Case in Point Toyota <br />Toyota’s global competitive advantage is based on a corporate philosophy known as the Toyota Production System. The system depends in part on a human resources management policy that stimulates employee creativity and loyalty but also on a highly efficient network of suppliers and components manufacturers... More<br />Workforce <br />Create a workforce that would provide a competitive advantage <br />"
An intelligent and integrated human resources strategy is the only sustainable competitive advantage... Every other corporate asset can be bought or replicated virtually overnight, but competitors seeking to duplicate a well-trained, motivated, and committed workforce will need at least a decade to catch up. Exceptional Exceptional cultures just can't be created with the wave of wand – or a major infusion of capital,"
says Mark Stevens, the author of Extreme Management. <br />Build on Your Core Competencies<br />The core competencies are the things your company can do better than your competitors. If a core competency yields a long term advantage to the company, it is said to be a sustainable competitive advantage.<br />As a leader, you must focus your firms resources on what it does best and what creates competitive advantage. Some technical and business competencies can be in short supply however. You can address these missing competencies by using three approaches: internal development, acquisition of an outside firm, and partnering.<br />Own Your Competitive Advantage<br />Focus on your core competencies and outsource the rest. Make sure that you don't outsource your competitive advantage, however. You will never lead in innovation or be faster to market than your competition if you depend on other for your core technology.<br />Owning your competitive advantage will allow you to build it continuously, be more flexible, and eliminate speed breakers.<br />Barriers to Entry<br />Barriers to entry are circumstances particular to a given industry that create disadvantages for new competitors attempting to enter the market... More<br />Case in Point Amazon.com <br />New business model developed by Amazon.com creates value for customers by offering a synergistic combination of the following benefits:<br />Shopping convenience <br />Ease of purchase <br />Speed <br />Decision-enabling information <br />A wide selection <br />Discounted pricing <br />Reliability of order fulfillment <br />left0Continuing our series on the four filters of Warren Buffett today’s topic is Sustainable Competitive Advantage.Buffet often talks about finding sustainable competitive advantage (S.C.A.) in businesses. What is it, and why is it so important?A competitive advantage is a trait or feature of a business that gives it an advantage in dealing with its competition. If it is sustainable then that advantage is likely to continue into the future.Buffett often refers to S.C.A. as a moat as it is a barrier to entry for another business. The moat analogy is a good one as a moat’s sole purpose is to dissuade a siege on the castle by rival forces. If a force wants to take the castle they can of course, but the potential cost in casualties as a result of the moat is often significant enough to keep them from trying.Finding Sustainable Competitive AdvantageUnderstanding the concept of S.C.A. is fairly easy but actually finding it can be hard. To aid in your search here are a few examples:S.C.A.ExampleDescriptionBrandsCokeLow cost alternatives exist but customers have a high brand loyalty making entry difficult.TechnologyMicrosoftCustomers are trained and learn on the product diminishing the likelihood of change.Patent ProtectionPfizerPatents protect the product from being replicated by others, at least for some fixed period.LocationStarbucksBy picking locations near bus stations and train stations they promise to be the first coffee location that consumers encounter.Cost of ProductionSafecoBy removing the insurance agent and dealing directly with customers costs are kept significantly lower than the competition.Distribution SystemTescoWith one of the most advanced supply chain systems in the world they are able to deliver the right product to the right store at the right time in a cost effective and timely manner.Local ServiceSafewayLocated in dense residential areas customers are able to access products with a minimum of commuting.Time is the friend of the wonderful business, the enemy of the mediocre.Warren Buffett, Berkshire Hathaway Letter to shareholder’s 1989Finding a company with a sustainable competitive advantage means that the company has a leg up on its competition. While this in no way guarantees a successful future for the company it can certainly give it a much stronger chance.<br />What is ur competitive advantage?<br />One of the most important questions you will be asked by potential investors is how your solutions beats the competition, not just today, but over the three to five year life of their investment. There is no perfect answer to this question, but there are many wrong answers which will immediately jeopardize your credibility.The concept is called “sustainable competitive advantage.” A good answer might be “We have several patents on the base technology, which is so robust that we expect to roll out new products every year for the next ten years, always staying a step ahead of our competitors.” That implies competitive now, and the potential to stay in the lead.We all recognize that there are no guarantees. So the best responses always require a combination of street smarts, confidence, humility, and honesty. Investors are often just checking to see how you tackle hard questions. Here is a collection of common wrong answers to avoid: <br />“We don’t have any competitors.” As everyone should know by now, this is the worst possible answer, since it implies that there is no market for your product, or you haven’t bothered to look for competition. Remember that cars compete with trains, so alternative solutions, or doing nothing, are indirect competition.