【正文】 s best managers. It had always supplied talent to other divisions, but at one point the transfers increased substantially. At the same time, petitors launched a raid. By the time the bined effects were noticed, the division had lost over 25 percent of its most promising future managers.Second, a petence can decline when many staff and line。 a track record of skunkworks, incubationThe nature of the firm and the petence will bear on this tradeoff. Past successes with major change programs will favor evolution。 Root set up its logistics operation at a time when the main business, hit by the oil price slump, was losing close to $1 million per day. Arthur Stephens, CEO of the new venture, confessed, All of our futures were on the line. It was made very clear to us that we needed to build a successful business out of this concept.AcquisitionManagers often resort to acquisition out of frustration with the time and effort involved in evolution or incubation: witness the number of acquisitions performed in recent years for the primary purpose of obtaining skills. In reality, however, acquisition is more likely to fail than either of the other approaches. To improve their chances of success, managers must understand how the type of petence they seek affects their acquisition strategy, and be aware of the structural factors that will influence the oute.In general, a strategy to acquire frontline execution skills is a safer bet than one concerned with insight/foresight. In the former, a raft of plementary organizational systems (for instance, incentive and knowledge systems) supports and promotes the petence behavior. Even if some people leave after the acquisition, these systems will tend to replicate the petence behavior in new hires. In the case of insight/foresight, however, key individuals who leave the pany take their skills with them, and are extremely difficult to replace.Structurally, petencedriven acquisitions are more often successful when the acquired pany is not fully integrated into the acquirer, but retains some autonomy. With frontline execution, it is vital to retain all the organizational systems that underpin the petence behavior, at least until the drivers of the petence are understood. Full integration may disrupt or even demolish these systems. In the case of insight/foresight petences, it is important to bear in mind that the acquired pany39。s cellular division needed longdistance expertise, it hired not from the big three panies, but from the petitive longdistance resellers with streetfighter mercial skills.Both Southwestern Bell and Brown amp。 Root is a global leader in logistics and emergency response management, with contracts with US and foreign governments and annual revenues approaching $500 million. Southwestern Bell has built a leadership position in the US cellular telephony market, with million customers and $ billion in revenues in 1995.Both panies created protected and stimulating environments in which the new petences were able to flourish. These environments were bounded not by fire walls, but by oneway membranes that allowed the incubator to beg, borrow, or steal people and practices from the main business, while not being bound by its rules. Brown amp。 Root, an engineering services firm. Southwestern Bell developed a new petence in cellular telephony marketing, Brown amp。 and acquisition, where one pany purchases another to obtain the skills it seeks.EvolutionAn evolutionary approach to developing a core petence poses the same challenges as any largescale change program, plus a few of its own. Evolutionary programs that produce real benefits involve implementing and coordinating dozens of organizational efforts. Companies that have attempted to build core petences via oneoff programs almost always fail. One firm recently installed a new incentives system, but saw no change in behavior. Another revamped its training system, to no avail. The inertia of the remaining organizational elements was simply too strong.Success in petence building es from tackling many capabilities and practices simultaneously. One mercial lines property casualty insurer seeking to improve its core underwriting skills initiated over 60 programs. It changed its hiring criteria, used different managers to conduct interviews, and modified entrylevel pay scales. It adjusted promotion paths for underwriters and revamped its training programs. To improve information, it introduced new underwriting guidelines and new information systems to provide more accurate historical and industry data.In addition, the insurer changed its measures and incentives to reward underwriting quality rather than volume. It revised its organizational structure, creating an underwriting manager in each office to break the link with branch managers, who were always under pressure. At headquarters, it made changes in the actuarial and underwriting policy departments, set up an underwriting audit team, and improved links with the claims department. Within three years, the insurer had improved its underwriting relative to the industry by the equivalent of an extra 15 percent return on equity.Any business initiative requires managers to quantify the projected benefits of investment, but this is especially important for evolutionary programs, which invariably turn out to be more difficult than expected. Mounting expenses and setbacks may tempt panies to cut these programs to protect shortterm earnings. If they have not calculated the economic benefits they expect to see, they may find it hard to justify continued investment. The precision of such a calculation matters less than the conviction it generates. The potential benefits of the underwriting program were never estimated any more precisely than $40 to $50 million per year, but this was enough to create the conviction to proceed.Companies that succeed with the evolutionary approach demand payoffs from their programs along the wayCompa