Category Archives: Market Intelligence

The End of Competitive Advantage: A Review, Part II

In The End of Competitive Advantage, the first rule Rita Gunther McGrath lays down is to compete in arenas, not industries. Using a typical strategy playbook, a company will define its most important competitors as other companies within the same industry. This doesn’t make sense when industries compete, business models compete, and new categories appear. For example, FujiFilm’s biggest competitor was not Kodak and its stranglehold on film distribution channels in many markets, but Sony and other future manufacturers of digital cameras that negated the need for its products! Industry level analysis needs to be replaced with a level of analysis that reflects the connection between (target) market segment, (product/service) offer, and (target) geographic location(s). This intersection is an arena. The middle-class end consumer (market) in North America (geography) who uses a mobile phone (product offer) is one arena. Small Businesses (market) in Asia (geography) who need cellular high-speed internet (service offer) is another. For those of you with military or defense experience, battles are fought in particular geographic locations, with particular equipment, to beat particular rivals. Today’s business needs the same level of precision in its strategy to compete. To use the author’s metaphor, the game of chess has been replaced with the Japanese game of Go.

The next rule that Gunther McGrath lays down is to focus on temporary, not sustainable, competitive advantages. To coin a popular phrase, you need to get while the gettin’s good, because it won’t be good for ever. (This also means you need to plan to get out while the gettin’ out’s good.) Your organization needs to rive the waves of temporary advantage. In each wave it needs to design a new product or service that will define the next arena it will successfully compete it, launch that product, ramp up, exploit the temporary advantage the product or service gives it, begin to exit (and re-allocate resources to the next wave), and then disengage (by discontinuing the product, upgrading the customer to a new product, or selling the product line off). Business that focus on temporary sustainable advantages are in a state of continuous reconfiguration and masters of healthy disengagement.

The third rule that comes across loud and clear in Gunther McGrath’s book on The End of Competitive Advantage is to use resource allocation to promote deftness and build an innovation proficiency. In order to ride the waves of temporary advantage successfully, an organization has to constantly innovate the next product and/or service that will take it into the next arena and it has to do so with agility and grace — which requires a deftness in resource allocation not present in an average organization. In an organization that has mastered resource allocation for temporary advantages, resources are under central control, and not business units, and can be reallocated as needed. They are organized around opportunities, accessible when needed, and may even be external to the organization as access, and not ownership, is key.

The fourth, and final rule that can not be broken is that you must have the support of the leadership team that must believe in the rules and processes required. Gunther McGrath’s playbook will not work without the support of a leadership team that believes in it. An organization cannot be reconfigured to ride the waves of temporary advantage as a skunkworks project or a one-off. Without full leadership support, it will be impossible to dynamically reallocate resources from one arena to another, to engage with (and disengage from) new (and old) opportunities as the markets shift, to get support to leverage external resources when time is of the essence, etc. If people are still stuck in business units, if opportunities are force-fit into age-old structures, and the CFO is still capital-budgeting against sustainable advantages, there is no way your organization will be able to move from one temporary advantage to another (and if your organization is competing in an industry where there are no more sustainable advantages or an industry that is shrinking by the day due to cannibalization from other industries and external business models, it’s time is running out). Not only is this a playbook only for those companies that no longer have sustainable advantages to exploit, but it is also only a playbook for those willing to adapt to a new operating reality.

In Part III, we’ll dive into continuous reconfiguration, disengagement options, and building an innovation proficiency.

The End of Competitive Advantage: A Review, Part I


Strategy is stuck. If you dropped into a boardroom discussion or an executive team meeting, chances are you’d hear a lot of strategic thinking based on ideas and frameworks designed in, and for, a different era. The biggies — such as Michael Porter’s five forces analysis, BCG’s growth-share matrix for analyzing corporate portfolios, and Hamel and Prahalad’s core competence of the firm — are all tremendously important ideas. Many strategies today are still informed by them. But virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage. This idea is strategy’s most fundamental concept. It’s every company’s holy grail. And it’s no longer relevant for more and more companies.

     Rita Gunther McGrath, The End of Competitive Advantage

Consider the following case study of Fuji Photo Film Company and its inauspicious beginning in the 1930s when it was divested from Japan’s first cinematic film manufacturer because it was a chronic under-performer. Over the years, it improved its reputation and eventually began to take on giants such as Eastman Kodak in film and film processing. However, as the market for chemical-based photography changed little during the past hundred years, Fuji struggled to break into markets where Kodak was entrenched.

In the 1970s, Nelson Bunker Hunt and William Herbert Hunt made a play to corner the silver market as a hedge against inflation. They started to make investments in 1973, when silver was only $2 an ounce. By early 1979, the price had risen to $5 an ounce. By the time their plans were announced in 1979, they had amassed roughly half of the world’s supply. Their announcement caused the price of silver jumped to $50 per ounce! When the price collapsed in March of 1980, the Dow Jones Industrial average saw one of the sharpest declines in history.

