We’ve discussed the term ‘competitive advantage’ more than once, as described in the book ‘Competitive Advantage’ by Michael Porter. However, competitive advantage is merely one way of gaining strategic advantage.
Once we incorporate the ROUNDMAP™ Full Stack in our strategic thinking, there appear to be four strategic advantage orientations in what we call the Strategic Advantage Matrix™:
- Competitive Advantage (product-centric)
- Comparative Advantage (customer-centric)
- Compositive Advantage (resource-centric)
- Collaborative Advantage (network-centric)
Michael Porter focused on competitive strategy and competitive advantages. He mentioned three directions in which a business could develop its corporate strategy:
- Cost leadership (compare to value discipline: Operational Excellence, Treacy & Wiersema)
- Differentiation (compare to value discipline: Product Leadership, Treacy & Wiersema)
- Focus (compare to value discipline: Customer Intimacy, Treacy & Wiersema)
However, each of these three directions has to be seen in the context of the only known business model in his time: Product Centricity. As such, competitive advantages aim to increase product value (equity) through growing market share and economies of scale, which are typical for a product-centric business.
A customer-centric business has no intention to differentiate on product-level. Instead, it differentiates on customer-level by focusing on a select group of customers for which it can fulfill more of their needs over the course of the customer relationship, or customer lifetime. What the business should, therefore, look for is a comparative advantage:
- What group of customers with similar needs can we identify?
- To grow our business, we need to increase customer value by having these selected customers spend more, more often, and over a longer period of time (RFM).
- And finally: Can we find more customers like them?
In a resource-centric business, it is mostly about service differentiation, based on a composition of resources, syndicated from multiple sources. What package of resources and services will be most valued by your customers?
Finally, a network-centric business depends on the value exchange between participants. How can it create a marketspace in which each participant can collaborate, by adding and/or subtracting value from other participants?
One final note: similar to the value disciplines and the experience design, you’ll have to keep a threshold on all four advantages.
Schematic representation, as part of the ROUNDMAP™ Full Stack (with an accent on the yellow horizontal bar):
Blue Ocean versus Red Ocean
In a blue ocean, innovation flourishes while competition is absend or low. Contrary, in a red ocean, competition is often fierce, while most innovation is limited to maintaining one’s position relative to the competition.
Product-centric operations are almost without exception part of a highly competitive landscape, therefore, it is vital to have a competitive advantage. Obviously, in a red ocean supply and demand are often known factors, the only variable is market share. To obtain market share, firm’s need to focus on a market segment, differentiate from the competition, be cost-effective, offer relevant value, design exceptional experiences, engage customers, etc.
However, in a blue ocean things are much brighter. Although supply and demand are yet unknown, it allows a firm to focus on creating and delivering value that is truly appreciated by its customers, while higher margins per sale often compensate for the size of the market.
While Resource Centricity and Network Centricity aren’t new (I’ve described them as such, however, they are in fact as old as commerce), the internet has given both business models an incredible edge over their product-centric counterparts by taking away physical barriers. This allowed companies like Facebook, Amazon, Alibaba, Uber, Google, and TakeAway to flourish, often claiming 80% of more of market share.
Example of product-centricity differentiation
While fashion brand A might be perceived as operational-excellent (also known as cost leadership), because of its high level of automation that is driving down cost, fashion brand B is perceived as a product leader, because of its ability to offer a wide range of colors for its products. Both are product-centric, yet they are perceived differently. Besides, brand A’s competitive advantage is based on crossing data-silos, while brand B derives most of its competitive advantage from its highly flexible fabric-dyeing production line.