- March 21, 2017
- Posted by: Javier González Montané
- Category: Strategy, Turnaround
The concept of Competitive Advantage (CA) is the foundation of your firm direction and strategy. Unfortunately, Competitive Advantage used to be confused having good products/services or being good in some particular competencies. Indeed, Competitive Advantage means having a superior advantage compare with our biggest competitors in a specific market. Failing to build a Sustainable Competitive Advantage means that the future of the organization is compromised because our disadvantages are quickly eroding our capability to attract customers and making profits.
The Sustainable Competitive Advantage (SCA) Process
We suggest having a process for building a Sustainable Competitive Advantage. The process that we propose to have two parts:
- The SCA process that is adapted from David Aaker. This process has five strategic steps/question and the tools to answer those questions.
- The disruption strategies adapted from Anil Gupta. In this section, we show the main strategies that competitors used to disrupt and neutralize Competitive Advantages.
Image 1: Adapted from David Aaker and Anil Gupta: “The Sustainable Competitive Advantage (SCA) Process”
The Basis of Competition: Backstage Competitive Advantage
In this first step, the tools proposed used to be well known. So, the important is to be aware of a few pitfalls:
- Being good in a particular asset or competency does not mean having a Competitive Advantage. In order to have a CA, we need to be better, faster or cheaper than our biggest competitors.
- Developing a Competitive Advantage in a specific market do not guarantee the CA in other markets. Competitive Advantage is always market-specific.
- Having one Competitive Advantage did not use to be enough to build a success strategy. There are some studies showing that success companies used to have four or five CAs in average.
- The internal, external and SWOT analysis is not a short review of the previous one anymore. The environment is turbulent and changing very fast. What is happening in other industries must be monitored too because industry barriers are dissipating. Moreover, technology is impacting more than ever on business models. The digital transformation is a reality!
- Because we think a competency should be important or strategic does not means it is a core competency for our firm. A core competency required of three things: strategic fit, expertise and resources. If it is not a core competency for your firm, you should think about outsourcing (see What Are Our Core Competencies? Improving Business Focus.)
- Outsourcing is a powerful tool underused yet. Any competitive disadvantage should be neutralized by outsourcing (see When Should We Outsource?)
- Interim Management power is untapped. This is a new way to access to the best people in order to accelerate and cope with the need it organizational changes.
Image 2: Adapted from Anil Gupta: “The Basis of Competition: Backstage Competitive Advantage”
The Business Model is at the Center of the SCA Process
The steps two, three and four are related with the three main elements of the business model (value chain design, target customers, and product/services) and its implementation.
Step 2 – What Do you Offer? Building a compelling value proposition that links with the business positioning is a first step but it is not enough. Firms need to analyze deeply their value chain and compare with the ones of the biggest competitors and new incumbents. Compromises should be reviewed (“Compromises occur when an industry imposes its own operating practices or constraints on customers, leaving them no choice… The compromise often becomes visible when customers have to modify their behavior to use a company’s product or service.” E.g. Hotels check in after 15:00 PM and check out before 12:00 AM). Furthermore, the customer experience and the main customer journeys need to be mapped and optimized.
Step 3 – Where Do You Compete? Traditionally, firms have been focused on markets (business units), target customers and product/services. Nowadays, you need to go farther and expand that focus to channels and geographies.
Step 4 – How Do You Compete? Many firms formulate a good strategy. However, the ability to execute the strategy continue being a handicap. This step guarantee that the corporate and business unit strategies move on actionable functional strategies and programs.
How You Achieve Sustainability: Sustainability Positioning
Until now, most organizations have assumed that the market is dynamic but “just a little bit.” So, the option of Strategic Commitment based on continuous improvement has worked properly most of the times to sustain the Competitive Advantage. Right now, the question is: Is the Strategic Commitment to sustain the CA in the future? It looks that a more dynamic and “radical” approach is needed.
There are other two strategic options: Strategic Opportunism and Strategic Adaptability. Those positionings are based on the belief that we are living in a turbulent environment with a very dynamic market. Thus, those strategic approaches are based on substantial and transformational innovation rather than the traditional incremental innovation.
Image 3: Adapted from David Aaker: “How You Achieve Sustainability: Sustainability Positioning”
In order to choose your strategic positioning, I would suggest that you review the strategic disruptions and examples shows in the first image and the post Is It Time to Review Your Business Model?