Let’s start today with two common questions in business:
1) “Why will a customer buy products and/or services from you and not from a competitor”?
2) “What is your verified competitive advantage?”
What at first glance appear to be easy questions are actually difficult to answer in many organizations.
Prior to continuing the discussion, let’s clarify the Thinking Dimensions definition of competitive advantage.Competitive Advantage is “a specific company capability or competency that provides a superior return relative to your competition and can be validated through the eyes of your customer”.
My recommendation is to think about your company or business unit “competitive advantage” as defined by Thinking Dimensions and ask:
- Is the customer willing to pay a premium price for this?
- Do the customers recognize this competitive advantage as a capability (competency) exclusive to your offering?
If the answers to both questions are “yes” you are at very good point. However your job – as a manager – is not complete because other important questions remain unanswered:
1) For which specific combinations of products and markets is your competitive advantage valid?
2) How long will the competitive advantage your company has today remain valid for when looking into the future?
3) Which strategic choices will your company make to maintain and enhance competitive advantage in the future?
In our experience only managers that can address the points are effective decision makers in building competitive advantage for their organization.
Consider 2 cases that refer to the situation of 2 separate companies:
Case A: a multinational player in the plastic sector saw their margins evaporating because the management team understood late in the game that customers were not willing to pay a premium price anymore for their customized products
Case B: A European company that develops and produces appliances almost went out of business after the management failed to recognize that the perceived ability to innovate was no longer perceived as distinctive by customers
Fig 1: Evolution of company capability in time (source Thinking Dimensions Global)
New market changes and rapidly evolving trends are increasing the volatility of competitive advantage and rendering previous assumptions invalid. Changes include:
- Faster adaptation by competitors
- Global competition
- Increasing speed in the changes of economic and regulatory conditions
- Increased sophistication of the criteria considered by customers to make decisions on suppliers
The leading companies today are monitoring trends, evaluating how the relevant few impact on company competitive advantage, and, importantly, are making strategic decisions accordingly.
There are several source of data your company can use to monitor relevant trend and market changes but “current and potential customers” are in our experience two of the best which are frequently overlooked.
Please feel free to contact me with any questions, comments, and for additional information on this topic.