An interesting take on gaining a sustainable advantage of value for a new venture
Some interesting insights on competitive advantage were generated during a recent session with some budding managers. We had been exploring the value of the ‘strategic window’ as a metaphor for new business development and had reached the point of ‘closing the window!’
The act of ‘closing the window’ therefore, refers to the necessity for a company to plan, prime and deliver a full advantage over its competitors to create barriers to frustrate followers interested in benefiting from the innovation.
Why? For this reason; any advantage a company generates over its rivals with a strategic innovation, will be lost if it is imitated or is easy to copy.
Two types of competitive advantage
The types of decision making required revolve broadly around two specific areas. The first concerns SOURCES OF ADVANTAGE; these resources include such factors as internal processes and capabilities.
Being able to consistently offer something different and better in the ways described will occur only if the business is itself different from its competitors in some way. This means that a competitive advantage in the market place must be delivered from within the business and be supported by it. Broadly speaking there are three sources of advantage:
- Distinctive capabilities – concern innovative ability, reputation, architecture.
- Strategic assets – relate to things the business owns or has access to; technology, brand names, copyrights and trademarks, distribution rights, location, cost advantages.
- Distinctive competence – refers to the process/procedure that enables a company to generate new offers rooted in competitive advantage. Consider CEMEX, Apple, Tesco and so forth.
The second type of competitive advantage relates to ADVANTAGES TO CUSTOMERS namely the benefits that customers receive from the product service offer. The starting point of course is that the customer is consistently offered value. In short competitive advantage may also be described as the reason why customers spend their money with one business rather than another.
So what are the major sources of advantage customers seek? Well, some of the more important ones include: lower prices (for better value for money), improved performance (for meeting needs more effectively), good service (for problem solving), brand value (for expressions of commitment to quality) and access to distribution (for greater convenience).
Sustaining competitive advantage
As we all know business does not stand still! Competitors will be prompted to respond to another company’s success if it loses business. A new venture, therefore, cannot hide its edge over competitors for long. Thus it is essential to create an advantage that is hard to imitate. The question to address is how this can be achieved.
One way of looking at the issue is to examine how competitive advantage may be gained by reversing the question and asking how competitive advantage may be lost. Thus if rivals were to achieve lower costs, or gain knowledge that was exclusive and valuable, or build a stronger a network of relationships than the new business enjoys , and if they were able to develop structural advantages over the way the new venture organizes itself then the new venture’s original advantage would be lost.
So where are we now? Well it is that it is prudent to identify advantages that give a company an edge over its rivals and an ability to generate greater value for customers on the one hand and sustaining that edge on the basis of some aspect or aspects of the business, be it cost, knowledge, relationships, or structure on the other.
Once a pioneering venture gains an advantage over its competitors it is appropriate to constantly reinvent the advantage. This might be carried through by investing rewards from the market by reinforcing the existing competitive advantage as well as modifying it and if need be creating the basis for an entirely new one!
As an example this would mean that to be a cost leader then a new venture must invest in volume leadership; if it aims to use exclusive knowledge then it must develop its understanding of the products and services offered to the market place in the way they meet customer needs; if relationships then the venture must build and create new relationships.
This means managing expectations, outcomes and communications with customers. Maintaining a structural advantage demands investment in human and communications systems.
Thus we see the need to recognize that competitors may follow and that investment in key sources of advantage is vital for long term success.
See you
Andy
By Andrew Pearson
As we know, it is a lot harder for companies to increase revenue and profits today than it was. As we moved into the 21st century the business model was quite straightforward; invent a great product, launch it, sell it hard, go international, make an acquisition or two, grow market share and create efficiencies to cut costs.
Companies searching for growth opportunities relied on classic product-focussed growth strategies including; core product enhancements, brand extensions and new product introductions. For many companies, revenues from each of these pipelines has shrunk and turned into a trickle.
Even though these strategies are important and relevant today, they don’t at the moment represent a platform for driving large and sustained growth. Read more here…
From the Reinvent the Business series
Here’s a question! Just how can a company invent a business changing model in its industry?
Well there are a number of ways that a company could systematically analyze its markets and identify new and different forms of competition. A central theme is space.
Click here to read more…
Having presented the imperative for a dynamic approach to strategy formulation, we come now to defining what is meant by a superior strategy.
In the end a superior strategy, or business model, is all about finding and exploiting a unique strategic position in a company’s current business while, at the same time, searching for new unique strategic positions on a systematic and rolling basis.
Click here to read more…
From the Reinvent the Business series
In the last post we noted that well before a successful business reaches its revenue peak, the basis of competition on which it was founded has already begun to expire. Competition in the cell phone industry, for instance, has changed several times—for both manufacturers and service providers—from price to network coverage to the value of services to design, branding, and applications.
Click here to read more…
From the Reinvent the Business series
How many companies can you think of that have enjoyed a long history of growth and profitability, then slip into decline? Then ask yourself why this happens? Well there’s no shortage of explanations for this. Here are a few; a failure to stick with the core business, to problems with execution, an unhealthy focus on scale for scale’s sake, entrenched thinking, over confidence, failure to see changing customer demands taking place and the ingress of competition that innovate fresh and superior offers of value!
Click here to read more…
I hope the principles and practices you have seen over the past 6 weeks or so have encouraged you to think about your business differently than you did before. Here’s a quick recap of the main principles you have explored over the past few weeks: Click here to read more…
I want to wind up this series of articles on management with a single RECOMMENDATION, one that speaks of the character of the manager. It is to be found in the tale of the business leader, Andrew Cook.
Here is an individual who applied the skills we have covered here, but who in addition characterises what is best in human endeavour in the business world. This factor we would suggest is the ultimate recommendation for real business success! But judge for yourself! Here is the story again but with more detail. Click here to read more…
Do you measure the results of your business building tacticts? You probably do. But you might be interested in being aware of a couple of really essential metrics. Click here to read more…
Some time ago, I heard a story about two people that ran a furniture business. The company decided that because it was doing so well, it should expand into the piano business and also sell pianos! They went out and purchased a Steinway and took it apart to study how each individual piece was made. Then they made the same pieces themselves and built a piano. When they played it, nothing but thumps and bumps came out it! Click here to read more…
