Edge Competencies

If value is increasingly created outside the boundary of the firm, through networks and communities, through peer production and connected consumers, then companies have to develop a new type of 'edge competencies' located at the interface between the firm and its outside environment.

Description

A definition and discussion from Bubble Generation, at http://www.bubblegeneration.com/2006/01/edge-competencies-what-do-googles-use.cfm

Edge Competencies

In a world of cheap coordination, the edge - the boundary between the firm and the external - is the new core. That's because, counterintuitively, the strategy that dominates the shrinking core is to leverage the edge: not to simply build complementarities between internal sources of value creation, but between both internal and external sources of value creation.

That is, edge competencies are focused on learning how to utilize the universe of value outside the firm – leveraging value creation external to the firm, and, in many cases, external to all firms.

Why are these modes of coordination hyperefficient? There are several reasons that obtain under the right conditions. First, they can build and maintain resources and undertake value activities far more efficiently than firms can. Second, they can allocate the firm’s resources more efficiently than execs, meetings, and memos can. Third, they can build and store capital that’s difficult for firms even to access, like social capital.

The bigger reason is that this hyperefficiency is difficult to achieve internally because many of the sources of value creation they enable are deeply at odds with the firm’s relatively inefficient coordination. Most of these sources of value creation wither and die when they’re traditionally “managed" they are regulated by kinds of coordination that simply can’t be achieved within the traditional boundaries of firms. Rather, they self-organize and self-regulate outside the boundaries of firms.

Edge competencies let firms internalize the manifold gains from these new modes of coordination, which are traditionally beyond the firm’s horizon – players who have built edge competencies have learned to marry, remix, and recombine markets, networks, communities, and, crucially, the firm, in new, radical ways."

Discussion

John Hagel:

"Edges are powerful sources of business innovation because they are places of potential and friction, where traditional products and practices are no longer adequate to address unmet needs or unexploited potential. Much tinkering and experimentation occurs on the edge, as well as heated debate about the most promising options to address emerging needs, intensified by the diverse backgrounds, skill sets, and perspectives of participants gathering on the edge. By playing a part in this experimentation, companies participate in rich flows of new knowledge, flows that are the primary sources of innovation.

Edges tend to be risky places: There are no well-established road maps. Order, to the extent it exists, routinely dissolves into chaos, only to reform again in a very different pattern. Market meltdowns and business failures are commonplace. Relationships form quickly on the edge, because people have less confidence in going it alone and are more inclined to seek out others to help them sort through the challenges and share the risks and opportunities created by edges.

A couple of other factors make edges particularly fertile grounds for innovation. Edges tend to attract risk-takers, so there are a lot of people on the edge who are not only open to ideas, but more willing to act on them, even if they haven’t been tested yet. At the same time, there are few entrenched interests or legacy assets on the edge, so there are few resistance points ready to impede those who want to try something different. Bottom line – there’s less inertia on the edge.

Edges have always been a seedbed for innovation, but there is something different now. Edges are folding back in on the core much more rapidly than ever before. Think of the telecom industry – it wasn’t so long ago that wireless networks were a minor edge to the wireline networks. Now, many younger customers only own a cell phone and are somewhat puzzled about why anyone would own a fixed line phone. Voice communication used to be the core of all telecom networks but now data has become the core of network traffic.

So, there is an even more compelling reason to participate on the edge. If the edge becomes the core, edge advantage soon becomes core advantage. Those who remain focused on the core risk being blindsided by new forms of advantage that emerge first on the edge. To use another meaning of edge, participating successfully on the edge will be essential to developing and sustaining a strategic edge." (http://edgeperspectives.typepad.com/edge_perspectives/2008/05/innovation-on-t.html)

More Information

Applied to product launches at http://productlaunch.typepad.com/product_launch/2007/04/edge_competenci.html