The New 20 Percent: What It Means and Why It Matters to Your Business

What made your business successful yesterday will not be what makes it successful tomorrow. The 20 percent of capabilities — whether people or process, software or skill sets — that has driven the majority of your growth to date will be different from the new 20 percent that drives the 70 percent of your new growth tomorrow.

Don’t take my word for it. Just look around and ask yourself: What’s driving the “topple rate” — the rate at which companies fall off, or topple, from the Fortune 500 or Global 2000 list? Or, for those that have either stayed on it or even moved up higher in the ranking, what has driven their momentum? And what capabilities (skill sets, behavioral patterns or technology assets) have been critical to allowing them to do so? For those who topple, is it over-reliance on the set of capabilities that made them successful in a competitive world that no longer exists? For those who don’t, is it partly a result of a shift towards a new set of capabilities in a changed competitive world?

The stark example between Blockbuster and Cisco around the same time period highlights this difference. For Blockbuster, expanding more physical outlets missed the shifts of value in a digital world where the marginal costs of customer acquisitions fell to nearly zero. For Cisco, that recognition led to a refocus away from manufacturing routers to the development of standards to connect everything, irrespective of who made it. With what implication? For Blockbuster, adherence to the capabilities that had made it successful for so long resulted in the company going out of business. For Cisco, recognition that its new 20 percent would lie less with manufacturing and distribution and more with design and architecture capabilities renewed its growth curve for the next 10 years.

In short, there is a decay rate — or half-life — of the competitive relevance of an organization’s capabilities. Stated differently, the competitive value of any product or service, and the capabilities underlying it (skill sets, behavioral patterns or technology assets), lessens over time. They’ve been decaying at an accelerating rate over the past 20 years.

No surprise here.

Technologies advance. Markets shift. Customer expectations change — creating pressures (and opportunities) for what to do and how to do it. The competitive half-life of products, services, skill sets, processes, and strategies is decreasing, and competition and change are increasing.

What does this mean as you strategize in this new business landscape?

1. Recognizing that the 20 percent of capabilities that made you successful up to today will not be the same as the “new 20 percent” critical to capturing 70 percent of new value tomorrow.
2. Identifying that a new 20 percent is necessary — particularly as new competitors pass you by or put pressure on some of your key profit pools. Identifying what it now needs to be is the challenge and the opportunity.

Recently, participants in a workshop were wrestling with the idea of the new 20 percent and its implications on what they did and how they did it. The head of the strategy for a large national insurance company was suddenly struck by the concept. He bolted out of his chair and exclaimed, “To date, the 20 percent of our capabilities driving our value rests on how we price risk. What happens in a world when our value depends not so much on how we price risk, but on how we prevent accidents? How will we deliver on that value proposition? …All I know is it will be a very different 20 percent than what we have today.”

What’s your new 20 percent that will capture 70 percent of new value?