Smallbiz

After a few initial years of success, many companies seem to struggle to find a basis on which they can build a sustainable competitive advantage. A very important part of creating and maintaining an excellent company is the strategic role of management. You have to have a clear conception about your company’s future. Your planning efforts should be structured so that you maximize the quality of strategic decisions. Hence, you should focus strategy development upon achieving competitive advantages in your quest for market position. When your company captures a part of a market, you want to be able to maintain your position. Among other things, you have to consider which segments are in the market, how does the competition serve these segments in comparison with your company and what is your cost advantage? Conventional strategic theory asserts that you have three basic choices in your strategic thinking: you must either differentiate, be a cost leader, or focus on sub-segments in the market. If we expand on this line of thought, on one hand you can choose to compete either selectively in one or more market niches or in all market segments. If you are a leading company in the trade and have reason to believe that you can sustain your advantage, you could sensibly use a conventional strategy, focusing on doing the same but better. On the other hand, if you are a company with a secondary or lower position, to compete on the same ground as the leaders can be difficult. The leaders will most probably have invested more and worked longer with their competitive parameters. The same goes for a focused approach. Some companies have managed to be strong by concentrating themselves on a niche where they have a special strength. However, if the bases of competitiveness are basically the same, regardless of the niche position, chances are that competitors will soon follow. The larger competitors will then be able to outpace a niche marketer due to the resources they have at hand. That is why an additional dimension exists for building competitive advantage; you can also choose to seek new paths that will change the competitive game to your advantage. Using an unconventional strategy can do this. Unconventional strategies may be what you need if you are not the market leader. They are strategies that entail a new way of doing things and that give you a special advantage. An example: One company in the electronic process-control industry took quite a different approach than the leader. Previously, the company had tried to compete on the same terms as the leaders. It had, until it changed its thinking, found it hard to match its competitors’ strengths in terms of production and promotion. The company carried out a careful analysis of the customer segments. Additionally, it examined the dominating competitors’ strengths and weaknesses. Based on the findings of these investigations, the company could now devise a new strategy, focusing on the provision of increased value to the most important segments. So, the company in question developed a radically different system, tailored to fit the needs of the industry segment it was serving. This new strategy was competitive in all points of the business value system, and decisively strong on crucial factors. Effectively, the cost of software and time spent on projects was drastically reduced. How did this happen? The original market leader was mainly a hardware supplier and left any problems concerning software to the OEMs (Original Equipment Manufacturers) of the trade. The leader could develop tailored components and take advantage of its scale of production. The smaller challenger, however, would now configure its hardware so that it used mass-produced components from large, international companies. Parallel to this, a change of the design made it possible to simply use an assembly shop. Thereby, the company could do without large investments in production plants. Moreover, the challenger marketed its products directly to the users. Service and applications engineering would now be delivered through selected partners. In short, instead of a hardware focus, the challenger concentrated on special software systems. Rather than designing special parts, it used standard parts. Its production was not integrated but assembly based, and its service ability was achieved through cooperation with third-party business alliances. The result? The market leader did not see it coming. In fact, it first started to think about the threat to its position after a couple of years. By that time it was getting too late, and its previous strengths had turned into barriers to a quick and effective response. Note that the challenger thought in terms of value. It created superior value by reducing software costs and installation time needed, it compensated for an initial cost disadvantage by standardizing components, and it focused on a selected customer group and created an exceptional solution to this group’s needs. It thought in unconventional terms. Had the challenger thought in traditional terms, outperforming traditional activities would have required higher efficiency in one or more steps of the business value chain, or at least it would have necessitated stronger and more harmonious links across the value chain. This would have been a tough challenge since the leader enjoyed a considerable competitive edge by having tailor-made components and strong OEM-relations. Instead, the challenging company worked selectively to create a business system that both provided greater value to its customers and concurrently eliminated cost disadvantages. An important message in this example is the challenging of traditional assumptions. It had previously been assumed that the leader’s way of operating was the only one feasible. Unfortunately, company executives too often make such assumptions. They may feel there is a need for alternative approaches. Nevertheless, many factors hinder unconventional thinking, such as time constraints, a perceived lack of resources, and perhaps most importantly, the limiting framework of traditional planning. To break out of this, there are some challenging questions you can raise. They relate to the issues presented in this article, and include: ? Is there a better way to service the market? ? Is the competitor’s way less costly than ours? ? Is our strategy fully integrated? ? Can our current strategy be challenged? ? Do we have a sound basis for it? Finally, let us reverse the viewpoint and briefly look at a few of the factors you should be wary of if you are a leader. To be successful over time, pay close attention to changes or migration of value in your customers’ demand. To master one’s trade is partly the result of constantly organizing and adapting one’s business system to suit the needs of customers in a profitable manner. You must go beyond your day-to-day business worries to catch such challenges and deal with them effectively. Unfortunately, the greater your current success, the less likely you may be to look at changing environments. As the example of this article shows, challenges to a currently successful business model may come slowly, but surely, over time. U. Lindahl is a business consultant who works for Chatsworth-based Vidac Business Consulting. His e-mail address is [email protected]