Market leaders know better
Dr. Rolf Zajonc
Founding a company always starts with a spark of inspiration, ambitious goals and a vision. What comes after that, though?
For some, that’s actually where the journey ends, as they drag things out before finally throwing in the towel. Others manage to establish a solid basis that enables them to live comfortably. Yet time and again, there are also companies, such as Tesla, that quickly secure pole position in their market segment. And then there are those who achieve triple-digit growth rates in the space of a year because, besides having a good business idea, they are clearly doing something right. But what?
Price, quality and differentiation – important, but not enough
The standard answer to the question of what some companies are doing better than others can be found in pretty much any management handbook. It is based on the competition matrix developed by Harvard professor Michael E. Porter in the 1980s. According to Porter, a company has a competitive advantage if it succeeds in implementing one of the following strategies:
- Cost leadership by bringing down unit costs as much as possible. The aim isn’t to offer the lowest price, but rather establish a superior cost structure that still brings in a profit even if the competition is already making losses. Typical examples include low-budget brands such as Lidl, Aldi, Costco, Ikea and megabus.
- Differentiation from the competition, for example through outstanding quality (Mercedes-Benz, Ralph Lauren and Rolex), one-of-a-kind products or product features (Polaroid, iPhone and Game Boy), top customer service (Amazon, Trader Joe’s and ING) or a positive image (Red Bull, Lego, Disney and Samsung).
- Focus on a market niche, such as certain regions, selected target groups or highly specialized products. This strategy offers the chance to better understand and satisfy customer needs. Well-known examples in this context include Tesla, Zeiss, Birkenstock and BrewDog.
The benefit of generic models such as Porter’s competition matrix is that they provide a rough road map for growth-oriented companies. The downside is that, in the real world, the categories described are about as rare as unicorns or black swans. In reality, you will often come across hybrid forms of competition strategies that combine, say, cost leadership with differentiation or differentiation with focus. In the mid-1980s, for example, Swatch’s combination of affordable prices and appealing designs was such a hit that Switzerland’s struggling watchmaking industry was quickly able to reinstate its position as global market leader.
It’s the “how” that matters
The limited benefits of theoretical models also become clear if you consider that they are unable to explain how, for example, the British food delivery company Deliveroo has managed to increase its sales tenfold almost every year since it was founded in 2013. Or how the green energy provider Bulb Energy has achieved a compound annual growth rate of 1,159 percent, racing its way to the very top of the Financial Times ranking of the fastest growing companies in Europe. Porter’s matrix also leaves us guessing how certain businesses have managed to perform far better than their competitors during the coronavirus pandemic.
Sure, devising strategies and constantly adapting them to customers’ genuine needs are key factors for growth. It also goes without saying that start-ups in new markets can grow faster than long-established businesses in saturated markets. The fact is, however, that even if two companies had the exact same positioning and a similar starting point, they would still develop in completely different ways. Economists and managers are therefore always keen to point out that it’s not just about what top performers are doing – how they’re doing it is just as important, if not more so.
Turning your knowledge into a competitive advantage
This is a key point for several reasons. First, digitalization and technologization will become standard in all sectors in the foreseeable future. The problem being, if everyone follows the same best practices and uses the same digital service components, it will be impossible to stand out from the crowd. Second, competitive advantages such as purpose or brand strength and quality labels such as “Made in Germany” are expected to lose some of their appeal, either because every company jumps on the bandwagon or because a strong brand doesn’t leave enough scope for trying out new things and exploring innovative ideas. This trend is suggested in a number of studies, including a recent survey by the business newspaper Handelsblatt.
So which is the difference that makes all the difference? The straightforward answer – whatever it is you can do better than everyone else.
If you were to ask 100 companies what exactly that is, however, it’s likely that very few would be able to provide an answer. And this is precisely where the problem lies.
The only thing that genuinely differentiates you from all other market players is your company’s specific know-how. We’re not talking about the run-of-the-mill topics covered by learning platforms open to anyone and everyone, but rather the knowledge that has grown from countless successes and failures – that unique set of in-house best practices. A top company capitalizes on this, while others don’t even know what they know and simply squander valuable potential.
Why fail spectacularly when you can quietly succeed?
It’s hard to resist the urge to call out companies and shout: Take care of your processes if you want to keep your USP! Pool your knowledge, give it structure! Keep it up to date and finally make your knowledge available on mobile devices so people can access it wherever they are, whenever they need it!
The key are not large-scale knowledge management projects, which often overwhelm the corporate culture. Furthermore, little becomes obsolete as quickly as knowledge that is not used and made available at the "moment of need". If, on the other hand, pragmatically created aids are made available with a modern digital adoption solution, the company's own knowledge is brought out of the existing silos to the employees in an accurate and, above all, permanently up-to-date manner.
That’s not to say it’s an entirely effortless endeavor, after all, accessing knowledge should ultimately become so efficient that it turns into a competitive advantage. Nonetheless, it remains a manageable task. Even in large corporations, a few months is often all it takes to structure, update and curate existing knowledge in such a way that staff can use it for their respective tasks and roles.
All the same, a digital adoption solution is no replacement for a holistic approach. In fact, perhaps the most important aspect for securing a competitive edge is yet to be mentioned – people at work who ensure valuable in-house knowledge has an effect on the market and customers. After all, growth champions and market leaders are primarily at an advantage because they don’t just outperform in certain areas, but in everything they do – that is to say, in every workplace within the company and in every single process. Since they manage and evaluate customer data better than the competition, they know more about their clients and can better respond to their needs. And since – as is the case at top service provider Amazon – all employees know exactly what buyers expect, such as hassle-free returns of unwanted products, they provide a better shopping experience from start to finish.
Bringing people and technology together
Just by taking a few steps, you can make a decisive contribution to maintaining and expanding your competitive edge. The trick is to bring people and technology together, promote acceptance of innovative methods, tools and organizational forms, and provide each and every staff member with the necessary knowledge in the most appropriate way for them.
That might not sound overly impressive, but if it gradually boosts performance across all workflows, you’ll end up with an overall competitive advantage that makes a huge difference. Quite simply because it will offer the opportunity to make your vision a reality. Like we said earlier, some effort will always be required. But it’ll be worth it.
