While most companies aim to stand out in the market, it seems that customers can find fewer differences between them.
What went wrong with the strategy? How is it while companies invest in getting their strategies right, they increasingly look like mirror images of one another, facing mounting cost and price pressures?
Think for a minute about five-star hotels in north Mumbai. At one time their location set them apart. Today most of the new comers are located within walking distance of each other. One could make the case that their offering – food, décor, staff uniforms, toiletries, even the way the toilet paper is folded into little triangles – is similar.
The same goes for business-class services of the leading airlines, where food, seating, uniforms, films, even the boring offering of orange juice, champagne and water before take-off are almost universal.
Yet companies are increasingly claiming that their cost structures are rising and their margins shrinking. This holds true for most industries, be they consumer products, financial services, industrial products, information technology, telecommunication or business-to-business. My view is that over the past 15 years, competition has come to play a central role in defining strategy. The term that best symbolizes this is “competitive advantage”. This term of phrase has become ingrained in companies’ vocabulary.
Businesses discuss their strategy moves and urge their managers forward under the banner of building advantages over the competition.
I believe the background to this obsession started in the 1970s with the meteoric rise of the Japanese economy. In industry after industry – from cars and steel to consumer electronics to textiles, leading western companies found their markets under attack. For almost the first time in their histories, customers were deserting western companies. In this background, emerged the principle of “competitive advantage”. This is the idea which suggests, that competition is at the core of the success and failure of companies.
But should organizations be motivated in this way? Perhaps the time has come for reshaping of old industries to new frontiers and building entirely new industries.
The continuous focus on building competition advantages detracts and blocks creativity. When asked to build competitive advantages, managers typically put themselves against competitors, assess what they do and strive to do it better.
Consider the story of the video cassette recorder or mobile phone industries. Companies fought ferociously to offer sophisticated product features. Most products ended up being almost identical and over-designed from the customer’s perspective. Most buyers find the features confusing and even at times irritating. They even express fear about using the product because of all the controls and flashing lights. Companies outdistance one another constantly but are off-target in giving buyers what they want – low prices. To achieve high growth in the future, companies need to break out of this vicious cycle of competitive benchmarking, imitation and pursuit
I believe companies need their managers to pursue what I call “value innovation”. Value innovation is just what the name implies – value and innovation with equal emphasis. The buyer and not the competitor should be placed at the center of strategic thinking. And managers should aim for leap-frogging advancements, not mere incremental advantages over market rivals.
It is the drive to achieve a leap in value with a low-cost business model that makes companies question everything the industry and competition are doing. How can companies break out of the grip of competitive thinking? Perhaps the best way to start is to ask what it takes to win the mass of buyers even without marketing! When companies frame their strategic thinking in this way, the futility of benchmarking the competition becomes clear.
To create a compelling strategy for an organization, one that achieves the financial reward of value innovation, achieving both exceptional value for buyers and low costs for companies, begin by asking four questions :-
1. what factors should be eliminated that an industry has taken for granted?
2. what factors should be reduced below the industry standard?
3. what factors should be raised above the standard?
4. and what should be introduced that the industry has never offered?
To get the above right, the company needs to create an environment that permits creative thinking among the managers and various functions within the organization. It is worth investing in a group of talented people – pulled out of different functions and set them up for “innovating thinking”. Their focus should be the consumer; their aim should be to do things differently and not just better than competition.
The company can then be steered on the path of success.
So far I have followed the path that is normally travelled by companies.
In the last few years, companies who had diversified their businesses into various fields discovered that some of their diversifications bled the company and seriously affected the company profits. Thereafter, the companies came to the conclusion that each one of them should stick to what they termed as “Core Competence”.
What is this core competence? It seems to me that two companies in the same business would possess similar competences. I believe that companies do not realize what they have is not just factories, plant and machinery, skilled labour and a product to sell. Each company has a soul – the spirit that drives the unseen movement among the people who work in it.
Most of the time, this spirit of the founder, his soul, manifests itself in the work place. Every employee then imbibes the spirit that exists in the air, reluctantly or otherwise, and follows the path. Sometimes, it is also possible that employees themselves discover the soul of the company, not consciously though, which then is stated as “the vision of the company”. However, if you read companies’ vision statements, the difference is only in words not in spirit. They all basically say the same thing. They have not discovered the soul.
If the management becomes conscious and seeks to discover and understand the presence of the soul the task would become a lot easier. The employees will begin to feel the difference; the productivity will go up; and what is more, they will begin to enjoy the work. When an employee is happy at work and in peace with the environment, he builds a happy and joyous family. All the members of the family begin to stretch themselves beyond limits and the society at large benefits from it as well.
Ram Sehgal
(Ram Sehgal is Group Adviser at Rediffusion DR & R and its group companies. He also oversees Wunderman, Everest and S&H. He has been chosen as A & M Advertising Man of the Year and elected to the “Hall of Fame” by the Advertising Club of Kolkata. He studied and grew up at Sri Aurobindo Ashram in Pondicherry.)