<br />“We have the first mover advantage.” First-to-market is meaningful for a large company, like IBM or GE, which has the resources to sustain their move, but is not relevant for a startup, when surrounded by “big gorillas.” If they see you getting traction, the giants will awake quickly and step on you. This advantage is not sustainable.<br />“Our product is truly disruptive technology.” This is a variation on the first mover argument, implying a paradigm shift that gives you a tremendous lead. Investors will suspect you have a technology looking for a solution. Disruptive technologies typically take years to catch on, which is longer than they can afford to wait.<br />“Only our team can make this work.” This statement comes across as arrogance, no matter how much experience and technical degrees your team has. No one in this world has a monopoly on knowledge and implementation skills. Investors will conclude that this is probably an impossible and unrealistic team to work with.<br />“We plan to offer it for free, and live off advertising revenue.” Undercutting competitors in price is always a good strategy, but free implies no real value. Free is a good short-term Internet strategy, if you have $50 million to spend on viral marketing to get your page-views up to the million per day needed for sustainable advertising revenue.<br />“Our patent will protect us.” Patents are worthwhile, so this answer is far better than the first five. Yet every investor knows that a mere startup will not be able to afford a patent battle in court, and most patents can be circumvented if the opportunity is large enough.<br />In the end, after stating your best arguments, it’s probably smart to concede that there are no magic bullets, but emphasize that you have the experience and knowledge to put up a never-ending fight. This tells investors that you are realistic, despite your conviction and confidence in your product. Investors like realists, but not wimps.A sustainable competitive advantage is not a destination, but a journey. Whether you are looking for an investor or not, every good entrepreneur better plan for this journey before he finds his backside exposed.<br />Customer Success 360 <br />Your Innovation Strategy<br />The innovation portfolio provides visibility that allows your firm pace the introduction of new products and services. You should balance the introduction of revolutionary products with incremental improvements in others so as to maintain a steady flow. By having a comprehensive view of your initiatives over time, you can avoid either overwhelming or underwhelming the marketplace<br /> Case in Point Silicon Valley Firms: Stretching Innovation Portfolio<br />Adapted from Relentless Growth, Christopher Meyer<br />Balance between revolutionary and evolutionary initiatives. First, Silicon Valley companies assess the overall balance between revolutionary and evolutionary projects. The ultimate arbitrator of portfolio stretch if the innovation leaders’ judgment, experience, intuition, and luck... More<br /> Case in Point Google<br />"
We run the company by questions, not by answers,"
says Eric Schmidt, the CEO of Google. <br />"
So in the strategy process we've so far formulated 30 questions that we have to answer. I'll give you an example: we have a lot of cash. What should we do with the cash? Another example of a question that we are debating right now is: we have this amazing product called AdSense for content, where we're monetizing the Web. If you're a publisher we run our ads against your content. It's phenomenal. How do we make that product produce better content, not just lots of content? An interesting question. How we do make sure that in the area of video, that high-quality video is also monetized? What are the next big breakthroughs in search?"
<br />Strategy Innovation<br />Strategy innovation is about challenging existing industry methods of creating customer value in order to meet newly emerging customer needs, add additional value, and create new markets and new customer groups for the sponsoring company... More<br />7 Dimensions of Strategic Innovation<br />The Strategic Innovation framework weaves together seven dimensions to produce a range of outcomes that drive growth.<br />A company's Organizational Readiness may drive or inhibit its ability to act upon and implement new ideas and strategies, and to successfully manage operational, political, cultural and financial demands that will follow... More<br />Strategies for Leading Breakthroughs<br />So what separates extraordinary leaders from proponents of the status quo? They break the rules. Except, not in an arbitrary or capricious way. <br />Results-based Leadership<br />When you look at examples of extraordinary leadership, like the Founding Fathers of the United States or Jack Welch of GE, certain practices or principles become apparent. To start, there is a declaration of what the future will be. There is also a purpose, something to stand for. And finally, there is a clearly articulated commitment... <br />