Competitive Advantage isn’t Sustainable
Power has shifted from vendors to customers. Using everyday digital technology, customers have ready access to information, people, and resources. These empowered customers have higher expectations and lower loyalty than just a few years ago. The competitive advantages businesses have developed to serve customers in the past are neither competitive nor advantageous today. The challenge now lies in identifying what advantages are needed to win customers today.
When you search for “Competitive Advantage” at Amazon.com you find 29,334 entries, and Michael Porter’s classic books about his Five Forces model of competitive advantage lead the list. It’s not an exaggeration to say that strategies applying Porter’s model have driven the majority of enterprise IT investment since 1980. By applying technology to improve internal business processes, companies were able to build sustainable competitive advantages that increased efficiency and productivity while building strong market differentiation. The more well-known examples are Walmart, who built the world’s most efficient logistics network; Dell, who dominated the PC industry supply chain; and Toyota, who drove down the cost of producing high-quality cars. However, the era of sustainable competitive advantage appears to be coming to an end.
Today, the returns on this type of IT investment are diminishing rapidly and new forms of advantage are emerging. Now, businesses are moving their offerings into the cloud and delivering them as a service directly to their customer. As Geoffrey Moore writes, technology investment is moving away from the traditional inward-focused business process improvement and systems-of-record of the past. It is moving toward cloud-delivered customer-facing systems of engagement. The focus of strategy needs to shift from building advantages over the competition to building advantages for customers.
Customer Advantage Focuses on Customer Outcomes
Customers buy a business’s offering to get a job done. They are not interested in the product, only in the outcome. If getting this outcome is difficult or unpredictable, customers quickly move elsewhere. Making it easy for customers to generate outcomes that matter to them is no longer simply one possible competitive advantage; it’s the new competitive battleground. Our entire thinking about competitive advantage needs to change from internal outcomes to producing outcomes for customers.
The idea of focusing on customer outcomes is not entirely new. Business strategy has always centered on differentiated customer value. What is new is the capability of managing customer outcomes in predictable, measurable ways. The days of throwing a product over the fence to customers and saying “Good Luck! Hope you get what you wanted” are over. Now businesses must proactively manage the customer relationship to ensure the delivery of outcomes for customers.
To win today’s empowered customers, businesses are shifting from building a sustainable competitive advantage to building a valuable customer advantage: the capabilities to innovate, deliver, measure and improve outcomes for customers. Internal business processes are being redefined and aligned with these new capabilities. Entirely new departments, such as Customer Experience Management and Customer Success Management, are being rolled out to collaborate with customers.
The question is, “What customer advantage are you building?”