Death To Core Competency: Lessons From Nike, Apple, Netflix

Known for decades as a shoe company, Nike is undergoing a digital revolution. In recent years, it's launched everything from apps that are standard issue on the iPhone to wearable devices to web services. But why? Nike CEO Mark Parker laughs at the questions and interrupts: "I think I know where you're going with this." He grins and shoots back a quick answer to why Nike's so willing to transition so far from the thing it's known for--shoes--to software. "Business models are not meant to be static," he explains. "In the world we live in today, you have to adapt and change. One of my fears is being this big, slow, constipated, bureaucratic company that's happy with its success. That will wind up being your death in the end."

Parker's thinking goes like this: In a world of rapid disruption, having a core competency--that is, an intrinsic set of skills required to thrive in certain markets--is an outmoded principle of business. Just as Google needed Android to attack mobile and Apple needed Siri to pursue search, thriving businesses need to constantly evolve, either through partnerships, new talent, acquisitions--or all three.Nike, No. 1 on Fast Company's 2013 list of Most Innovative Companies, proves this idea more than most. Last year, it launched FuelBand, a high-end electronic wristband that tracks your energy output and signaled Nike's growing strength in the digital realm. "Think about it: Nike is now included in conversations around technology--it's shifted into an adjacent industry, breaking out of apparel and into tech, data, and services," says Forrester Research analyst Sarah Rotman Epps. "That strategic shift is incredibly important to Nike's future."

Mark Parker | Photo by Art Streiber

Lead Nike engineer Aaron Weast chalks up Nike's success in the space to the company's willingness to disrupt itself (a core tenet of a group of innovators we've dubbed Generation Flux). "The circle of competency is blurred these days," Weast says. "You can't have a barrier or restriction to that core competency. If we constrain ourselves by a circle of competency, we'll do ourselves a disservice. You need a willingness to punch through it."

Nike+ Fuelband App

Nike has arguably been trying to break through its core competency since it first began work on Nike+, its digital platform, in the early aughts. "Mark's mantra then was, ‘Innovate or die,'" says Albert Shum, a founder of Nike's digital team and now head of Microsoft’s Windows Phone design group. "We had to change with the times, and he saw that [digital technology] was coming. It wasn't just about manufacturing shoes anymore."

However, Nike wasn't necessarily equipped for its deep dive into digital. It's why the company worked with Apple for some of its earliest Nike+ products, and why it turned to outside partners such as Astro Studios and R/GA for help with theFuelBand's industrial design and user experience. Not that Nike outsourced the product development. "You will never get good work out of anyone if you hand over a brief and go, 'We have no clue what we want, but why don't you just do it for us,'" says Digital Sport division VP Stefan Olander.

Ironically, it was one of Nike's early digital partners that first advised the company against straying outside its core competency. In 2003, when Nike partnered with Philips for an MP3 player, Parker got a call from the Apple CEO Steve Jobs. "Why the blankety-blank are you now in the MP3 business?" Jobs is supposed to have said. "Why are you doing this? It's not your core business!"

Jobs may have been right then, but if he had followed his own advice years earlier, would Apple have become such a dominant player in the music industry? After all, who would've thought MP3 players were Apple's core business before it launched the iPod in 2001?

                     Siri

Apple's core competency, most would say, is design. It's that core competency which allowed the company to attack all types of hardware and software. But it didn't always own all the skills required for success--nor could it. Apple acquired Siri to gain a foothold in search, and it went on a hiring spree in order to prop up its struggling maps service. Would Apple have entered either space if it stuck to the barrier of its own core competency? Some would even say the iPhone demonstrates how Apple was willing to punch through its core competency to enter the mobile world. "Apple is a great example," says Weast. "They hired a great number of RF [radio frequency] engineers before anyone knew they were doing iPhone."

Netflix is another example. Some would argue its core competency is content delivery. But it has expanded that competency to not only include both physical and digital content but also original content. In 2011, when the company announced it was testing the waters of original content, it was clear CEO Reed Hastings was hesitant to acknowledge the company had punched through its core competency. It had just spent a reported $100 million on a new series (which it just released) called House of Cards. It would also be investing in more original content ranging from series Lilyhammer to Arrested Development. "When we start taking creative risks--that is, reading a script and guessing if it was going to be a big hit and who might be good to cast in it--it's not something that fundamentally as a tech company or a company run by a tech CEO like myself is likely to build a distinctive organizational competence in," Hastings said at the time. "We think that we're better off on letting other people take creative risks, and get the rewards for when they do that well."

Netflix Original Programming, House Of Cards

In other words, creativity was not Netflix's core competency, according to Hastings. This, frankly, was just corporate boilerplate--a way to reassure shareholders that Netflix wasn't stepping too far outside its own bounds. "There's no creative risk for Netflix," Steve Swasey, then-VP of corporate communications, told Fast Company at the time. "This is a business risk, which is very, very slight."

The fact is, in order to catch up to HBO and stay ahead of Hulu and Amazon, Netflix needed to do original content. Netflix hates to acknowledge its creative intuition. ("Nobody came to us with a script and said, 'What about buying this?'" Swasey once told me. "They came with a whole package--David Fincher, Kevin Spacey, a storyline--it was the perfect storm of great material [and] great talent.") But in reality, the company is betting on a creative idea, if not a script; a creative talent, if not a storyline. It had to. Otherwise, the company would not evolve.

The same could be said of Google. If it had followed its own core competency (which some argue is an unrivaled expertise in algorithms), would the company have entered the smartphone business? Or would it have embarked on any number of projects at Google X, its innovation lab--self-driving cars, space elevators, or its futuristic eyewear concept Google Glass?

Still, there is perhaps a limit to how far a company should stray outside its core competency. Parker, for example, acknowledges that music was too far from the mark for Nike. "Doing MP3 players, even though runners would use MP3 players--it was a whole different business," Parker told me. He calls Nike+ and FuelBand "a natural extension" that "relates more directly to what we do and who we are as a company."

But for how long?

FastCompany