Editor’s note: This is the third in a series of articles exploring the Startegic Planning process and its role in business success.
Take a look into your company’s heart-is there a competitive advantage for it to keep beating? Your DNA is unique; your company should also posture itself as such.
You aren’t alone if you’ve ever wondered what a competitive advantage really is, and what to do with it. Your competitive advantage is what you, your company or your department does better than anyone else. It’s what makes you unique, and it’s why you’re in business-and more importantly, why your business continues to prosper over time.
Recognizing your competitive advantage adds strength to your overall strategic plan and its management. So says Warren Buffett, arguably one of the most successful investors in the world.
What’s the number-one attribute he looks for in a company? “Sustainable competitive advantage,” he told a Wall Street Journal interviewer.
The importance of understanding your competitive advantage is specific to understanding the basis of your strategic plan. You are then able, as is your team, to recognize the following:
- Which opportunities to pursue and which to pass by
- Where to allocate resources and where to cut back
- How to do what you already do well, better
- Know the difference between an opportunity and a distraction
- When to outsource and when to keep the project or job in-house
Think of your competitive advantage as the foundation to your home or the cornerstone to your strategic plan. Throughout your planning process, you evaluate every part of your plan to determine whether it supports or detracts from your competitive advantage.
In the process, you discover what motivates customers to buy a product or service from you instead of your competition.
Defining Competitive Advantage
Knowing how to define your competitive advantage is the first step toward applying it to your company’s makeup.
According to a recent university survey, 95 percent of all companies don’t know their competitive advantage. Furthermore, they don’t communicate a compelling reason to choose their product or service. If Buffett examined your company, would he find what he’s looking for?
Time and again, you’ll ask yourself, what is really meant by the term “competitive advantage?” In motorsports, it may be the crew that is the team’s competitive advantage, thus aiding the driver’s efforts. In manufacturing of aftermarket parts it may be the CNC operator or the person behind the order desk. But in any business, its competitive advantage impacts the bottom line, improves the company posture and imparts the company’s message to staff and customers alike.
To compete, you must have a unique advantage. It’s not a list of your strengths, because all successful businesses have a good reputation, skilled staff, great leadership, are knowledgeable, have a strong client list, are responsive to clients’ needs, etc.
Specifically, a competitive advantage comes from leveraging a company’s unique skills and resources to implement a strategy that competitors cannot implement as effectively or copy.
Some advantages may be an industry new product award, facility size or location, unique services, exclusive product offerings, hiring a key or recognizable person, etc.
The importance of a competitive advantage is vital within your strategic plan because it provides a clear understanding to your goals, strategic objectives and action plans, which tend to change and shift over time. You will have thus endured and grown stronger as a company and thus acknowledged your presence to staff and customers alike.
Other elements of your plan may tend to morph. But what makes your company unique is that your competitive advantages stay constant.
Founding your strategic plan on the basis of your competitive advantage is the most important item you can foster as a leader of your business or department. The leading organizations have a razor-sharp understanding of their competitive advantage. Everything they do builds and nurtures their DNA.
You don’t have to be a Fortune 100 company to be effective, but you do have to plan and take effective action steps.
Uncovering Advantages and Purpose
No company or department can be all things to all people. Some aftermarket businesses try, and quickly realize that they are spending time and resources on activities that are not profitable.
We have all seen the grow-it-till-you-drop manufacturing or parts retailer with limited resources and thus limited gas in their action tank. Here today and falling fast tomorrow.
To avoid this, ask yourself these pointed and direct questions:
- What are the sources of my company’s success?
- Is my company’s success tied to our ability to innovate new products or services?
- Do we have the ability to respond quickly?
- What is our brand reputation?
- Is our marketing and sales department ahead of the pack?
- What are the sources that can contribute to our improved success?
Ultimately, you know what makes your company unique. You live it day-in and day-out. However, for your uniqueness to be useful in strategic planning, you need to state what you know to be absolutely true about your company.
Your list of competitive advantages should make someone say, “I want to do business with you.” Look for the different business-driven attributes of your company that prompt customers to say “yes.”
Putting Advantages to the Test
It isn’t enough to have an advantage over your competitors. For your aftermarket business to be truly great, it needs to be sustainable and able to endure the test of time.
You must be able to combat today’s fierce market forces and uncertainty.
Think about the graveyard of businesses from the dot-com era of 1999-2002. Many of these companies didn’t pass the sustainability test. You don’t want your company to be a distant memory.
Here are a few facts to consider. Roughly 70 percent of all new products and services can be duplicated within one year, and 60 to 90 percent of process improvements (learning) eventually diffuse to competitors.
Thus, you need to make sure that your competitive advantage is something that’s long-lasting and not easy to duplicate. So how do your know when you’ve developed a sustainable competitive advantage? You need criteria to help you gauge your success.
Take a look at these measures to see if you’re on track as a person and company.
Consistent difference: Customers must see a consistent difference between your product/service and those of your competitors. This difference needs to be obvious to your customers and it must influence their purchasing decision.
Difficult to imitate: Your competitive advantage must be difficult to imitate. You want to have an advantage that your competition can’t easily duplicate or doesn’t understand how to copy. Often this comes in the form of people, proprietary knowledge within your company, or business processes that are behind the scenes.
Constantly improving: The first two items create activities that can be constantly improved, nurtured, and worked at to maintain an edge over your competition. The comparison of Target over Kmart is a great example of how one continued to improve its supply chain management and purchasing, whereas the other didn’t. Unfortunately for Kmart, it lost its edge because it didn’t constantly improve. Target invests in ever-refining its product selection and processes.
I suggest you quickly evaluate if your advantage withstands the test of time. Use these simple questions and scale to see where your company stands.
The more responses to the right-hand side of the form, the better, but don’t worry if you don’t pass each one. Think about how you can add to your competitive advantage to make it even more sustainable.
Will my customers see a consistent, superior difference between my products/services and those of my competitors?
No difference -¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦.Huge difference
How difficult will it be for competitors to imitate my advantages?
Not difficult -¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦.Very difficult
Can my company constantly improve?
Little improvement -¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦-¦ Extensive improvement
This four-part mini-session of structuring your company’s strategic plan is designed to provide you the opportunity for immediate reflection and exercise. Many thanks to Performance Business magazine, which makes this learning material available to its readership.