Far too many organizations design their strategy with antiquated approaches designed to make everyone feel good, and then fail to implement anything meaningful. To avoid yet another year of wasted strategic planning, organizations must let go of myths that muddy their ability to develop a winning business strategy.
Too often, business executives pursue strategy “black holes” that fail to align the organization’s activities with those real competitive advantages that will necessarily make customers want to seek out their products or services.
Within an organization, there is a lot of confusion around the features that constitute an organization’s actual competitive advantages. For example, executives may point to exceptional employees as the feature that gives their business a competitive advantage. Yet, employees are not a competitive advantage. Customers buy from an organization for a small set of promises that the organization pitches as the reason to bypass competitors and buy from them. Employees are the way that the organization delivers on those promises, not the reason that the customer is purchasing a particular product or service. The performance of each employee can make the experience better or worse, but it’s rarely the “why” of the customer’s decision to do business with an organization.
Many myths prevent organizations from getting to a real competitive advantage. They include the fallacy that SWOT is an analysis tool, or that product life-cycle or brand are real differentiators, to name a few. Instead, a winning strategy separates what’s generally expected in conventional operations — the table stakes, if you will — from the organization’s two or three competitive advantages that make the organization special, why customers buy from them regardless of price, or what they offer that the competition doesn’t.
For example, in a tire store, features such as courteous service representatives, same-day service, or product variety are table stakes. Yes, they need to meet customers’ expectations in these areas, but further effort to exceed expectations in these areas would be wasted money, time, and resources. Goals around these areas need only focus on bringing them to the median expectation.
Features representing a competitive advantage must not only separate the organization from its competitors but also be something that the organization can hold onto long enough to make real returns.
Organizations can never be sure about what features constitute their competitive advantage. They will want to generate a master list of what might be a competitive advantage, asking themselves: Why they think customers buy from them, what makes them unique in the market, and what are the areas where customers choose to pay them more than their competitors.
Armed with this list, the leadership team will then be able to use a modified version of resource-based analysis to examine each potential advantage — whether it’s a product, a consulting service, or a piece of equipment, for instance. Each must meet five criteria to constitute a real competitive advantage:
1. Rare. Is it unique when compared to competitors? The capability must be exceptional (or relatively so). Customers won’t reward the organization with extraordinary returns for merely offering the standard, expected elements of a business.
2. Durable. Will the organization be able to hold on to this rare capability and see real returns before a competitor adopts it? A new resource or capability is only of value if the organization can capitalize on it. Note that every industry is different, and the necessary time frame for durability will vary. The online women’s clothing industry will have a relatively short time frame, while the time frame in the offshore oil gasket industry will be quite long.
3. Relatively non-substitutable. Most potential competitive advantages fail at the rare and durable stages, but if they pass, the next criterion to consider is whether there’s a substitute available. This could mean that a customer could obtain a similar “value proposition” from another organization. The second part of this examination is determining whether these substitutes negate the competitive advantage.
4. Relatively non-tradable. The organization will need to determine if the resource or capability could be sold off (traded), without tearing the organization apart. If so, why would the organization hang its strategy hat on something that the next CEO could sell? A tradable resource or capability isn’t a real competitive advantage.
5. Valuable. It’s generally the case that most potential competitive advantages fail at “rare,” and next most at “durability,” followed by “non-substitutability” and finally “non-tradability.” To save the leadership team’s time, discussions of value creation should only take place if the resource/capability passes those criteria. To attain real value for the organization, this potential competitive advantage must allow the organization to either charge more than its competitors, have a lower cost basis, or capture the competition’s customers — or possibly all three.
