Nakamura Yoshisada had spent most of his career at Fujifilm developing film. Then the company put him on cosmetics. At first, according to a 2013 profile on Nippon.com, he was at a loss.
The timing explained the assignment. By The Economist’s count, film made up 60 percent of Fujifilm’s profits in 2000. Then digital cameras arrived, and demand for film fell drastically. A film company selling skin cream sounds like a business grabbing at anything that floats.
But look at what goes into a roll of film. Collagen, Nippon.com reported, accounts for about half of its materials, and collagen is also a main component of skin. Making film meant spreading more than 100 kinds of fine particles through 16 to 20 collagen-based layers, about 20 micrometers thick in all, by Fujifilm’s own figures. And to keep printed photographs from fading, Fujifilm had done extensive research on stopping oxidation by ultraviolet rays. The same oxidation that fades a color photograph, as Nippon.com put it, also ages skin.
In 2007 Fujifilm launched a skin care line called Astalift. It hadn’t changed what it knew. It had changed what it sold.
The roots and the leaves
Your strength is the skill under your products, not the products themselves.
C.K. Prahalad and Gary Hamel called that skill a core competence, in a 1990 Harvard Business Review article that held up companies such as NEC, Canon and Honda as models. Their picture was a tree. “The diversified corporation is a large tree,” they wrote. The end products are the leaves, flowers and fruit; the root system is the core competence. “You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves.”
They defined a core competence as “the collective learning in the organization,” especially how to coordinate different production skills and combine streams of technology. Honda’s competence in engines and power trains, they argued, gave it an edge in cars, motorcycles, lawn mowers and generators. And they offered three tests. A core competence opens access to a wide variety of markets. It makes a significant contribution to what customers see as the benefit of the end product. And it is difficult for rivals to imitate, because it is a complex harmony of technologies and skills rather than any single one.
Fujifilm describes Astalift as built on four areas of research “originally refined in a wholly different field, photography.” Nakamura put the idea in one line: “Businesses have life-spans, technology does not.”
What you can’t rent
Prahalad and Hamel warned that such skills “cannot be ‘rented in’” through outsourcing, and that too many companies had given them away by treating key work as a mere cost center. Their example was Chrysler, which, unlike Honda, treated engines as one more component and was buying more of them from Mitsubishi and Hyundai.
The line is harder to draw than it sounds. When ASML spent years developing extreme ultraviolet chipmaking machines, ZEISS made the special optics, and for the light source ASML went with Cymer, a supplier in San Diego. ASML described its own expertise as lithography systems design and integration. Then the light source became the bottleneck, and in 2012 ASML agreed to buy Cymer.
When roots set like concrete
There’s a catch Prahalad and Hamel’s tree doesn’t show. In 1992, Dorothy Leonard-Barton studied 20 new product and process development projects in five firms and argued that core capabilities have a down side that inhibits innovation. She called it core rigidities. The skills and values that make a company good at one thing can make it slow to do another.
Kodak’s chief technology officer said something close to that in 2008: “It seems Kodak had developed antibodies against anything that might compete with film.”
Nor is a competence easy to spot early. Prahalad and Hamel granted that Philips, in the early stages of its optical-media work, could not have imagined all the products it would spawn. And Fujifilm’s turn wasn’t competence alone. The Economist’s account also includes a power struggle at the top, won by Shigetaka Komori, who chided the film business’s defenders as “lazy” and “irresponsible,” and $4 billion put into optical films for flat-panel screens since 2000.
The manuals nobody will print
Imagine you lead a five-person team that writes the printed manuals for a printer maker, and the company announces that printed manuals end next year.
The product is going. The question is what’s under it. Your team is good at turning an engineer’s knowledge into instructions a stranger can follow on the first try, and at testing them on real users. That skill could reach other places, such as the error messages on the printer’s screen and the scripts the support line reads. It helps customers. And a contractor can’t easily copy it, because it depends on knowing these machines.
So you pitch a rewrite of the twenty error messages that bring in the most support calls. The pitch gets a yes. The first draft takes six weeks, because your team still runs every line through the three-round review that suited 200-page manuals. The skill traveled. The habit came along with it.
By 2013, Nippon.com noted, Nakamura, the film developer who had been at a loss, was evaluating every Astalift product by using it himself.