Rethinking Competitive Advantage

Rethinking Competitive Advantage - New Rules for the Digital Age by Ram Charan & Geri Willigan aims to be a refresher on what it takes to create, maintain and expand your competitive advantage in a digital-first world.

The digital age has changed the way customers experience your business. The prices are lower, convenience is high, access is quick - and now customers expectations across categories have become the same. A company we were evaluating was asked this question by its customers “If Amazon can do it in a day, why can’t you?”

The author says that creating a competitive advantage is different in today’s day and age i.e. the digital age. Gone are the days where the company having control over distribution channel, brand, patent, or tangible assets emerges are the winner. Today’s company has to win the ultimate prize - the customer’s preference. And, repeatedly!

Read along, as I share some key learnings from the book!

There are new rules of competition

  • A personalized consumer experience is key to exponential growth

  • Algorithms and data are essential weapons

  • A company does not compete, its ecosystem does

  • Focus on cash generation! Money making is geared for huge cash generation, not earnings per share and the new law of increasing returns. Founders understand the difference.

  • Personalize the Customer Journey - divert all effort towards this!

  • People, culture and work design for a ‘social engine’ that drives innovation and execution personalized for each customer

  • Keep reinvesting to reinvent

  • Leaders continuously learn, imagine, and break through obstacles to create the change that other companies must contend with

The Digital Age

Its New. Its Different. Its Difficult. But its here to stay!

  • Creating competitive advantage is different in the digital age. The ultimate prize in a digital world is winning consumer preference. It comes from what a company does vs what a company has.

  • Imagining new market spaces and revenue pools that can scale up at unprecedented speed is just one way that digital companies are born from the start.

  • The old adage of stick to your knitting or build on your core competence narrows a company’s imagination in a digital world

What characteristics do Digital Winners have?

  1. They imagine a 10x to 100x market space

  2. They have a digital platform at the core

  3. They have an ecosystem that accelerates growth

  4. Their money making is tied to cash and exponential growth

  5. Decision making is designed for Innovation and speed

  6. Their leaders drive learning, reinvention and execution

What’s wrong with a traditional company?

Nothing actually, however this is where Digital vs Traditional comes into the picture

  • A traditional company’s downward curve starts with price declines, margin pressure and flight of investors

  • Some conventional advantages will always persist, such as brand, reputation, patents, and scale matters in commodity businesses

  • The biggest difference to create competitive advantage vs the past is the speed of competitive action and response

  • Leadership obsolescence is a reality. Reviews in legacy companies are largely focused on the rear view mirror

Digital Leaders are a new breed

  • Many traditional leaders have an over reliance on outdated theories

  • Core competencies have a shelf life, they become obsolete, and new ones have to be built

  • A digital leader recognizes this and is on a continuous path of improvement

  • Leaders who have ‘observational acumen’, the ability to notice what others miss are often the ones who land on a better consumer experience.

  • Digital leaders blend data with intuition. They have the mental capacity to think big 10x or 100 x. They are focused on the customer

  • The founders of today’s tech companies put a lot of effort in recruiting right

  • There is a fluidity to their thinking, they welcome change and even seek it. They are hungry for what’s next and are willing to create and destroy

  • They rely on metrics and transparent data to drive execution

  • When leaders fail, it is because their business skills do not fit the challenges of the job

Consulting models ‘may’ not apply anymore

  • A dominant psychology of incrementalism and short term thinking.

  • A blind spot when it comes to customers

  • Acceptance of existing boundaries

  • Belief in mass markets and segmentation

Are you personalizing enough?

  • A market of one is the ultimate in personalization. M = 1

  • Starbucks caters to 170,000 possible beverages options at its stores according to its website

  • Mapping the customer journey is emerging as a distinct expertise

Key learnings

On digital platforms

  • A digital platform on its own is not a competitive advantage, but not having one is a competitive disadvantage

  • The real impact of digital technology and platforms comes from combining knowledge of what technology can do and business judgement about how  to use it

On data, algorithms and security

  • Combining and refining algorithms over time build competitive advantage

  • Consumers get great value from company use of data and algorithms, however, that can quickly disappear if privacy or security is compromised

On growth

  • Digital giants and their ecosystems are not linear, i.e. not only aligned with their own supply chain, they are exponential and multidimensional. They have a vast range of partners

On funding

  • Digital plays can often require substantial amount of capital before they become the exponential growth, cash generating machines we want them to be

  • It is essential to find funders for your business who are aligned with your strategy, and get the big picture

On recurring revenues

  • Digital companies create recurring revenues from consumers. Digital companies see growth as a series of S curves

On decentralization

  • Breaking work into bite size missions and giving stand alone teams the autonomy to figure out ‘how’ leads to faster, better decision making

  • Digital platforms make real time information transparent to people in other parts of the organization, people feel liberated and send more time doing what they inherently need to do

Closing comments

A lot of advice in the book does not seem very concrete, and can be passed off as offhanded remarks. The authors suggestions on strategy may also be simplified down to ‘brainstorm with your team’, or ‘find trends that will be sustainable for the next decade’.

What this book does is to share high level understanding of very successful companies, which can seem very inspiring, but a lot of generic advice can be passed off with an eye roll.

A good, quick read to touch upon the basics!

This post originally appeared here.

Leave a Reply

Your email address will not be published. Required fields are marked *