From a strategic point of view, having a Competitive Advantage (CA) is something that every company seeks. The problem for many companies is that what seems like a CA may be temporary and not sustainable. For example, when Dell first started, it had a cost CA, because it was selling direct to consumers, which meant it could produce computers for them “just-in-time”. This meant that it did not have to create computers for inventories that resellers would have to maintain. Also, because resellers pay after receiving shipment and consumers pay in advance using credit cards, it had a CA when it came to the cost of capital. However, as Dell started serving more and more enterprises, and Hewlett Packard learned how to become leaner and meaner, the cost advantage evaporated.
John Nesheim, who works with many start-ups, calls a CA an Unfair Advantage (UA) (“The Power of Unfair Advantage”.). He points out the companies can have them in a variety of areas which either keep the customer more loyal to you or keep the competition from imitating you. Examples include:
- Sales — Amazon’s 1-click feature;
- Marketing – Pizza Hut’s social media “fan” base is several times that of a competitor
- Strategic Partners — who can provide resources that others can’t get
- Intellectual Property – patents that stop potential competitors for offering the same service.
- Facilities – as they say in real estate, “location, location, location”
Our challenge is to be honest with ourselves: is our CA or UA truly sustainable over the long-term? If not, are we equipped to constantly create new ones when competitors catch up with our current CA? The rush by technology companies to constantly add new features for the next generation product is an example of the need for constantly innovating a new CA, recognizing that its life-span is limited.
As we’ve mentioned before, we believe the holy grail for CA or UA is to use Commanding Strategies – those that turn a competitor’s strength into a weakness if it tries to compete with you. For instance, TD Bank discovered that it could open more hours during a week to serve customers, by offering fewer services that required more highly trained staff. The only way other banks could compete on hours would be to become more inefficient. Walmart’s ability to offer everyday low prices (its CA) is based on a comprehensive system called the Opportunity Loop. By lowering supply costs to enable lower consumer prices creates larger sales volumes so profitability rises and enables the company to keep putting pressure on suppliers for still lower costs. When Kmart decided in the late 1990s to drop its consumer prices to match Walmarts – but did not reduce supply costs at the same time – it led immediately to bankruptcy.
So what’s your Competitive Advantage? Is it giving you an Unfair Advantage when it comes to keeping customers and growing profits? Are you using a series of CA strategies or do you have a true Commanding Strategy? Let us know.