Competitive Differentiation

The most critical element of an (Strategic Business Unit) SBU’s competitive strategy, in terms of the implications for its operations strategy, concerns how it chooses to differentiate  its products  and services from those of its major competitors. Given the myriad choices that customers face when making a purchase how do they decide which product or service to select? Different customers are attracted by different attributes. In order to appeal to those interested primarily in the cost of the product/service. Some companies attempt to achieve a competitive advantage by offering the lowest price. Price, however, is not the only basis upon which a business can compete (although many economists appear to assume that it is!). Other companies such as BMW, seek to attract those who want higher quality – in terms of performance appearance or features than that available in competing products, even though accompanied by a higher price. The cost of providing higher quality, however defined, must be balanced against the market’s willingness to pay for it, of course.

Another competitive dimension through which some firms seek to differentiate themselves is dependability. Although their products or services might be priced higher than those of others, and they may not offer the highest performance or the latest technology they do work as specified, they are delivered on time and the company stands ready to mobilize its resources to ensure that any failures are corrected quickly. Caterpillar, IBM, and Sysco often are cited as examples of companies whose strategies emphasize such peace of mind.

Still other important sources of competitive advantage are flexibility either in terms of products or order volumes and speed / responsiveness. A firm that competes on the basis of product flexibility for instance must be able to offer wide product range, deliver nonstandard even customized products and /or take the lead in introducing new products. Smaller firms often adopt such a strategy to compete against larger ones.  Others emphasise volume flexibility exploiting an ability to accelerate or decelerate production very quickly and juggle orders so as to provide   unusually rapid delivery. Successful companies in highly cyclical industries like housing or furniture often make volume flexibility a primary priority.

Within a given industry each company usually selects just one or two   of these competitive dimensions to emphasize. It is difficult and in fact potentially dangerous for an SBU to attempt to offer superior performance along with them. If it does, it usually ends up second best on each dimension to some other company that devotes more of its resources to developing a specific competitive advantage. This implies that the   SBU must establish clear priorities regarding the way it intends to position itself relative to its competitors.

Some try to match (or stay within some specified range of) competitors along several competitive dimensions and thereby offer the best value or other form of compromise between competing attributes. But when it comes down to the final attempt at persuasion  the moment of decision at the grocery store shelf say – hopes the customer’s choice will be swayed by its product’s (or service’s) specific form of superiority. For example, the authors of two best selling books about management argue that “Most of what we are doing [in business] is a waste of energy”.  Companies succeed when they focus on one big purpose above all else…. Becoming the best in the world at what they do – [and] articulating a solid rationale for making money over the long haul. The rationale in turn, is generally based on one key, carefully chosen business ratio.

One does not tell an auto designer simply to design a vehicle. The designer will immediately want to know that vehicle’s primary use: for high speed driving on superhighways say, or for carrying large loads, for traversing rough terrain, for commuting in urban areas, or for fun and responsiveness. Different uses imply different designs: the classic road cruiser van SUV pickup truck sub-combat, or sports car. An attempt to cover all the bases typically leads to a mongrel design that can’t do anything particularly well. So the trade-offs the designer is forced to make must be both internally coherent and consistent with the priorities required by the vehicle’s primary use. They also, of course, reflect the technologies and systems available to the designer at the time they are made. The choices and trade-offs  available to the designers of the DC-3 airplane  that is, they were very different from those available to the designers of the Boeing 737 that replaced them on many of the same routés forty years later. Similarly, FedEx’s initial package tracking system could not incorporate the power of the internet.

Just as the capabilities and limitations of a vehicle reflect the decisions made by its designer’s so an operation’s inherent strengths and weaknesses reflect the influence of the design decisions made by its mangers. As a result, that organization is able to do certain things easily and well, and other things only with difficulty.

  • Rajiv Mathew

    Nicely written article!