The Holy Grail of business is competitive advantage; it is a mysterious concept, shrouded in consultant jargon, and definitely not available to the common man. Or is it? If you begin with the value equation, it is fairly straightforward to realize that customers make a purchase decision based on a lower cost for equal quality or higher perceived quality for a given cost. There is nothing inherently mysterious about purchase decisions.
Strategically it is mandatory to chose whether to pursue distinction at the numerator or at the denominator of the value equation. Why not do both, you ask. Because you must focus to execute a strategy successfully. Trying to do it all means two things: 1) you can't make a decision, and 2) you will be mediocre at both your cost and quality offerings.
If you have the scope and scale of Wal-Mart, you have an excellent chance of creating competitive advantage by being the low-cost source of goods. Even with their scope and scale Wal-Mart must also attend to efficiency in everything they do. They have particularly excelled in managing inventory and logistics by tightly collaborating with suppliers. For most, however, competing on cost alone is more likely to be disadvantage than advantage.
Perceived quality includes a number of potential differentiators, e.g. technical quality, service quality, innovation, and speed. BMW offers the technical quality of German engineering. Nordstrom's offers service that thrills their customers. 3M has used a technical capability in adhesive bonding to innovatively move from sandpaper to Post-It notes products. Fed-Ex completely reset expectations with their promise to deliver documents overnight. All of these companies are competing on something other than being the low-cost provider of a service.
If you are hoping to compete at the numerator level, rather than the denominator level, of the value equation, what is the secret? How do you differentiate your offering in a way that makes the perceived quality worth more? From our perspective there is only one source of competitive advantage, and that is a high-performing culture. That culture must be aligned with your strategic choice on how to pursue advantage. The behaviors, feelings, and knowledge of the people in your organization will make or break your potential advantage. If people are making discretionary effort; if they care about results for customers; if they know what, know how, know why, and care why; they will create a perceptible difference that customers can appreciate.
Comments