“The ability to learn faster than your competitors may be only sustainable competitive advantage.”— Arie de Geus, Shell Oil
“Whether it’s Google or Apple or free software, we’ve got some fantastic competitors and it keeps us on our toes.”— Bill Gates
“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”— Henry Ford
All business, and even life itself, is about competition. Survival is not a right or inevitability. It is something that must be earned the hard way, every day, doing important things better than others. Survival is the reward for successful competitors – the fittest.
When times are good, survival is rarely considered. Growth is readily available for all but the weakest or unluckiest. Bad decisions, operating inefficiencies, and poor management practices are largely accommodated.
Only when crisis hits the entire business environment are these weaknesses fully exposed and their consequences painfully felt. Competition intensifies and survival starts to become a serious management challenge.
British philosopher Herbert Spencer introduced the concept of “survival of the fittest” in 1864 to extend Charles Darwin’s species evolutionary theory to entire societies. Darwin had in fact argued that the key to survival and dominance was not strength but adaptability.
What does “fittest” mean in a business context?
We all know what “fittest” means in a physical, athletic sense. You are not merely “fit” – in great physical condition – but significantly more fit than others. It is typically defined by competition among the fit.
For a business, “fit” probably means well-managed, financially sound, and growing. “Fittest” then would mean that a business is the best across these dimensions in its marketspaces. Being among the fittest means that a business is among the top competitors.
Survival of the fittest means that only the most effective, strongest competitors are likely to survive when a crisis or major downturn strikes. Think COVID-19.
The chaotic, crisis environment that exists today for nearly every business is brutally exposing weaknesses. Lack of fitness. Lack of survival ability.
As demand drops and market needs change abruptly, competition intensifies. Weaknesses that were formerly accommodated are now survival threats. The competition for survival has become fierce for all but a few of the most fortunate and smart.
Eliminating operating inefficiencies is an immediate action target
Operating inefficiencies consume enormous amounts of resources, These are typically invisible in good times but can be readily identified with today’s powerful management data and analytics. They may be deeply embedded and so require substantial time and effort to eliminate, freeing vital resources for the survival challenges now upon us.
This may well involve prioritizing activities and functions so that the most important can be identified while those of least importance can be trimmed or cut entirely. Most businesses do this kind of thing routinely but the pressure now for quick results has become intense for most.
Lean and mean (effective) is now the order of the day.
Lean and mean is the easy part: competing to be fittest is much harder
Tightening up operations and decision-making is an internal process and one that virtually every company knows how to do. Nothing magic here – mostly just a grind-it-out kind of job.
Competing in your marketspace to be among the best or fittest is very different and much harder. You need to have, or develop, some clear competitive advantage.
A business with no clear competitive advantage is wide open to aggressive, smart competitors. They will see that you are open and they will go after you at your points of weakness. Bet you don’t know what these are, yes? Top businesses do know but the majority do not.
Annual SWOT exercises (strengths, weaknesses, opportunities, threats) are helpful but they are typically done in stable, predictable times. We are no longer in such times and they are not coming back. Maybe for a very long time.
Strengths and weaknesses in chaotic times are different
What you may have thought to be your strengths and weaknesses are today almost certainly invalid to some degree, and perhaps completely. Your former strength may have become your greatest weakness.
Top brick-and-mortar retailers like Lord & Taylor, J.C. Penney, and Pier 1 among many others have filed for bankruptcy in 2020. Died of lockdown-itis, a black swan disease. Unforeseeable. Huge impact.
As markets tighten and competition intensifies in coming months, and more likely years, a solid knowledge of your real, defensible strengths and points of weakness will become increasingly important for survival. You can’t protect and strengthen what you don’t know. What you know and don’t know is very different today.
You need defensible (real) strengths as priority #1
Eliminating competitive weaknesses is important but it must be done as part of developing real marketspace strengths. Strengths are absolutely the top priority. And they must be “defensible” – things that other businesses you compete with cannot do nearly as effectively and cannot develop easily or quickly.
