Understanding your competitive advantage

Similar to the previous post, understanding the form of competitive advantage your organization or products hold is another critical component of forming a growth strategy, in combination with market growth potential, as well as lagging performance indicators such as profit generated.

Along the same lines, here is a rating methodology you might consider using with stakeholders to generate a collective view of competitive advantage at the granularity that is most relevant. One final comment is that low ratings may simply identify the need for innovation or repositioning, as opposed to depositioning or “sun-setting” product lines. It’s a current state view that needs to be combined with potential ratings and analysis.

Unique intellectual property:
You have a better model or it is based on information no one else has
1. Our product offerings are based on commonly available information and well-known models
2. Our offerings are built on current models and information but requires some related expertise to apply in a consulting situation
3. Our product offerings are built on current industry models and we have a high degree of specialized knowledge
4. Our product offerings are built on proprietary knowledge, a customized approach that is specific to the needs of the CU system, and specialized skills that aren’t readily available
5. Our product offerings are totally unique in the market, leveraging our position as the central, and employing internally developed processes and knowledge that is only available through us

Integrated product line: The continuity of using your products is better, creates a better outcome, is easier
1. This product line is in a category of its’ own, and does not integrate at all with other offerings
2. This product line is can easily be discussed in the same conversation as others, but doesn’t integrate
3. This product integrates through price bundling because it is somewhat related in nature and can be sold to the same decision maker
4. The product is somewhat effective when used in combination with other products, with some synergistic effect
5. The product is most effective when used in combination with other products, with a synergistic effect

Proven relationships:
You have built relationships that garner you loyalty with clients
1. This product is practically unknown and internal contacts which would be the decision maker are not identified
2. This product line has some general awareness in the system, but customers primarily seek to solve this problem independently whenever possible
3. We are known with our clients for offering this product, but the relationships built on this offering are inconsistent
4. This product is consistently a conversation starter with clients when we spend time with them
5. We have strong relationships with clients, who call us, about this product – because of its’ reputation

Dominant market player: You are considered a heavy hitter in the industry, and it is assumed there’s a reason why
1. This product offering is unknown in your target market
2. This product is largely unknown in your target market
3. While it is hit and miss, there are customers who know you and are very satisfied with this offering
4. Your market awareness has often been boulstered by the strong reputation for an ability to deliver this service well
5. You are considered the expert on this subject matter, within this market

Differentiation: Your product offerings are simply different / better
1. Customers see this product as an absolute commodity, something they can get elsewhere
2. Customers see this product as somewhat common, they have other options
3. Customers see this product as somewhat unique, there are few other options
4. Customers recognize the fact that the product offers value they can’t get elsewhere
5. Customers understand you deliver value that isn’t matched by any other supplier in this category

Understanding the attractiveness of your markets

Michael Porter developed a tool called the “Porter’s 5 forces” to help structure the analysis of market attractiveness. This can be used to understand potential markets, or existing markets. It’s important to understand both the forces that are acting on your business, as well as the opportunities for influencing them. Sometimes influence comes simply by changing your offering to generate competitive advantage, and in other cases it may act as impetus for actions like horizontal or vertical integration, lobbying for advantage with regulators, etc. It’s important to go further than simply talking about the forces, it’s important to create some form of rating in order to generate consensus building discussion.

This can be implemented at a market level, product category, or down to individual offerings, depending on what makes sense. While you don’t want to isolate your perspective to an internal view, there can be a lot of insight held within the collective minds of your teams. One way to generate data is to structure a stakeholder survey, with ratings, applied at the granularity you deem most relevant.

Here is a starting point if you choose to go down that road (below). Once you start generating this kind of data, you’ll probably want to continue the discussion into the future, because it’s essential to a lot of decision-making.

Sample survey methodology:

New Entrant Risk: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down).
1. The barriers to other suppliers entering our market would be extreme from their perspective
2. The barriers to entry are high, but not insurmountable
3. The barriers to entry are moderate
4. The barriers to entry are minor, and act only as a mild deterrent
5. The barriers to entry are practically non-existent, it would be very easy to start competing with us

Buyer Power: The power of your customers to drive down your prices.
1. Buyers have no collective power over our pricing
2. Buyers have a minor degree of power over our pricing
3. Buyers have a moderate degree of power over our pricing; they can squeeze us a bit
4. Buyers collectively have a lot of power over our pricing
5. Buyers have power over our pricing changes through collective influence whenever they want

Threat of substitution: The extent to which different products and services can be used in place of your own. (this also drops both supplier power and the market attractiveness)
1. Clients have basically no substitutes for this product offering; they can neither get anything similar elsewhere nor replicate it in-house
2. Clients have less-than-ideal options for substitution, but they exist
3. Clients have some reasonable substitute options, ranging from doing it themselves to accessing the expertise in the different form
4. Clients have some solid substitution options that match our own value proposition
5. Clients have substitution options that could easily be perceived as better than what we provide

Supplier Power: The power of suppliers to drive up the prices of your inputs.
1. Suppliers have practically no control over input pricing, we can easily force the margins when we want
2. Suppliers have a bit of control over input pricing because of their strong reputation amongst limited suppliers
3. Suppliers have a reasonable degree of control over input pricing, and are in a position to occasionally negotiate in a healthy way
4. Suppliers have more control than we would like, and are effective in keeping the input prices reasonably high
5. Suppliers are in a dominant position, and have been able to successfully control the input prices higher than we want

Competitive Rivalry: The strength of competition in the industry.
1. There are very few competitors in our market, and their products are less attractive than ours
2. There are a few competitors than offer products, but they are generally not as attractive as ours
3. There are several competitors in the market, and their products are arguably similarly attractive
4. There are some significant competitors in the market, many of which have very attractive products and services
5. The competitors in our market are at least as strong as us, and their product offerings are equally attractive or more competitive

Benefits of strategy mapping

Strategy maps take a fair bit of work to “dial in”. The question many leaders have is whether it is worth the effort. I think: yes!

If leaders understand all of the inter-dependencies within the strategy (already), building a strategy map will take about 5 minutes. The fact that it takes much longer is representative of the idea that we don’t always understand our strategies as well as we think we do. So what is this new level of clarity comprised of?

1. Understanding inter-dependencies: How do each of your strategic objectives impact each other? Do they? Over time, if changes in performance levels of metrics don’t contribute to downstream improvements (linked objectives) then you may need to question whether the measure is appropriate, and whether the relationships between objectives are as real as you have theorized. This is a more sophisticated understanding of direction than discussing individual objectives individually.

2. Confidence in measurement: How do you know that you are measuring not only all of the right things, but only the right things? Every strategic objective should be linked to a measure, if they are in fact critically important. Without this context, your focus may be pulled around by “good measures” that may or may not be deeply linked with strategy. Measurement drives behavior, it’s essential that you’re ONLY measuring things that are relevant.

3. Resource expenditure / Project relevance: If your organization is investing effort into “improvement” projects that can’t be tied to your strategy map, you should question whether they are relevant at all. This is a great way to identify what you should be challenging, and where your “sacred cows” may be grazing.

The ability to represent the entire strategy on a single page is a huge advantage in communicating direction. Your goal of consistently communicating this through multiple levels of leadership will be greatly supported by having this kind of visual. It’s a creative exercise that you may find challenging, but the rewards of doing this well are many.