One of the most vexing challenges for modern business is the concept of creating sustainable competitive advantage. Look no further than the S&P 500.
Companies had an average time on the index of 90 years in 1935, 32 years in 1965 and less than 18 years today. The implication? As consumer behavior shifts at a rapidly accelerating pace, so, too, must companies retool and reimagine to remain relevant. Without relevancy, a precipitous decline is in order.
Companies that exited the S&P index since 2002 include such iconic brands as Radio Shack, Circuit City, Kodak, Maytag, Sears, Compaq, Texaco and Quaker. Replacing these companies include the likes of Family Dollar, eBay, Google, Netflix, Amazon, Nvidia and SalesForce.com.
Jeff Bezos might have summed up a leader’s role in large companies best: “Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” Bezos went on to say that his job was to delay that date as long as possible (Bezos, 2021).
During the period of Six Sigma and lean manufacturing, there was incredible focus on becoming the most efficient organization in producing a product. That certainly resonated in the U.S. where manufacturing advancements and productivity gains (including quality improvements) had struggled.
However, while efficiency is a key component in overall organizational health it should not be the only differentiator. Because, by-and-large, a manufacturer can hire expertise to drive production efficiency and quality, but without differentiation, price often becomes the prime differentiator.
Where companies create lasting impact with competitive advantage is to compete at the margins on items that are not easy to reproduce. A great example is Berkshire’s investment in rail service. This is a high barrier to entry market based on the massive capital infrastructure required.
If, for example, you have the largest distribution network in the region, you leverage that as a point of competitive differentiation (faster deliveries, same day deliveries, less shipping costs, more selection, just in time inventory, etc.).
For a competitor to compete, they would have to expend millions on building out a similar distribution network. Or, perhaps service is your advantage. But, to provide five-star service today requires the ability to serve clients 24/7/365. Building out that competitive service edge and support model that is 24/7/365 often can be a formidable competitive advantage.
Product differentiation is another means of gaining competitive advantage.
Too often, we see copycats open in a market. A business with a great idea hits the ground running, and other entrepreneurs see their success and quickly several others open with similar products — until there is little competitive advantage for any of the businesses.
To compete on product differentiation, let’s set the barriers to competitive entry so high with quality products, proprietary recipes, unique experience and the like that even if someone attempts to emulate your formula they simply cannot duplicate it.
People are willing to pay for quality service and quality products. Consumers always are willing to pay for expertise and respected advice.
Consumers also are craving experiences. We spent several vacations staying at the same Florida resort not because it was the cheapest but rather the resort understood how to make families have memorable vacations that younger kids loved.
In today’s world, we must dare to go to new frontiers, test new products and services before consumers even realize a need and be willing to fail. Yes, failing is a part of the process.
But failing fast and failing cheap is the key component. And, while we tweak areas of an operation let’s never forget what makes you great and let’s not diminish the parts of your business that are working well and hitting home runs. These become the foundation upon which other change is built.