Cian O’Connor in medium.com addressed this challenge mainly in the context of startups: “What makes a business defensible?”. He observes that:
“The real trick to business is not just to provide value, but to find the value that only you can provide.”
Sort of. Unfortunately, I have not run across a business that was doing what other businesses could not do. Whatever works will be copied very quickly. Those who copy may be far stronger than the source-business.
O’Connor lists eight “levers” that can create a competitive advantage:
- Economies of scale
- Network economies
- Regulatory protection
- Switching costs
- Process power
- Cornered resources
If you want to see his reasoning for each of these, check out his article.
Competitive advantage can be fleeting and illusory
Amazon today has enormous competitive advantages. It also has a rapidly growing array of competitors chipping at this advantage from every side. Some will succeed in drawing even or possibly taking the lead. What works is an irresistible magnet for smart, aggressive, resourceful competitors.
Microsoft, widely known for its buggy, crash-prone software that is nonetheless used by almost everyone, has one competitive advantage that I can see: it is entrenched, used by nearly everybody. Often reluctantly. Many competitors have offered better software but have hardly put a dent into Microsoft’s dominance. Why? Maybe it is because these competitors appear to have offered a “not-Microsoft” feature as their competitive basis. How’s that working for y’all?
Even long-time powerhouse Apple is being overtaken by Samsung and its Google platform. Apple still leads, many claim, on design and its cult-following. But Samsung just keeps hammering away. Samsung?
Started as a grocery trader in Korea, it expanded into textiles and then chemicals. Only in 1969 did it begin its expansion into electronics with some black-and-white TV offerings. By 2000, Samsung introduced its Galaxy smartphone series which has since topped annual lists of best-selling smartphones worldwide.
Maybe having a highly visible competitive advantage makes you a primary target for competitors. Hiding such advantages is a bit tricky, and mostly impossible. They will find you, target you, and do their best to beat you.
This probably means that, in many cases, any competitive advantage you may have today will be short-lived. Fleeting for sure. If it is likely to be fleeting, is it real in any practical sense? Perhaps it is just a temporary advantage that you can’t count on for very long. Almost illusory?
Did Henry Ford have it right?
Making your business “better” and ignoring your competition doesn’t sound quite right to me, but then who am I to argue with a huge success like H. Ford. Unless what Ford is referring to is continuous innovation. That I can really agree with.
The idea here is that you get better by making innovation a central purpose or practice of your business. It is not a peripheral function, or something we do because everybody else does R&D. Innovation truly drives your business.
Your real competitive advantage then is constant innovation. It will produce a series of changing, temporary advantages that can keep your competitors busy following while you are moving ahead with your next new thing.
You certainly don’t ignore competitors but you want to move ahead where they are not, or are weak. This knowledge guides your innovation process and keeps you from reinventing the wheel.
Competitive intelligence is vital
Your innovation efforts should be directed toward marketspaces where your competitors are not yet active or where they are not performing well. Opportunities and weak spots.
This sort of intelligence comes mostly from your customers directly. It should be immediate information, not something that gets packaged and reported over a period of months.
Your best salespeople may be a great source of such customer insights as they hear customers complain about product deficiencies. Not just your own products but also those of your competitors. Or maybe just an important need that has not yet been addressed effectively.
To make this approach work, however, you should have a process in place that facilitates the information flow and use. You have to ask salespeople (and maybe train them) to look for such opportunities and to probe effectively for details. They need a feedback channel to get this intelligence back to your innovators (or product managers). Innovators need a way to get back to the salespeople (or service people) to test some solution ideas.
Your best competitive defense is continuous innovation
This defense is not a product or service itself, which may not be uncopied for long, but it is a powerful process that produces innovations and breakthroughs continuously. Competitors may not think to try to copy your process but instead focus only on the process outputs.
O’Connor’s eight levers may simply be an integral part of one or more of your innovations at various times but they won’t be the competitive advantage foundation. Competitors may ultimately copy and even exceed your efforts but by the time they do, you will be out there with the next great product or service.
Of course, this is not as simple as it may appear. Companies that are great innovators are few. The majority of businesses are followers or stumble trying to achieve a steady flow of effective innovations.
