The re-birth of Competitive Advantage?

25th October 2016

 

The trouble with Competitive Advantage is that for many it falls into the category of ‘Bullshit Bingo’, and even for those that actually think about the words it is often dismissed as something ‘we just have’ in the business. This is not true however, not all businesses are born great (and certainly over time greatness is hard to sustain), it is about finding the really valuable opportunities within the context of an individual business and super-charging this.

 

For clarity ‘Competitive Advantage’ refers to a set of conditions that allow a company to create superior products and services (this is called ‘differential advantage’) or at a lower price than its competitors (‘comparative advantage’). Ultimately though either allows a company to generate more sales or superior margins – pretty much what’s on every CEO’s agenda: growth and profitability. Sounds good right?

 

While growth and profitability are more relevant than ever, the discussion and strategic focus around Comparative Advantage has waned in recent times. Why is that?

 

The Competitive Advantage concept was created a few decades ago, at a time when strategy was based on the past to create the future. It basically assumed that the pre-existing external and internal conditions should dictate the strategy of a company. The most notorious example of this so called “structuralist view” of strategy is Michael Porter’s theory which claims that a company should choose either a low-cost or a differentiated position, depending on its resources and core capabilities.

 

While it held true for many years, something happened. The information revolution we are living these days means that consumers are much better educated, have multiple buying channels, and trends and preferences are changing much faster.

 

Also, the so-called “fourth manufacturing revolution” has led to global changes in manufacturing, one example being the decline of off-shore mass production, as time-to-market becomes more crucial. Think of how long would take a traditional company which manufactures in China to design, manufacture, ship and distribute their products in European stores, versus a future-oriented company which designs, prototypes and tests their products fast, at low cost and low risk, using 3-D printing, distributed manufacturing, e-commerce and social media.

 

This is the end of “too large to fail” and “big fish eats small fish”. Now it’s about being smart and adapting fast – actually one of the pillars of our Business Design methodology.

 

Therefore, the problem with competitive advantage concept is that the “structuralist view” and the static view of strategy are no longer valid. That’s why some people talk about the “death of competitive advantage”.

 

Our continued work with high tech, gaming and cloud-based businesses proves that competitive advantage is here to stay. However, not meaning a set of pre-existing conditions that give an edge to a company, but rather a sustained effort of that entity to innovate continuously, to create products and services that customers value more than those of the competitors (creating attractive value propositions) and to develop innovative business models that capture value for the company (profit proposition).

 

As the rate of change in industry increases, the consulting industry needs to change as well, to respond to these changes in global markets.

 

The most agile and powerful approach to achieve Competitive Advantage, as described above, is Business Design. This is strategy consulting looking to design and incorporate its principles, tools and processes.

 

At Rokker we approach the design of Competitive Advantage like this:

 

1. Define: align views on problem definition and mobilize the team
2. Discover: research and analyse the external environment, current business model and value proposition
3. Ideate: generate ideas and fast prototype value propositions and business models that work
4. Map: select and validate best prototype through customer tests and experiments
5. Execute: implement the selected prototype in the field

 

Elvis Presley said once: Ambition is a dream with a V8 engine. Think of us as those who help you build your V8 engine.

 

Ioan Carpus

Senior Consultant

 

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