The experience deeply troubled Minoru Ohnishi, the CEO of Fuji Photo Film, as silver was a key ingredient in film processing and another similar action could seriously damage any film processing business. Furthermore, he sensed a fundamental change might be coming. Four years later, Sony introduced the Mavica, one of the the first consumer digital cameras, and Mr. Ohnishi knew that film-less technology was possible. He immediately moved on the insight and invested heavily in building up expertise in digital technologies to prepare for the next round of competition in the photography business. By the end of 1999, the company had invested over 2 Billion in R&D and by 2003, it had nearly five thousand digital processing labs in chain stores in the US whereas Kodak had less than 100.

In addition, the company branched out and started to supply magnetic tape optics, hybrid electronic systems, and videotape (as the first non-US company to do so). Later still, the company branched into office automation and even biotechnology. Thirty years later, Kodak went bankrupt and Fujifilm, which obtains 45% of its revenue from document solutions and office printers, has significant electronics and healthcare operations.

The lesson is that simply managing well, developing quality products, and building up well-recognized brands is insufficient to remain on top in increasingly heated global competition. The stakes for Fujifilm, which risked undermining its existing advantages while betting on a highly uncertain future, were huge. But it was this approach, investing in new advantages and pulling resources from declining ones, that was more robust in the face of change. When competitive advantages don’t last, or last for a much shorter time, the strategy playbook needs to change.

And that’s what this book is really about, adapting to a changing competitive landscape in our modern, globally connected, world. In some industries, like logistics, products and services change slowly and competitive advantages can last for a long time. But in other industries, such as fashion and consumer electronics, products change quickly and competitive advantages last only until your competitor releases a new model with a feature your last product didn’t have. In these industries, where advantages are transient, a firm needs new rules and new models to determine where to compete, how to compete, and how to win. The old models don’t work, or at least don’t work on their own. In Part II, we’ll begin to discuss how an agile organization deals with the transient landscape.

A Proven Blueprint for Country-Based Global Domination of a Chosen Industry

  1. Become a leading outsourcing destination through low-cost labour.
  2. Patiently build up your cash reserve over a couple of decades.
  3. Through raw material subsidies and free loans, flood the global market with cheap, excess capacity so you become the primary source.

This is exactly how China became:

  • a global leader in solar, steel, glass, paper and auto parts,
  • the world’s largest exporter in 2009 (when it surpassed Germany),
  • the world’s second largest manufacturer in 2010 (when it overtook Japan), and
  • built up the largest foreign-exchange reserves in the world in that same year.

As per this recent post over on the HBR blogs on How Chinese Subsidies Changed the World, since 2001, when China joined the WTO, subsidies have financed over 20% of the expansion of the country’s manufacturing capacity. The state has willingly paid the price of economic inefficiency to accomplish political, social, economic, and diplomatic goals. As a result, huge Chinese subsidies have led to massive excess global capacity, increased exports, and depressed worldwide prices, and have hollowed out other countries’ industrial bases. For example, in 2000, China was a net importer of steel with 13% of world imports and 16% of global output. By 2007, after 27B of energy subsidies, it had become the world’s largest producer, consumer, and exporter of steel. It now produces 50% of the world’s steel, and with no scale economy or technological edge, still sells steel for 25% less than the U.S. or the EU.

This government support of private industry has helped China skyrocket to the second largest producer of GDP faster than anyone expected and will quickly propel it into the top spot. But there is hope for America. All it has to do to regain it’s glory as the largest economic superpower in the world is to:

  1. Take advantage of China’s rising wages and increasing unemployment and start promoting its “low cost labour”.
  2. Patiently wait as China, India, and other fast-growing economies follow its example and outsource everything over the next two decades, grabbing as much renminbi, rupee, and other foreign currency as it can over the next two decades.
  3. Subsidize raw material, manufacturing, and energy production like mad in key industries and begin the climb back up the GDP ladder.

At the rate things are going, China is going to overtake the US before Obama’s term is up, not in the 2020’s like everyone was originally predicting. There’s no stopping them. America’s only hope is to realize economies are often cyclical and take advantage of its next opportunity to get back on top.

Who Is Your Vendor Really Working For?

SI has done a lot of posts on how to identify the right e-Sourcing/e-Procurement/e-Supply Chain vendor, over the years, but one question that is often overlooked, or left unstated, is “who is your vendor really working for“. You might expect, based upon their marketing and their business, that they are working for their customers who are paying them, but is this always the case?

To answer this question, we need to go back to the basics of how businesses are structured and funded.

A business is either public or private. A public business is funded entirely by revenue and has its performance judged by Shareholders and Wall Street. A private business is eventually funded by revenue but initially funded either by founders, third-party angels and/or VCs, or a private equity group. There are other business structures and funding arrangements, but these are the most common in our space. Let’s consider each of these.

