What does sustainable competitive advantage mean to you? Is it a competitive advantage that has a half-life longer than Uranium or do you use sustainable in the sense of a renewable resource?
I much prefer the later analog. Despite IP protection, despite trade secrets, there is nothing so fleeting as a competitive advantage. Sustaining the competitive advantage takes real work.
Innovation is the key, and not just product innovation. Last year, I attended a presentation from Larry Keeley from the Doblin Group as part of the Wisdom Exchange this spring. His message was simple: Innovation is a discipline – which means there is a process involved. People commonly think of innovation in the narrow context of products. However, there are at least nine other areas commonly used to innovate a business in addition to product innovation. Product innovation alone has a 4% success rate. Better innovation tackles change in at least six of the following ten areas:
-
Finance
-
Business Model – how the company makes money
-
Networking – enterprise structure, value chain and partnerships
-
-
Process
-
Enabling Processes – Assembled capabilities you typically buy from others
-
Core Processes – proprietary processes that add value
-
-
Offerings
-
Product performance – basic features, performance and functionality
-
Product systems – extended systems that surround the offering
-
Services – how you help the customers
-
-
Delivery
-
Channel – how you connect your offering to the customer
-
Brand – how you express your offerings ideas and benefits to the customers
-
Customer Experience
-
As a small case study, consider Nescafé reacting to competitive entrants such as Starbucks. Here is a blog on the subject by Thomas Otter entitled Simplicity, elegance and the Java bean. In his post, Thomas describes his adoption of the Nespresso Cube – a coffee maker with a cartridge system that is very easy to use. The product highlights a brilliant piece of innovation in the face of competitive pressure.
Nescafé`s problem: as the dominant coffee company is the world, they missed the boat on speciality coffee shops which changed the way people view coffee and created a stigma around Nescafé`s dehydrated products as inferior.
The Challenge: Regain competitive advantage by getting people to drink coffee in their homes again.
The Solution: Convert an office coffee product originally invented in 1975 into a household device (Product Systems and Core Processes). Partner with a leading design firm and create an elegant and simple device that provides espresso quality coffee with little fuss and much faster than a regular espresso machine (Product Performance and Customer Experience). Change the distribution model from grocery store sales of a commodity product to a web-based subscription service with home delivery (Channel). Use advertising and an excellent web site to build a brand (Brand). Build a community around the machines and coffee (Networking).
The Result: 25% annual growth since its launch in 1988.
The key here was not the product – that existed since 1975. It was the change in the channel. This was innovative brillance.
Posted by Michael McKay 