#46- Rethinking Competitive Advantage
New Rules for the Digital Age by Ram Charan and Geri Willingan
This book aims to be a refresher on what it takes to create, maintain and expand your competitive advantage in a digital-first world.
The digital age has changed the way customers experience your business. The prices are low, convenience is high, access is quick - and now customers expectations across categories have become the same. A company we were evaluating was asked this question by its customers “If Amazon can do it in a day, why can’t you?”
The author says that creating a competitive advantage is different in today’s day and age i.e. the digital age. Gone are the days where the company having control over distribution channel, brand, patent, or tangible assets emerges are the winner. Today’s company has to win the ultimate prize - the customer’s preference. And, repeatedly!
Read along, as I share some key learnings from the book!
There are new rules of competition
A personalized consumer experience is key to exponential growth
Not convinced? I guess you must have seen something like this almost everyday on your phone
Algorithms and data are essential weapons
Check out this thread below
A company does not compete, its ecosystem does
Focus on cash generation!
Money making is geared for huge cash generation, not earnings per share and the new law of increasing returns. Founders understand the difference.
Personalize the Customer Journey - divert all effort towards this!
People, culture and work design for a ‘social engine’ that drives innovation and execution personalized for each customer
Keep reinvesting to reinvent
Leaders continuously learn, imagine, and break through obstacles to create the change that other companies must contend with
The Digital Age
Its New. Its Different. Its Difficult. But its here to stay!
Creating competitive advantage is different in the digital age. The ultimate prize in a digital world is winning consumer preference. It comes from what a company does vs what a company has.
Imagining new market spaces and revenue pools that can scale up at unprecedented speed is just one way that digital companies are born from the start.
The old adage of stick to your knitting or build on your core competence narrows a company’s imagination in a digital world
What characteristics do Digital Winners have?
They imagine a 10x to 100x market space
They have a digital platform at the core
They have an ecosystem that accelerates growth
Their money making is tied to cash and exponential growth
Decision making is designed for Innovation and speed
Their leaders drive learning, reinvention and execution
What’s wrong with a traditional company?
Nothing actually, however this is where Digital vs Traditional comes into the picture
A traditional company’s downward curve starts with price declines, margin pressure and flight of investors
Some conventional advantages will always persist, such as brand, reputation, patents, and scale matters in commodity businesses
The biggest difference to create competitive advantage vs the past is the speed of competitive action and response
Leadership obsolescence is a reality. Reviews in legacy companies are largely focused on the rear view mirror
Digital Leaders are a new breed
Many traditional leaders have an over reliance on outdated theories
Core competencies have a shelf life, they become obsolete, and new ones have to be built
A digital leader recognizes this and is on a continuous path of improvement
Leaders who have ‘observational acumen’, the ability to notice what others miss are often the ones who land on a better consumer experience.
Digital leaders blend data with intuition. They have the mental capacity to think big 10x or 100 x. They are focused on the customer
The founders of today’s tech companies put a lot of effort in recruiting right
There is a fluidity to their thinking, they welcome change and even seek it. They are hungry for what’s next and are willing to create and destroy
They rely on metrics and transparent data to drive execution
When leaders fail, it is because their business skills do not fit the challenges of the job
Consulting models ‘may’ not apply anymore
A dominant psychology of incrementalism and short term thinking.
A blind spot when it comes to customers
Acceptance of existing boundaries
Belief in mass markets and segmentation
Are you personalizing enough?
A market of one is the ultimate in personalization. M = 1
Starbucks caters to 170,000 possible beverages options at its stores according to its website
Mapping the customer journey is emerging as a distinct expertise
Other key learnings
On digital platforms
A digital platform on its own is not a competitive advantage, but not having one is a competitive disadvantage
The real impact of digital technology and platforms comes from combining knowledge of what technology can do and business judgement about how to use it
On data, algorithms and security
Combining and refining algorithms over time build competitive advantage
Consumers get great value from company use of data and algorithms, however, that can quickly disappear if privacy or security is compromised
On growth
Digital giants and their ecosystems are not linear, i.e. not only aligned with their own supply chain, they are exponential and multidimensional. They have a vast range of partners
On funding
Digital plays can often require substantial amount of capital before they become the exponential growth, cash generating machines we want them to be
It is essential to find funders for your business who are aligned with your strategy, and get the big picture
On recurring revenues
Digital companies create recurring revenues from consumers. Digital companies see growth as a series of S curves
On decentralization
Breaking work into bite size missions and giving stand alone teams the autonomy to figure out ‘how’ leads to faster, better decision making
Digital platforms make real time information transparent to people in other parts of the organization, people feel liberated and send more time doing what they inherently need to do
Closing comments
A lot of advice in the book does not seem very concrete, and can be passed off as offhanded remarks. The authors suggestions on strategy may also be simplified down to ‘brainstorm with your team’, or ‘find trends that will be sustainable for the next decade’.
What this book does is to share high level understanding of very successful companies, which can seem very inspiring, but a lot of generic advice can be passed off with an eye roll.
A good, quick read to touch upon the basics!
Read other notes I made
#7- Actionable Book Learnings - Company of One
#55- Obviously Awesome by April Dunford
#47- 100 Key Learnings from Amazon's Letters to Shareholders