Public

A public company will make an effort to work for you, but only so far as it does not hurt their Wall Street rating and does not cause the Shareholders to ask questions. They live and die by the stock price, so if the stock price falls, they will typically have to react by way of layoffs to meet whatever earnings number Wall Street has dictated, and probably layoff your account manager and the developer who was committed to your upgrades in the process. They work for you only so far as it doesn’t hurt them in the eyes of Wall Street which typically does not have the long term view you need as a Supply Manager. And while you’ll never get fired for buying from a big public company, you won’t be important to them, unless you’re a Fortune 100 and bringing them > 10% of their business. (And even then, you’re only important until they land someone bigger.)

Private – Angel & VC

Like a public company, a private company controlled by third party investors will make an effort to work for you, but only so far as it meets the objectives of the Angel and/or Venture Capitalists who are driving the board towards whatever vision for the company they believe will make them the most amount of money in the shortest time possible. And since Angels and Venture Capitalists are ultimately only concerned with the balance of their bank account, that vision will be whatever is sexy and likely to support a quick initial public offering (so they can get their return). If that means getting as many new customers in a year as possible to allow for a quick public exit, then all of the money and efforts will be directed towards sales and marketing and customer support and incremental product development and improvement will be an afterthought, if it is even given a thought at all!

Private – Founder Funded

A private company controlled by a founder, or a small group of founders, will be focussed on the objectives of the founder(s). If the goal of the founder(s) is to make money and grow the business organically, the company will have a razor-sharp focus on meeting each and every customer need that the customer is willing to pay for. If the focus of the founder(s) is to get Angel & VC funding as part of an ultimate goal to get the company to an initial public offering, because the founder(s) are vain and more concerned with public image and sex factor than quiet success, the company will work for you only so far as the founders feel it won’t make the company less attractive to the Angels & VCs that can help to take them public.

Private – Private Equity Group

A private company controlled by a private equity group will be razor-sharp focussed on the needs of the customer. Private Equity Groups exist to make money — and while they may sometimes take a company public, this is not their ultimate goal. They take a company public only when the opportunity is right and they’ve reached the point where they believe they can’t make more money growing the company organically over the long term. Generally speaking, private companies controlled by private equity groups will be boring as hell compared to the sexy companies driven by venture capitalists, but they will be the only companies that make you feel like you are the center of the business world, because, in the end, they need your money to pay the bills and keep the lights on. It’s their model, and the one model where you are always the center of attention.

So don’t forget to ask yourself “who is this vendor really working for” before signing on the dotted line. They won’t tell you (the truth), but if you look at their ownership structure (and the frequency of their press releases), you can figure it out.

As a final note, if you are still seeking spherical supply solutions (Part I, Part II, and Part III), you should take another look at the EU Supply Management software providers. Not only do they have more experience in international implementations, but most of their companies are controlled by private equity groups where as most of the North American companies are either funded by Angels and VCs or part of big public companies.

Ditch the Dashboards Before they are Your Downfall!

How many times do I have to tell you that (real-time) dashboards are dangerous and dysfunction, that dashboards really are dangerous and disfunctional, and that integrated dashboards are deadly? Seriously! How many times?

There’s a reason that Dashboards are one of the seven deadly software sins, and it has nothing to do with vanity or pride (as they are the idiot lights, after all). It has to do with sanity.

But still, I see ridiculous articles like this recent article over on Inbound Logistics on business intelligence in the supply chain that discusses reporting and real-time dashboards, neither of which have even the slightest connection to “intelligence”.

Dashboards have two big problems. First of all, as SI has repeatedly pointed out, they give you a false sense of security. The ship could be sinking but because the “pump performance” light is green, you think everything is okay. If the pump can only pump 158 Gallons per minute, but the ship is taking on 790 Gallons per minute, you’re not going to be in good shape for very long!

Secondly, they often give you a false sense of urgency. For example, the “on time delivery” light could be red, indicating that 30% of your shipments are late. If you’re a CPG executive worried about hitting your number, you’ll quickly calculate that this could increase your stock-out rate another 3% (based on an average stock-out rate of 8%) and decrease sales by 5% (as fast moving products sell more), go into panic mode, and start screaming at your suppliers, ruining the good relations that your Supply Management team had spent months building – when, in fact *every* delivery was on time. How could this happen? Let’s say the warehouse workers are slow and consistently get to supplier X’s shipment at 9 am, which is ready and waiting to be unloaded at the scheduled time of 7 am. Now, if the technology illiterate warehouse worker enters the receipt time at 9 am, even though the truck was there at 7 am, the binary logic dashboard will say the shipment was late (even though it wasn’t), along with every other shipment that really wasn’t late. However, you will have already ruined the relationship with what was likely a key supplier, who will likely quote you significantly higher at contract renewal time, because you assumed the system was right. And if demand is greater than supply, you might even be dropped as a customer, and experience a supply disruption as a result. And with every disruption comes a 40% chance of business failure within five years. In other words, SI is not exaggerating when it says that a single dashboard could ultimately lead to the downfall of a large organization.

So next time someone tries to sell you a sleek new dashboard, tell them to go back to the cloud they came from and shove it somewhere the sun don’t shine. Real intelligence comes from applications that let you slice and dice data, not from applications that give you cookie-cutter reports that were slapped together quickly by a low level coder who doesn’t really know your business.