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How sustainable is your competitive advantage?
. —- By Jeffrey R. Williams —-
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The article “How Sustainable is your sustainable competitive advantage” by Jeffrey R. Williams, in short says the following factors help you determine the sustainability of your business: –
- Innovation
- Cost
- Economies of scale
- Unique selling propositions (USPs)
- Location advantage
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Nothing! Nothing lasts forever. Competition responds to all the above answers with superior features, lower prices, new ways – any which and what way. There is no escape. Yet we see certain companies sustaining for ever and ever; Microsoft, IBM, Compaq, Apple etc. what is the sustaining advantage that they have and others do not inspite of having all the answers stated above?
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Two major differentiating points for sustenance are
- fast learning
- Proactive changes
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Strategically these can be implemented as:
- estimate, within broad parameters, different product life-cycle patterns, upon which profit margins and cash flows for projects can be estimated in capital budgeting exercises
- forecast dynamic pricing patterns—the strategic, long-term pricing policies needed over extended periods of time to sustain different classes of products;
- project life-cycle manufacturing targets—the extent to which a manufacturing process will come under intense pressure to meet productivity and time-to-market objectives;
- estimate, for products, their brand durability—the inherent sustainability, absent infusions of capital, of a product’s brand loyalty with customers; and
- Most importantly, establish strategic guidelines for organizational learning processes—those management procedures and organizational routines needed to sustain advantage as conditions change.
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The article is based on research conducted on a range of industries that differ in sustainability. The sustainability here is in terms of resource sustainability i.e. how well the products survive and how long does it take to imitate the products. So it is a fight against imitation and we measure the cycle time.
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The resources were therefore categorized into three categories:
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Class 1 – Slow Cycle Resources: Think of these resources as those products that have monopoly, they have gained a capability that is idiosyncratic or one-of-a-kind. Product advantage is therefore well secured with in the firm and confined to it.
e.g given are : Hospital rooms(per day), Medical appliances, Entertainment etc.
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Class 2 – Standard Cycle Resources: Product and services that are typically standardized for production at high volume.
e.g: fast food, automobiles, credit card services, refrigerators, broiler chickens etc
They face direct competition for extended periods. The focus is discipline, coordination and market control. They serve the mass markets and competitors have more incentives to duplicate them.
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Class 3 – Fast Cycle resources: These face the highest resource-imitation pressures. These products are idea-driven and have high chances of getting copies quickly.
E,g : RAM computer chips, cell phones, portable music players etc.
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Interpretation of data:
Constant technology change, regulatory and political shifts and global competition are compelling companies today to broaden their understanding of sustainable competitive advantage.
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What can companies do in these times?
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1. Let sustainability guide design of your strategic control systems.
Processes must be proactive yet evolutionary in nature, recognizing the incremental processes by which companies seek out new sources of advantage. E.g. Sony, Lotus 1-2-3, Intel etc
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2. Let sustainability guide your organization’s policies on innovation.
Innovation has to be done and consistently done. But at what speed – is the important question to be answered. As with IBM and AT&T, the “right” speed of innovation often depends on the sustainability of a company’s resources. Remember, sustainability is based on the interrelationships that develop, over time, between a company, its customers, and its competitors.
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3. Recognize that sustainability shapes diversification success.
Today many well diversified companies are unable to identify their core competencies. The moves and shifts have to more align with dynamic environment.
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4. Anticipate when changes in sustainability will be frame-breaking
Examples such as the advent of hub control in airlines and the arrival of cellular handsets in telecommunications show how shifts in sustainability are associated with changes in the “rules of the game” to which organizations and customers have become accustomed
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Conclusion –
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Sustainable resource analysis helps to:
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• determine product-specific competitive benchmarks (dynamic pricing and costing criteria, advertising policies, capital budgeting procedures) appropriate to the needs of each business;
• predict hidden entry barriers within supposedly homogeneous industries, as typified by AT&T’s difficulty in entering the cellular phone business or Campbell’s barrier in speeding up the pace of innovation in food products;
• identify similar strategy and organization (i.e., opportunities for entry) between traditionally different businesses, as shown by AT&T’s entry into credit cards;
• pinpoint compatibility problems that may exist for especially-complex products and markets, as in the case of personal computers and telecommunications, that may require special, high-level policy coordination efforts to resolve; and
• specify, within broad parameters, the range of organizational learning processes, e.g., different styles of management, disparate control systems and dissimilar cultural norms, that the globally diversified, multi product company must master to grow.
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Tags: competitive benchmarks, Cost, Economies of scale, Fast Cycle resources, hidden entry barriers, Innovation, opportunities for entry, Slow Cycle Resources, Standard Cycle Resources, Unique selling propositions, USPs