Leadership

Rethinking the Company’s Competitive Advantage

Companies that continually clarify and reinvent their competitive advantage have the greatest potential to capture long-term sustainable financial rewards. One problem is that most only scratch the surface when attempting to unearth and define the firm’s true competitive strengths.

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Most leaders and their executive teams strive to create organizations where employees want to be fully engaged, dedicated and excited to come to work. A mistake, however, is in thinking that all that’s needed is one company-wide competitive advantage that will connect and resonate with every department, division and subsidiary within the firm.

Using a one-size-fits-all approach will not create the kind of buy-in needed to get the total organization working together.

It’s been demonstrated that companies that continually clarify and reinvent their competitive advantage will have the greatest potential to capture long-term sustainable financial rewards. The problem is that most CEOs and their executive teams only scratch the surface when attempting to unearth and define the firm’s true competitive strengths.

Research conducted by Jaynie L. Smith for the book Creating Competitive Advantage, states that only two CEOs out of 1,000 surveyed could clearly define their company’s competitive advantage.

In highly commoditized and competitive industries, it will take extra effort, along with some business soul-searching, to find and define what separates an organization from its comp­etition. To make this process work, leaders must establish a strategy to gain in-depth knowledge — both internally and externally — from customers as well as those in the organization. Rethinking the company-wide competitive advantage might just be the solution to help a business gain a strategic edge over its competitors.

When each segment of a company is allowed and encouraged to conceive its own competitive advantage, it will help outline how every division can contribute to the organization’s overall success. This strategy will help generate the kind of company-wide pull that itself can be an advantage.

Competitive Game-Changers

Companies today have three game-changers that will directly affect how their organizations develop competitive advantages and will make the competitive landscape more level. That, in return, will force companies to constantly search for new, innovative advantages.

First, all organizations have access to the same in-depth information. Second, companies of all size have availability to sophisticated technology. Third, because of the Internet, businesses of all sizes can easily tap into global markets.

An organization’s competitive advantage might be here today but gone tomorrow. To remain competitive, it must continually examine and when needed reinvent what separates it from its competitors.

The fact is that competition will continue to be more global, more knowledgeable and more intense and disruptive competitors will come from non-traditional places. Companies will be under constant pressure to lower their cost structure, increase margins, make better decisions, embrace change and be capable of spotting trends before they happen.

There will be no roadmap or guidelines to success and the terrain will be filled with unexpected obstacles and challenges that will be beyond a company’s control, but will still need to be conquered at almost a moment’s notice to stay competitive.

Organizations and their leaders must be experts at adapting to an ever-changing competitive landscape and be prepared to rebuild even the very foundation that once made the business successful. There will be no such thing as a long-term competitive advantage but rather, leaders must constantly rethink the firm’s competitive advantages to stay profitable and ahead of the competition.

This reality will continue to even a greater extent in the future, making the traditional ways of achieving competitive advantage obsolete. Companies can no longer afford to sit back, take a breather and think they have a leg up on their competition because today no such luxury exists.

When an organization thinks, “We have the competition on the run,” it needs to be viewed as a wake-up call that it is setting itself up for failure.

One of the deadliest enemies organizations will have to face is that the larger they become the greater the hidden gravity pull to stay the same, to not take risks and to buy other companies in hopes of obtaining a one-of-a-kind competitive advantage.

The reality is that sitting tight, not making a move, waiting to see what happens and not admitting they are losing what sets them apart from the competition has destroyed many businesses and well established brands. When everything around is changing except your organization, trouble is not far behind.

Companies that effectively collect and absorb external and internal data and are able to turn it into usable knowledge will be better prepared to sense market opportunities before the competition. One way to accomplish this is by asking the tough questions and having the courage to accept the truth, even when it is hard to swallow. This kind of knowledge is hard to purchase or collect on the Internet.

The advantage for companies that focus on obtaining straightforward, no-holds-barred answers to the hard questions from employees and customers and that implement needed change is that they will create a competitive advantage that will be hard to duplicate.

Creating a True Competitive Advantage

When every part of an organization discovers what makes it special and builds on the company’s overall competitive advantage, it will help each segment of the business grow stronger in defining the role it plays in enhancing its ability to become more competitive. Leaders and their units can accomplish this by asking what special value they bring to the table.

According to Michael Porter, the originator of “competitive advantage” in the 1980s, a competitive advantage will not succeed if it does not add value.

For example, two companies that have incorporated value into how their organizations and products distinguish themselves from their competition are The Coca-Cola Co. and The Proctor & Gamble Co.

Each organization has built its competitive advantage around being a powerhouse at brand marketing. Both companies have enjoyed long-term success, one of the reasons being that they are constantly improving and strengthening their brand marketing to meet the changing needs of their customers and to stay ahead of copycat brand marketing competitors.

CEOs and their executive teams must dig deep to identify their true competitive advantage, and once clarified, communicate it repeatedly throughout the organization. Too often organizations create a generic version of what they perceive to be their competitive advantage.

For example, the company might say, “We provide superior customer service.” Does this mean it has 24/7 customer service? Does it mean its offshore customer service people not only know the English words but their meanings? Does it mean that every person who has direct contact with the customer is trained in probing skills and decision-making?

