Your competitive advantage depends on your positioning with the industry. This advantage is the only reason why superior performance is possible. Without a competitive advantage you can have only what other players in the industry let you have and you can guess that won’t be a great way to compete. This is easy to understand because the opposite of competitive advantage is competitive disadvantage. There is no middle ground.
Managers clearly understand the need for competitive advantage especially after seeing what happened to several during the 2008 economic crisis which shook businesses globally and now the coronavirus pandemic that has hit nations badly. Every manager understands that it takes more than a great corporate goal to win. What many managers don’t clearly understand is how to go about establishing this advantage.
Superior performance depends on the management ability to adopt a unique approach to competition. As clear as that is however, it can also be hugely misunderstood.
Uniqueness in strategic terms is more than one action. You can have a unique branding and not be unique in the sense of strategy. You can have a unique product and still lack uniqueness. To understand uniqueness in the sense that I mean, you need to first understand that every business or company is a conglomeration of carefully selected activities which are linked one to another.
The uniqueness of a company in the sense of strategy comes from the summation of the unique activities that make up the entire chain, which Michael Porter called, value chain. Uniqueness comes by not doing activities different from how others do that, but by linking those activities in a way that is peculiar to your company that it produces a unique fit or configuration that is original to your company.
It is this unique chain of activities that gives a company its strategic position. Now, triumphing in moments of chaos is a matter of positioning. Positioning enables you to control the actions of others to your own advantage.
There is a reason why it’s so important to think about these activities in terms of value. This is because being successful is not just about being busy, it is being about the right things. Activities that don’t add up to the intended value is meaningless and a waste of effort. This means that companies incur losses or make profit at the activity level. Strategic gains are made at activity level not when the products are sold.
To put this clearer, the gains or losses don’t really have much to do with spending less at each activity level. It rather is about spending the right amount. It is about not compromising the strategic promise made to the end user.
That begs the question, what is the right amount? The right amount is the required input arrived at the most efficient way. It’s very important to commit only the required effort, knowledge, finances and other assets and no more or less into each value activity.
One way to approach this is to understand that every activity exists in a micro industry with suppliers and buyers as well as substitutes. There is also a micro value chain within each value activity in the company. Lack of clarity about this causes managers to make lousy decisions. Training managers and supervisors to recognise the micro chain, understand the power of their suppliers and buyers within the company as well as their own power is the way to go in the pursuit of strategic uniqueness.
Consider operations in a financial institution, say a bank. Now, the operations department in a bank is a back-end team responsible for executing and settling transactions initiated by the front-end teams. So, the operations value activity depends on the supply from the client-facing roles including marketing and customer care but as well as IT, security, procurement, human resource management and firm infrastructure.
Frictions arise many times when a unit, say, IT fails to meet the expectations of the operations unit for any reason. Yet if strategic uniqueness must be maintained, operations must ensure the adequate investment is made. Imagine when the Human Resource team rejects the proposal of the sales team, or one of its suppliers to sponsor a training for the team because there is a recession and the company cannot afford to train. Sooner or later the team will lose motivation and unable to effectively supply the finance unit which depends on them. The end result is failure. Yet this type of scenario plays out each day.
Solving this problem requires that each value activity unit must think in terms of the activities that depend on them just like the marketing value activity must think in terms of the client. They must realise that their real value is their ability to satisfy those they serve in the most efficient way. It’s therefore more appropriate for the inbound logistics value activity unit to focus on the operations and other units that buy from them with the company than the final clients.
On the other side, each value activity unit must design a competitive strategy since resources are limited. If every activity unit has a competitive advantage, it will eventually get to the shareholders and investors. Marketing needs a competitive advantage to get the required investment and support from their suppliers including HR and IT. It’s not going to happen just because they are part of the organisation. Same goes to other activity units in the organisation including the C-Suite if they intend to have the required efforts and investment from the shareholders.
Dr Reuben is one of the most sought after thought leaders on the subject of Strategy in Nigeria. He speaks at business events globally.