Renting video cassettes from Blockbuster video seems like so long ago ..
How Internet affects business is one of our favorite topics but there is an underlying larger idea in strategy. That idea is sustainable competitive advantage by which a business maintains enduring success.
Competition to Blockbuster involved competitors like the “no late fee” Netflix model of DVD’s – home delivered. Now Netflix sustains its competitive advantage through better distribution via online digital delivery on demand. The inability of Blockbuster video rentals to recognize and adapt to market and technology changes made it extinct.
There are several researchers that have developed ideas around sustainable competitive advantage including Prahlad and Hamel that was covered in an earlier post about core competence. However, core competence is more inward looking than the idea of sustainable competitive advantage –an idea attributed to Jay Barney. Jay Barney’s 1991 article is cited a mind-boggling 41,000 + times, in scholarly journals in HR, Economics and Finance, Entrepreneurship, Marketing and pretty much all the Business School disciplines. Obviously, the idea strikes a chord and here is a simplified guide to understanding the idea of sustainable competitive advantage as it applies to your business. But first some examples:
Jay Barney mentions in a later video about the fallacy in the SWOT method of strategy where you do not enter businesses that in an industry that is not growing,has too much competition, poor margins etc. Instead think of Wal-Mart that is the most successful company among the discount retailers; even as K-Mart had to declare bankruptcy. Wal-Mart is able to sustain competitive advantage due to its great supply chain management including close co-ordination with suppliers through technology and face-to-face collaboration. In fact, multi-national Wal-Mart suppliers (eg. Nestle) have offices in Wal-Mart headquarters at Arkansas. If Wal-Mart thinks of entering a new world market where Nestle is already there, it asks the Arkansas Nestle office to call in their managers for training with Wal-Mart systems and methods much before the first Wal-Mart store opens in the new global market. Talk about building an advance supplier team. Similarly, while the rest of US airlines weep for the industry they are in, South-West Airlines has turned a profit every quarter- the sustainable competitive secret might be the Herb Keller recipe of “THE low cost airline” covered in an earlier post.
Your sustainable competitive advantage is:
- Something that only you do well: This could be a trade secret (your secret pizza sauce, the Coke formula) or the very customized supply chain management (Wal-Mart), infusing the total quality culture right to the janitor (Toyota) or gritty bootstrap entrepreneur-ing that creates value from very little. Identifying your unique resource is easy. First, think of your industry and classify the “given” ingredients that are bare necessities to compete. These could include a website, a phone contact etc. that are givens. Second, you look for that special unique thing that you have and customers value-but competitors don’t have and can’t copy easily.
- Your customers value (i.e. are willing to pay for) :The combination of what you do uniquely well might really be creating customer value. This includes back end activities like supply chain at Wal-Mart.If you have a pizza store, no matter how how good your pizza sauce, you cannot succeed in all segments of the pizza business if you don’t offer delivery(a given). Remember that customers appreciate value of your “special” offering only if the rest of the “givens” exist. Those customers who value an average pizza with delivery- will be lost if you don’t offer delivery.
- Your competitors cannot copy easily: This one is tricky. Competitors can start a discount store like Wal-Mart but the years of building sustained supplier relationships and constant supply chain technology upgrades, to cut total cost, is not easy to replicate.
- Moving with the times and with the final consumer : The more upstream B2B you are, the more the need to keep track of changing consumer tastes. That is if you supply sugar to Coca-Cola, you should have started thinking long ago when declines in sugared beverages started.It took years for Wal-Mart to realize the power of Amazon with the consumer but it has now upped its online game. Similarly, Netflix started moving to online delivery in good time and Best Buy will surprise you with pricing that matches Amazon for products that you can touch and feel as you “showroom” i.e. search your smart phone for Amazon prices from the Best Buy store. McDonald’s is finally going for healthier options as Coca Cola launches milk !
Agreed that nothing lasts forever, but understanding your sustainable competitive advantage is a great way to change track even as the world changes faster than ever.About StratoServe Digital Marketing Services.