Digitalization drives the development of a fierce competitive landscape
Digital penetration is helping to improve efficiency in virtually every business activity imaginable. In many cases, its benefits have been dramatic and obvious enough that companies have quickly adapted or become obsolete. This development has made it harder for companies to differentiate their products and services, but it has also made the reason for doing so clearer than ever before.
When meaningful differentiation in aspects such as performance, branding and design is absent, buyers base their purchasing decisions on price. When that happens in transparent and competitive markets, prices tend to rapidly reach variable cost, making break-even a best-case scenario for companies active in the market. Dramatically improved access to information and crumbling barriers to international trade means that markets where companies can rely on market imperfections for protection from such forces are getting fewer by the day.
Hard-won advantages are short lived without protective barriers
In the ruthless type of competitive landscape outlined above, even innovative, and successful differentiation provides only temporary relief from price erosion unless it can be protected from being copied by competitors. A key component when companies evaluate potential differentiation strategies is the potential to create barriers that prevent competitors from adopting the same strategy. Implementing a differentiation strategy that is appreciated by customers and, at the same time protected from being copied by the competition, is what creates “Sustainable Competitive Advantage” – the holy Graal of business.
Sustainable Competitive Advantages are, almost by definition, hard to achieve. Laying the foundation for lasting success typically requires significant investment of time, capital, and talent. “Scale”, as one example, has been the foundation of sustainable profitability in many manufacturing industries. Following major initial investments in plant & equipment, long-term cost advantages have been afforded through scale economies in purchasing and production. Barriers to competition may in some cases be provided by a unique single asset (or “feature”) such as a patent. More typically, companies need to rely on combining several key assets to form an attractive offering to customers, whereas competitors might possess some of the assets required but will struggle to imitate the full combination.
Challenge and improve your differentiation strategy before somebody else does
As digitalization helps eliminate barriers that have kept trade local or national, local market incumbents’ competitive advantages often disappear. As an obvious example, relying on scale economies from being the largest player in a small national market, is simply no longer feasible, when the market becomes global.
To make sure differentiation measures can stand up as the market develops, companies are well advised to establish a framework for structured evaluation of their strategy under likely scenarios. Potential challenges to current strategy that are identified, provide a good background for a strategic inventory with the aim of identifying assets that can form part of alternative differentiation strategies.
Using all relevant assets AND leverage them for maximum impact using smart methods
The great efficiency gains that digitalization has made possible, and the intensified competitive pressure that comes with it, has been obvious in most industries. Fewer have recognized an asset directly resulting from digitalization, and one that represents opportunities to strengthen competitiveness and thrive in the developing competitive landscape – the vast amounts of data generated by digitalized activities.
Although rarely visible in company balance sheets, data, meeting certain criteria, is an intangible asset with many valuable properties. As opposed to assets like Plant and Machinery, that depreciate with use and over time, the value of data can even increase over time. Data can also enhance the value of other assets which is a property shared by some Intellectual Property Rights.
Applying sophisticated methods to collect, store and process data generated by a company´s activities, represents great potential for sustainable competitive advantage.
Decision Labs apply methods like machine learning, advanced statistical analysis, and pattern recognition to solve problems and create opportunities.
If you work in a competitive and data intensive environment and would like to know what going “From Data to Insight” could mean for your company, we would love to talk with you!
