor!" said George.

The product was launched in January as planned, and almost failed immediately. Fred recalled how thoroughly the realities of the test market deviated from the plan:

We worked out a model as to how to approach the customer. Our hypothesis was that business customers were the prime customers, and that we could start with a regional test. We were incorrect about the regional market. Our first customer wanted statewide service, our second national, and our third international.... We had also assumed a model for the selling process. We would send out 100 letters, get 10 responses, and out of that we would sign up three people as customers. In the first four months we sent 40,000 letters to all small businesses in the area, but had signed up only six customers. We thought we would have a line of people waiting at the door, but no one wanted the service.

As of April, it looked like the product was a total bust. George and his colleagues who were running the test wanted to keep their jobs, so they broke with the detached core incompetencies and began, finally, to engage in real customer problems: "We threw out the test plan, and went out to see the customers to find out why nobody wanted the service." They discovered that no one understood the concept of the service, which often occurs when a product is both very new and alters the user's behavior. They also discovered that some customers could use certain features that had not been designed into the original product. Perhaps most importantly, they learned that the product could solve serious problems that people had communicating to others who were dispersed across a large geographic area. This insight into the core benefit of the product came slowly as they sold the product first to a trucking firm, then a consulting firm, and then a large manufacturer. Initially, the high-energy sales people made sales calls to the same businesses as those who had bought the service. But they finally realized that the core benefit was sending messages to dispersed people, be they drivers, consultants, and salespeople, not running, for example, a trucking operation.

With these market insights, George and Fred broke away from OPCO's "phone company mentality" of charging up front for a service, and arranged for free, month-long trials to help people appreciate the usefulness of their product. They also altered the product design to allow for needed features. As Fred explained:

It's amazing what it does to listen to customers. We went to people and asked why they didn't buy the service. Then we followed up and asked them what they would like. They said they wanted a group-send facility, and also wanted it to answer the phone so they wouldn't need a phone answering machine. We went back to the vendor and asked for these enhancements. Then we went back to the customers, and in the next six months we signed up 1000 users.

The test market lasted until March of the following year, by which time George and his people had, by sheer chance, sold as many units of the product as predicted in the original plan. Fred recommended the continuation of the voice program as a business, and prepared the usual "business scenario" for corporate's approval. But it took corporate over six months to approve the plan. According to Fred:

The project wasn't approved until September. Corporate staff kept saying "prove it, prove it!" [referring to Fred's scenario that this was a good business]. Corporate staff talk big, and they have big charts, but when you have a concrete idea they chop it down. I would say "let's make it succeed," and they would be very skeptical.

About a year and a half later, the voice system was still in business, still expanding around the service area, and still developing specific user enhancements. It was being run as a separate business unit, with most of the necessary functions located together and working interactively on a daily basis. Fred said that it was necessary even for him to split away from corporate staff, so he packed up his office and moved out of the corporate tower to another office about seven miles away. "It's important in starting a new business to be physically removed from the staff people." The voice project was also still not generating enough revenues to cover its total expenses. Corporate management had initiated an audit on the business, and a corporate staff group was in the middle of developing a revised market plan for the voice business. Corporate management still could not tell whether or not the business was viable.

The OPCO story illustrates what might happen if the firm's competencies become buried too deeply by the core incompetencies. At OPCO the incompetencies had become the primary basis for collective action and collective identity, and they served to make sense of things and guide action, however poorly. But when the voice people stepped outside the incompetencies, the rest of the firm was unable to make sense of the voice business. Corporate decision makers simply could not decide whether or not the project was worth continuing. An important lesson from OPCO, then, is that simply avoiding the core incompetencies is not adequate. Without being anchored in something, or having something to anchor in, new products perhaps never can become part of the firm's strategy and capability set.

DISCUSSION: MANAGING THE CORE INCOMPETENCIES

This is an exploratory study of a limited set of organizations, and does not take into account many of the factors that may be important to connecting new products with core competencies in an organization. These inferences and insights need to be elaborated, extended, and tested in subsequent research. With these caveats, I provide some empirical support for the contention of others that drawing on a firm's core competencies is essential to a new product's success. These case analyses indicated that anchoring the particular practice of a specific development effort in the rich, collective sense of "what we do well" brought alive both people's shared knowledge of the product's market-technology linkages, and the capabilities for carrying out those linkages. However, I also infer that a scaffolding of rigid rules of thumb, which I labelled core incompetencies, had grown around these core competencies, like vines run amok. The incompetencies had trapped the competencies, and in the case of OPCO, had perhaps choked them off.

