By: Kamil Toume
The term competitive advantage became a business term when Michael Porter published his book in 1984 of that title. Warren Buffet has said that he evaluates a company by looking for a sustainable advantage. Competitive advantage is at the heart of the firms’ performance in competitive markets. As per Porter’s book, many firms lost sight of competitive advantage in their scramble for growth and pursuit of diversification.
Today, the importance of competitive advantage can hardly be understood. This article reflects my deepening belief that the failure of many firms’ strategies stems from their inability to determine the meaning of a competitive advantage in business. It is about building a bridge between understanding the term, formulating the strategy and implementing it. Porter described in his book the three generic strategies for achieving competitive advantage: Cost leadership, differentiation, and focus.
· How does a firm gain a sustainable cost advantage?
· How can it differentiate itself from competitors?
· How does a firm choose a segment so that competitive advantage grows out of a focus strategy?
· How is uncertainty introduced into the pursuit of competitive advantage?
· How can a firm defend its competitive position?
In order to determine the importance of the competitive advantage, we have to establish what makes a great competitive advantage and what is at the core of its success or failure. The real competitive advantage is in answering clearly why the company exists and what is trying to achieve collectively for the sake of the whole society not only for the few shareholders. Two central questions underline the choice of competitive strategy as per Porter.
– The attractiveness of industries for long-term profitability.
– The determinants of relative competitive position within an industry.
Is that correct?
In the light of the devastating consequences that corporate capitalism and market competitiveness have brought to producers and consumers, the real competitive advantage shall be determined not by the long term profitability and competitive position but how companies drive sustainable prosperity in the long run. Profitability, competitive position and market attractiveness are the results of a fundamental arena in which companies strive to solve problems facing humankind and make profits out of solving these problems. It is the greedy and ugly face of most companies that contribute to the suffering of the majority of people in the world in the pursuit of their competitive advantage. Many companies have ruined their businesses out of securing and protecting their competitive advantage. Their CAs are merely profitability and stock prices regardless of the consequences.
After the dotcom burst, most companies deemed IT systems as the sole competitive advantage and they invested massively maintain them. IT systems and enterprise resource planning(ERPs) are very important but they are not the critical components of business success. ERP systems initially focused on automating back office functions that did not directly affect customers and the public. Front office functions, such as customer relationship management (CRM), dealt directly with customers, or e-business systems such as e-commerce, e-government, e-telecom, and e-finance—or supplier relationship management (SRM) became integrated later, when the Internet simplified communicating with external parties. ERP leverages information in the resources under its management to help the enterprise collaborate with other enterprises.
ERP Developers now make more effort to integrate mobile devices with the ERP system. ERP vendors are extending ERP to these devices, along with other business applications. Technical stakes of modern ERP concern integration—hardware, applications, networking and supply chains.
IT Systems do not add up.
For example, most modern performance management systems foster a great alignment between strategy and goals.In many cases, these highly expensive ERPs business models design a human behaviour that yields performance addiction. Most of these high priced systems are based on the model of “The Survival of the fittest” & “Hit the target, get the bonus”. They do not inspire people to give their all and do not favour team cooperation. But what is about the overall company vision that few can repeat it twice if you ask them about. Others do not understand even the meaning of it, moreover, most senior managers and staff members do not have a clue what their companies are trying to achieve in the first place. Organizational life under these systems tend to be managed under the principle of “Goals Hitters”.
Central to forging a great corporate culture is the performance management and review systems which have become a must in all companies supported by advanced ERPs. It includes the “360-degree review” which are bias based. Most employees feel that the only real performance measure is the way they can achieve business targets and the amount of profits they could produce. In order to achieve top ratings, everyone in the organization becomes instantly motivated to hit the targets.
This is literally the carrots and sticks system that companies use to motivate people. They use carrots to derive the employees’ productivity and the same carrots will be the sticks that push them to work harder. The “carrot and stick” approach is an idiom that refers to a policy of offering a combination of rewards and punishment to induce behaviour. It is named in reference to a cart driver dangling a carrot in front of a mule and holding a stick behind it. The mule would move towards the carrot because it wants the reward of food, while also moving away from the stick behind it, since it does not want the punishment of pain, thus drawing the cart. This is what is being used today in companies worldwide to drive and manipulate human behaviour. The carrots as a reward and the fear of losing it as a punishment. What a wonderful manipulator through a fine IT system.
Economists and financiers have argued that the sole reason of business is to make money, the more the better. This molds the actions of most companies, constraining them to focus on maximizing short-term profits and delivering returns to shareholders. Their decisions are exposed in financial terms. The majority of companies are wasting their time, effort, sources and resources in building a product, repackage it and decorate in an attempt to find the valleys that competitors have overlooked. They invest in systems and technologies that might give them the supremacy.
Companies whose competitive advantage is not people tend to equate their business strategy and marketing with neurolinguistics programming and many market tricks. The tools are many but unravelling the puzzle is quite simple. Manipulation is not simply the absence of good communication. It grows out of specific misconceptions and communication dysfunctions. Once you develop the ability to detect manipulation, you will dramatically improve your effectiveness at judging and discovering companies that have a true competitive advantage. To detect manipulation, look for one or more of its major hallmarks.
· Do companies advance society interests while running businesses?
· Do they produce products that satisfy people’s true needs or desires?
· Do they put their associates first or customers?
· Do they exist in the market to compete with other businesses or solve a big problem facing people?
The answers to those questions determine whether a company is using manipulation to sway their customers into buying their products and using their services. If you doubt the answers to these questions, then it is clear that those companies exist to make profits only and profits are the center of their universe, not yourself. Furthermore, the work environment in such companies tend to be unfulfilling for their people as their jobs are meaningless. Meaning in jobs comes only by doing something for the greater good, thus contributing to the fulfilment of other people whether they are associates or customers. This is the only and real success factor for a great business competitive advantage.
Is this yours?