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How to Profit from a Competitive Advantage in Business

Executive Summary

It’s rare to create a product that is like a fingerprint - unique and unattainable by any other company except yours. The way to achieve product differentiation hasn’t changed, but the environment in which you have to differentiate has.

  • Low interest rates, economic unrest in Asia and beyond, minimal inflation, and an integrated global economy have changed the game for businesses.
  • In this new reality, product quality is a given, and companies can no longer expect that consumers will pay for their inefficiencies.
  • To gain a competitive advantage in business, management will need to focus on real issues and break out of the traditional mold with specific action strategies.  

Many of the strategies that were appropriate and effective in the past are no longer above reproach. In fact, we have learned over the years that the global marketplace is a dynamic place, full of turmoil—the growing value of the dollar against the euro and the 50 percent decline in oil prices are only two examples; therefore, rethinking past assumptions and engaging in outside-the-box thinking is always required. Organizations need to address this constant change. They must focus on the state of the world, both as it exists now and as it may be in the future, and raise their performance to new levels of effort and achievement.

YOUR BUSINESS’S COMPETITIVE ADVANTAGE ISN’T WHAT YOU THINK IT IS

Product quality is no longer an issue. It is almost impossible to justify a multilevel pricing structure by offering different levels of product quality. Market segmentation now focuses on differences in features and support. Differences in product performance are acceptable. Differences in performance quality are not. Being the low-cost producer is still valuable, especially when sales are price sensitive. Moore’s Law, which states that in technology every three years the capability of the technology will double while the prices decline by half, still applies. Being vertically integrated is no longer the path to becoming the low-cost producer as supply chain management becomes more and more efficient.

Time is Money  

You will gain competitive and profit advantages if you can compress the supply chain from your suppliers to your company to your customers. The amount of time required for this sequence of events has a substantial effect on your inventory, your accounts receivable, your profitability, and ultimately your cash flow. Service levels are affected as well, which may in turn affect your market share and sales growth.

Don't Rely on Pricing for Profit

In many cases, competitive pricing means price reductions. Pricing pressure is not going to end any time soon. Asking our customers to pay for our inefficiencies is not an option. Many industries are experiencing price deflation and will continue to do so. This means that companies must find new ways to maintain their profit margins. The successful ones will become more efficient, find more value-added features to add to the product, and focus on new markets and distribution channels in order to remain competitive.

Differentiation is becoming the new normal. Have you priced out a personal computer lately? Have you even considered purchasing a desktop computer now that there are so many other alternatives? Why buy a GPS for your car when you have the app on your smartphone?

THE NEW BUSINESS REALITY 

Companies will need to make a great effort to distinguish themselves from their competition. The new realities include very low interest rates, economic turmoil in Asia and elsewhere, essentially zero inflation, and a single global economy. However, a company’s profitability can be enhanced, even during tough times. These realities can serve as a competitive advantage if you refocus the attention of the organization on the fundamental realities of a successful business. You must find your company’s answers to the following questions:

  1. Why are we special?
  2. Why do we deserve to exist?
  3. Why should customers buy our products?
  4. Why do we deserve to have our customers’ money?

Implement Strategic Partnering and Consultative Selling

We exist to help our customers sell their products to their customers at a significant profit for both of us. This is called strategic partnering. We need to help our customers solve problems and focus on their opportunities rather than merely providing products, since anyone can sell products. This is called consultative selling. This means we don’t need a store to sell retail products to consumers and don’t need warehouses to sell product to commercial customers. Our prosperity is enhanced as we improve our customers’ ability to compete in their marketplace. We should know enough about our customers’ businesses and markets to enable us to provide products and ideas that will make our customers special. We must know no limits to our efforts.

SIX STRATEGIES FOR CREATING A COMPETITIVE ADVANTAGE  

The fundamental ingredients have not changed; only the environment in which we need to make things happen is different. Not only is thinking outside the box necessary, but I am no longer certain that there are many ‘‘boxes’’ remaining. Here are some strategies that are available to you:

  1. Invest in sales professionals and their training and support. High-quality marketplace visibility is the most profitable investment your company can make.
  2. Accelerate the development of innovative products and services. Focus your company’s resources, both people and money, on those products and services that offer the opportunity for significant financial reward. Persistence is valuable—but not when it implies refusing to change direction when success will elude you if you continue as you are.
  3. Use Boston Consulting Group’s strategic planning matrix. [This tool measures] the desirability of businesses relative to the resources dedicated to those businesses. This classifies your businesses into ‘‘cash cows,’’ ‘‘stars,’’ ‘‘dogs,’’ and ‘‘question marks.’’ It puts these into the context of markets with opportunities spanning from terrific to poor. GE is currently divesting itself of its financial businesses using their own version of this matrix. Finance was as much as 40 percent of their businesses during the peak of the financial crisis in 2008 and will be reduced to less than 10 percent by 2018.
  4. Learn more about the current global economic environment and persistent worldwide turmoil. How can you benefit? What are the risks? This has implications for buying, selling, and the supply chain throughout. Change is good because it creates opportunity for those who are prepared and ready to take action.  
  5. Expand your marketplace support. Include participation in trade shows and industry showcases, advertising in well-directed journals and use of other media to communicate with existing and potential customers. Keep your customers aware of your constantly improving capabilities. If you have nothing new to say to your customers, your competitors will. You must become your own fiercest competitor.
  6. Streamline the performance of your administrative support. Use technology in ways that let you derive its maximum value. Use experts to fill in and eliminate the knowledge gaps in your organization.

Excerpted with permission from The Essentials of Finance and Accounting for Nonfinancial Managers by Edward Fields, copyright Edward Fields.

Bring It Home

One of the biggest pain points for a marketing professional is diagnosing where a campaign is going wrong. Oftentimes, trying to find the gap is like whacking a pinata with a blindfold around your eyes. In stepped Funnelytics, a startup company which offers a free tool to help marketers set up funnel overviews in a visual format. But that’s not all. The software gives marketers the ability to analyze results from platform to platform so they know the exact ads and landing pages that contributed to a campaign’s overall success.

There are plenty of tools aside from Funnelytics that marketers can use to determine the same information, however, this particular tool aggregates that information in one place. This allows for more robust insights and helps marketers provide more value to their clients. Recently, I received an email from Funnelytics introducing their official public launch and yet another update to their software. Now, users of their software can forecast results based on past or projected campaign results. If I wasn’t already a user, this would have sealed the deal.

How can you instill elements of startup culture into your business? In what ways are you currently seeking out a competitive advantage in your business? Share your story with us in the comments below! ~ HarperCollins Leadership Essentials

Edward Fields

Edward Fields has taught a popular AMA course on finance and accounting fundamentals for decades and consults with many multinational corporations of strategic and financial issues.

Want to read more? Get the book!

They say that numbers don’t lie, but what if you can’t even read them? Financial analysis reports, budgeting reports, forecasting and measuring reports--sometimes they all run together, don’t they? The Essentials of Finance and Accounting for Nonfinancial Managers is here to help. This new edition of a business classic demystifies finance and accounting and gives managers the tools they need to make better decisions.

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