If a customer has an unorthodox request, do the customer service people know their problem-solving boundaries? Leaders and their executive teams who develop an in-depth questioning strategy will help create a competitive advantage, producing greater results.
Leaders will play a major role in how their divisions can add value to an organization’s overall competitiveness, and this can either be a positive or negative game-changer in how competitive the entire company will be.

Leaders who encourage their departments to unearth what separates them from the competition will increase the opportunity to create the kind of buy-in needed to make all the parts of the company work together in achieving a higher standard of competitiveness. Many companies try to diversify their product lines through mergers and acquisitions in hopes of creating a competitive advantage. In many cases they end up doing harm rather than obtaining the results they sought. Creating the “right” competitive advantage must match what the organization can realistically deliver and the markets it serves.

Capitalizing on the Advantage

An organization’s culture, functionality and the ability of its intellectual capital to work together can create a competitive advantage that is hard to duplicate. For example, Apple Inc. built one of its competitive advantages around constructing a small, but high-quality and innovative product line.

Today, the Apple logo is one of the world’s most respected and trusted names. Every department within Apple — from marketing to product development — has established its competitive advantage that will enhance the reputation of the Apple brand.

Many companies believe if they pump enough money into research and development something amazing will eventually happen that just might create a one-of-a-kind competitive advantage. Unfortunately, the facts tell a different story. A study conducted by Booz Allen Hamilton Inc. and the Massachusetts Institute of Technology found no correlation between how much money is spent on research and development and a company’s financial performance. Xerox Corp. had one of the most successful research and development departments in the history of business. It invented products like the modern personal computer, laser printing and graphical user interface.

The organizational structure, political infighting, deep silos within and turf protecting prevented Xerox from taking advantage of the potential profits these innovative inventions offered. Other companies were able to reap the financial rewards from these groundbreaking products.
Xerox’s competitive advantage was its ability to invent revolutionary products, but the rest of the organization was pulling in different directions. The result was that other companies were allowed to take financial advantage of these products, while Xerox was forced to restructure.

For a competitive advantage to be effective, an organization must have the capability to execute it throughout the company and the markets it services. Leaders and their executive teams need to have keen insights into the strengths and weaknesses of the intellectual capital of each unit of its businesses. By having an organization that works together, is well aligned and open to accepting innovation, a company will create a repeatable competitive advantage process that will be hard to duplicate.

If a company’s best and brightest are not being allowed to utilize their talents to the fullest extent, this can cause an organization to be unable to implement its competitive advantage. This will not only hinder an organization’s execution efforts, but could result in some undesirable side effects.

For example, if a company’s intellectual capital is only using its primary skills 40 percent of the time and the rest is spent on unproductive activities — while the competition is using its best and brightest talents 80 percent of the time — this will give a competitive advantage to the competition.

Organizations that are able to unbiasedly evaluate their strengths and weakness and how they are being used will provide insights into any untapped competitive advantages that might exist from within. Consider, in 1997, Apple was near bankruptcy before Steve Jobs became CEO again. Steve Jobs determined that Apple’s strengths were its talent and ability to innovate. He assessed its weakness was that it had so many products and was spreading itself too thin. He knew that Apple could not regain its competitive advantage unless it downsized its product line.

So, Jobs reduced the product line from around 350 to just 10. What he did was permit Apple to tap into its underused creative talent. Its hidden competitive advantage was now allowed to be more focused and not spread too thin.

When an organization forgets what made it successful and starts moving away from its competitive advantage, going off in different directions and bypassing what it does best, trouble is not far behind. Priceline.com Inc. developed a competitive advantage by letting customers bid on travel tickets and experienced great success.

The Internet bubble got the best of its management’s egos and they started to believe they could do no wrong. Priceline strayed from its core business and branched off into non-related areas such as selling groceries and even gasoline online.

Once the dot-com bubble ended, reality set in and Priceline’s stock price dropped so low that it almost got delisted. The company was forced to reevaluate its business strategy and competitive advantage, and it went back to what made it successful in the first place, the travel industry and letting customers bid on travel services.

Once refocused, the company added hotel reservations, dropped booking fees and expanded its travel offerings internationally. The lesson here is that a competitive advantage in one industry might not work in another. Today Priceline’s stock price recently topped $800 a share and the company has recently completed its acquisition of Kayak Software Corp.

The three competitive game-changers: the mass availability of technology, ease of obtaining good information and easy access to global markets will force organizations to dig deep when piecing together what truly separates them from their competitors and formulating their competitive advantage. When every segment of an organization is encouraged to build its own competitive advantage and align it to the whole company, this creates the kind of buy-in needed to make all of its competitive parts move in the right direction.

Leaders need good listening and communication skills to productively develop and implement their advantage.

Achieving an ongoing competitive advantage requires constant monitoring of the organization’s competitive landscape and openness to rethinking its current advantages, even when things appear to be moving in the right direction.

The business graveyard is full of once highly successful companies whose competitive advantages were no longer effective, and they refused to rethink what changes would keep them competitive.

David Goldsmith (ideas@goldsmithgr.com) is with The Goldsmith Group (www.goldsmithgr.com) in Atlanta, a firm that specializes in identifying and solving problems.

This article first appeared in the July 2013 issue of Financial Executives magazine.