Apple under Steve Jobs was a great innovator, probably due mostly to Jobs’ visionary guidance and drive. Tim Cook has a very tough act to follow.
Samsung continues to innovate effectively but without a visible visionary leader. They seem to have built innovation into their corporate bloodstream.
Microsoft has a long history of buying its innovations. It is not an effective innovator in general but competes using its enormous wealth along with technical and marketing prowess.
So, how do you become a great innovator?
It is neither easy nor quick. Big surprise, yes? That’s why there are so few truly great innovation companies. It requires “… large-scale cultural changes that transform your entire workforce into an innovation engine.”
This is not something that you can outsource or relegate to an R&D group. It has to be part of your entire business. Innovation has to be a primary corporate process and driver.
Exactly how this can be done will differ for every company. There is no magic sauce or formula. Why? Because it depends on what innovation resources you have in your business. This is partly people and partly process. You must have both for innovation to work effectively:
- Hiring: Do you hire mostly team players or do you try hard to get a steady flow of mavericks and out-of-the-box thinkers? Do you nurture the latter?
- Process: Do you have a clear process path for innovative ideas to get to where they can be developed most effectively?
- Executive support: What resources are being made available to your innovators? Do you have a simple, quick path for their access or do they have to grind through a multi-level bureaucracy that takes forever?
- Every employee can contribute to innovation: You need the right leadership to involve and engage them in this vital process. You may find great ideas flowing from your marketing, customer service, distribution, delivery, and dozens of other groups. But only if you have a process path that makes this flow happen smoothly and seamlessly.
It is very easy to discourage innovation
I have seen so many roadblocks to innovation in otherwise strong companies. They are often easy to identify but only if you are looking. Most are not looking.
This is a difficult thing to say but the biggest innovation roadblock may be the CEO or executive management layer. Innovation must be actively and visibly encouraged right from the top. Without strong innovation process leadership, most businesses will default into follower roles.
Simply being good at a few core things is far from enough. It just makes you average, as Andi Simon writes in “4 Great Ways to Become a More Innovative Company”:
“The norm is that corporations are good at a few core things, but when the market changes, they are slow to respond—and often aren’t able to respond at all. Maxwell Wessel wrote a great article in HBR literally titled “Why Big Companies Can’t Innovate.” Good stuff.
The very best and most defensible competitive advantage is to become an effective innovator as a company. Strength comes from a steady stream of innovations rather than from any single one or advantage area. This requires an innovation culture, which few businesses are willing to tackle.
Kumar Mehta writing in Forbes offers some suggestions on “Creating The Most Innovative Company In The World”:
“Creating the most innovative company in the world is not about implementing innovation programs. It is about large-scale cultural changes that transform your entire workforce into an innovation engine. It is about an entire organization learning to innovate, not just a handful of folks sequestered in an innovation department or external agency.”
William Craig in Forbes gets into some how-to specifics: “The 6 Requirements Of A Truly Innovative Company”:
“Innovation doesn’t happen in a vacuum. It requires a company that actively fosters it in a hundred ways — from hiring new team members to making time for experimenting freely on fresh ideas in the workplace. Here are six foundational requirements for every company that wants to step up its innovation performance.”
“Does your company hold its managers and leaders accountable for innovation? Some businesses even tie compensation to innovation-related performance metrics.”
“We need to build our very jobs around the concept of innovation. The creators of the aforementioned Post-It note hit upon that great idea because the company has always valued time spent on unstructured projects and trial and error. In fact, 3M allows its professionals to spend time every workday on projects they choose for themselves”
The Boston Consulting Group writes about what makes companies top, consistent innovators: “Successful Innovators Walk the Talk. The Most Innovative Companies 2020”:
“But drive and size mean little if your innovation system can’t build on them for serial success. And here our research offers a more sobering assessment. Serial innovation is hard. Of the 162 companies that have been on our top 50 list over the past 14 years, nearly 30% appeared just once—and 57% appeared three times or fewer. Only 8 companies have made the list every year: Alphabet, Amazon, Apple, HP, IBM, Microsoft, Samsung, and Toyota.”