At one time, companies insisted on owning and controlling every aspect of their operations whenever possible. The theory was that the company could control costs and quality without being subject to problems with suppliers and business partners. To give an extreme example, car companies once even owned farms that raised the sheep needed to produce the wool used in their seat covers! However, the days of centralization and control are coming to an end. Two new paradigms have emerged that go hand-in-hand in redefining the rules of corporate strategy for the 1990's and beyond: capabilities-based competition and virtual organizations.

Increasingly, companies are finding that sustainable, repeatable competitive success lies in their central capabilities - their ability to coordinate diverse production skills and develop a unique corporate skill (as opposed to individual skill) that can be leveraged across many products. Another term that has emerged to describe this phenomenon is "core competencies."

Consider the example of Sony. Back in the 1970's and early 1980's, Sony developed a core competency in electronic miniaturization. Whatever electronic device existed, Sony could figure out how to make it smaller and more portable, then produce the device at an affordable cost. This capability initially led to the Walkman, a hugely successful portable cassette tape player. Competitors scrambled to duplicate Sony's product at a similar price point. By the time they had, Sony had already moved forward by coming out with the Discman CD player and a portable TV that allowed them to actually build market share despite the increased competition.

Other examples of core competencies or capabilities-based competition abound. Citibank created an internal system to participate in world financial markets 24 hours a day, allowing them to differentiate itself from other financial institutions. Wal-Mart created a warehousing and distribution capability that lowered their costs to 2-3% below its competitors, allowing it to change the face of discount retailing. This capability was fundamentally responsible for turning Wal-Mart from a company about 15% the size of K-Mart in 1979 to the largest and highest profit retailer only ten years later. The common thread in these situations is that businesses have been able to develop a core competence, then relentlessly leverage it across different products and/or markets.

The parallel trend to recognize is the emergence of "virtual" organizations - organizations that focus on their strongest capabilities and partner with other companies for all other services. To their clients, they look like one organization while behind the scenes there may be several, even hundreds, of different companies all working together to produce and deliver the products and services. The combination of capabilities-based competition, TQM's impact in raising the quality standards of many industries, and new technology allow virtual organizations to thrive.

Nike is a classic example of a virtual organization. Consumers see Nike as an athletic shoe and apparel company, yet Nike does not make any shoes. Rather, Nike's core competencies are product design and marketing. They are very, very good at these functions. Virtually all other aspects of its business - manufacturing, warehousing, distribution, and so on - are handled by other companies working in partnership with Nike. To use a smaller example, a husband and wife team in Idaho have created a $10 million a year catalog sales business entirely through networking; they are the only two employees of the company.

What do these trends have to do with human services? Savvy providers are likely to find that they can greatly enhance their long-term stability by embracing the principles of capabilities-based competition. Some of the main benefits to consider are:

• By identifying and strengthening the core competencies of the organization - the core capabilities of greatest strategic importance - an organization is much more capable of repositioning itself as times change. An old but classic example of this is an organization in the 1940's and 50's that was dedicated to the treatment and ultimate eradication of polio. After the introduction of the polio vaccine, the agency's fundamental reason for existence was wiped out almost overnight. Fortunately, this agency's leadership was astute enough to recognize that they had developed very strong capabilities in fund raising and marketing that should not be wasted by dissolving the organization. So they applied their capabilities to a new area of focus, national fund raising and support for programs assisting crippled children, and changed their name to … the March of Dimes. The rest is history!

• As the last trend will illustrate, collaboration between providers is essential to human services in the future. Providers with compelling capabilities that add value to the overall continuum of care or assistance will be better positioned to join (or even lead) strong collaborative efforts, attracting more resources and solidifying their status in the process.

• Many nonprofit agencies are considering business ventures to provide an additional income source to finance their charitable mission. Agencies that clearly understand their capabilities are able to make good strategic decisions about which business opportunities to pursue, and are better prepared to be successful with those ventures.