I conclude that connecting new products with the core competencies that are relevant to them is problematic, not because the core incompetencies exist, but because there is little or no ongoing interplay between the rich core competencies and the rigid incompetencies. The incompetencies had come to dominate product innovation in these firms. If Hirsch (1986), Barley (1986), and Fiol (1991) are correct in saying that the dynamic interplay is in itself essential to change, then these firms have a diminished capacity to adapt over time. This conclusion means that rooting out the incompetencies is not the answer. Doing so would be impossible in any case if the theories of institutionalization and structuralization are correct. Objectification of action seems to be an inevitable part of social life. Institutionalized patterns may serve a positive function as well, because they summarize key decision premises so that people need not continually recreate rules, and because they can be passed on readily to newcomers (March & Simon, 1958).

To overcome the negative consequences of the incompetencies, managers need to restore the balance between rich action and rigid rules, so that these two faces of social action can interact dynamically over time to shape, reaffirm, and modify each other. This analysis has suggested that three interrelated forces are responsible for the dominance of the incompetencies: (1) pressures for reification and abstraction; (2) pressures against hands-on practice; and (3) pressures against the linkage of technologies with market and customer needs. More research is necessary to explore why these pressures exist, of course, because they seemed deeply engrained, indeed strongly institutionalized. The application of simple solutions will serve no purpose unless the underlying causes are understood.

While bearing in mind this essential need to understand the underlying cause of the dominance of the incompetencies, several suggestions to improve practice can be made. The successful innovators in my data overcame the pressures for reification by drawing on multiple perspectives throughout the development process. That is, multiple views were used in all activities, such as defining and developing the product, working with users, and figuring out the manufacturing. In contrast, the failed innovators tended to work on each step in separate functions or departments, even though they were often in "teams." Work segmentation, although typical of mechanistic or bureaucratic organizing, fosters abstraction according to Burns and Stalker (1966), and thus reification. More generally, Miller (1993) and March (1993) recommend multiple frameworks to add variability. Developing and pursuing broader, more general strategies would reinforce variability, while slower socialization and a continual influx of new people would keep rules of thumb from becoming so dominant.

Leonard-Barton (1992) recommends developing the ability to constructively discredit the systems, values, and traditions that are revered by the company. I suggest that discreditation is not possible unless people also focus on practice. However, the day-to-day activity in the four organizations studied here had literally drifted away from the practice of using technology to fix customer problems. Perhaps after decades abstracting, optimizing, systematizing, and rationalizing, acting in a hands-on fashion to design and launch a new product has become almost a lost art. It is essential that managers actively create communities of practice that are able to focus on the intricate details of a particular kind of work (cf. Brown & Duguid, 1991). One approach is to rely on those with extensive experience with markets and technologies. Rather than treat them as "dead wood," give experienced middle managers the "space" to ply their trade, so to speak. Another way to highlight practice is to use problem-solving, learning by doing (cf. Rosenberg, 1982), and the thoughtful application of objectified numbers. Jelinek and Schoonhoven (1990) describe a system of operations reviews used in the electronics industry as a way to maintain constant attention to problem solving without witch-hunting (e.g., punishing those who have problems), and to develop useful numbers.

One particular practice that managers can emphasize is interacting with customers and other outsiders. Recall that the successful innovators in this study all worked closely with customers in a multidisciplinary team, usually through multiple visits, while the failed innovators did not. Jelinek and Schoonhoven (1990) suggest that this practice can be reinforced throughout the firm if senior managers are extensively and actively involved in working with customers (e.g., meeting with fellow senior managers of customer firms), in scoping out emerging markets, and in continually feeding their insights back into the firm. Von Hippel's (1986) lead user analysis and Leonard-Barton's (1991) empathetic product design process are two other techniques people can learn to be able to work with new customers over new products.

In conclusion, how to practice product development was still embedded in the identities of three of the four firms studied. Managing the core incompetencies so that the core competencies can be accessed more easily seems key to both more effective corporate venturing and more viable core competencies. Several ideas were offered for restoring the balanced interaction between core competencies and core incompetencies. Future research should explore these and other possibilities, so that scholars can move beyond exhorting managers to connect new ventures with their core competencies in theory, and begin to explain how they might do so in practice.

1. The earlier study included a fifth firm, but only five people were interviewed in that firm. It was decided to delete those interviews from this analysis, since five seemed too few to develop organization level insights.

2. The analysis is much less intense than would be an ethnography or participant observation, so the insights are at best preliminary. However, the comparative analyses within and across firms provide some insights that a single case study cannot. In this article we concentrate on the stories, not the techniques used to develop the reliability or validity of the analysis. See Dougherty (1987; 1990; 1992) for various summaries and codifications of various aspects of these data that do reflect on their reliability, etc.

3. Categories that reflected incompetencies were using pre-specified standards for the product regardless of their fit, using established rules about what a good market was like, and relying on usual organizational procedure and approaches to product development. The competencies were inferred from people's descriptions about positive aspects of the "culture," what "the company" does really well, and other stories of effective practice.

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Deborah Dougherty is Associate Professor of Management at McGill University.
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Date:Mar 22, 1995
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