What Competitive Advantage?
I live in Perth, the capital city of Western Australia.
It’s no secret that we have a terrible public transport system, and our roads are clogged. So if you don’t want to drive, you tend to leave public transport and look for a taxi.
Now if you run a taxi business, you are almost in a monopoly. There are only a handful of taxi companies, most contract self-employed drivers. The taxis are licensed by our State Government – that means they regulate how many licenses are available at any one time, supposedly through a needs basis (but ask any Perthite and they’ll tell you the taxis don’t meet the demand).
So if you did run a taxi company your competitive advantage is the fact that there are a limited number of competitors and that there was a high barrier to entry into the industry.
So, you create strategies around that competitive advantage. Your strategies might include better advertising that others, better technology to get your cabs there first, more efficient cars to reduce operating costs, and so on.
So what’s wrong with this picture of strategy creation?
Uber.
Then came Uber and thus ended your competitive advantage.
Stuck in the mindset of looking for strategies around your competitive advantage you continue to attempt to advertise against Uber, or to put together smart phone apps that plot your taxis, or to look for cheaper cars.
In the meantime, your competitive advantage continues to disappear. So, you look for your “new” competitive advantage” and try to strategize around that whatever it might be. Sure, you have to keep doing this, keep changing, much more frequently than before, but how else will you create strategy to grow or sustain your business?
Except that Uber has not only taken away your competitive advantage, it is taking away your whole model in the industry. No new strategies around new competitive advantage will mitigate that!
In this era of transient competitive advantage you need to look at much more than just your strengths. You need to be agile and adept at finding market gas and opportunities, not be fixed to one set of strategies based around a constantly changing competitive advantage.
The combination of the digital economy and globalisation means that competitors can come from anywhere. In the taxi industry they don’t just come from other taxi companies any more. They don’t come from a better public transport. They come from another industry altogether – the single car driver. This means that they can’t respond just by lobbying government to “do something about Uber” or to compete against “unsafe Uber drivers”. If they do only that they are missing the whole point, that the old ways of measuring their competition are gone.
Shifting your strategy in this new age takes the ability to be alert about what’s going on in your industry, and having the ability to react in untraditional ways. Instead of harking back to what should have been done (“Uber is unsafe”) you need to look for opportunities in the new space. Taxi companies for example can aim to be far more responsive.
You need to have an external and forward focus rather than backward looking and you need to be able to move early before the warning appears.
Agility also needs you to rethink your resources. Newspapers all over the world operated in the era of the internet, and yet they attempted to shore up core business by creating strategies to start new titles, reduce printing costs by changing format, offer advertising specials. Not many seized the new opportunity and saw that internet was the future of classified advertising until too late.
The key to combating changing competitive advantage is to continuously reconfigure – moving core business if you have to in order to meet your market. For business owners this needs a big change in mindset. You may need to stop seeing yourself as one thing and instead open yourself to providing what service is actually needed in your industry. Kodak saw it self as supplier of top quality film. It’s gone. What would have happened if it had seen itself as a provider of media, in whatever form?
Here’s a few examples of how core business might change within your industry:-
- Yoga studio to Wellness studio
- Accountant to Digital Financial Services
- Auto-mechanic to Specialist Auto-Brand services
- Secretarial Service to Virtual Assistant
In today’s digital economy, not many of us can stay “just one thing”. We need to be aware of what’s happening in our industry and be agile enough to change the way we see ourselves.
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