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The Ultimate Competitive Advantage
A round-up of some of the best book reviews recently published by Emerald.
The Ultimate Competitive Advantage
Donald Mitchell, Carol Coles,Berrett-Koehler Publishers, San Francisco, CA, 310 pp.
The premise for The Ultimate Competitive Advantage is based on the question: “What is the best way to improve a company’s performance – by improving a company’s business model or improving the way the company operates now?” The question is an important one, as times are changing faster than ever, and today’s businesses are struggling to keep up with them. I personally have found, from searching out books on this subject, that much emphasis is placed on innovation through new products and technology, and on streamlining operations and cutting costs so that a company can operate more efficiently. The authors contend that these are not the path to a sustainable competitive advantage. Rather, business model innovation, actually reinventing the way you do business, is the only way to master the constantly changing world and remain profitable and healthy as a company.
Many marketers may feel uncomfortable with the concept. Upon reading the title of the book, I mistakenly thought the subject would pertain to completely turning around a company’s focus, product line or channel of distribution. This seemed very drastic and impractical. Isn’t it easier and safer to simply focus on the next great product, the next best way to meet consumer needs, the next great ad campaign that puts the company on the map, or a branding campaign to make your name memorable? These elements are certainly important, but the authors contend that on their own, they will not guarantee a successful competitive advantage. Because even though you may have the very best product, consumer focus, or branding campaign, you are always in a very precarious position. Someone is always trying to unseat you. And eventually, someone always does.
Business model innovation simply means that you take the very best things that you already are, and reinvent them on a regular basis so that they continue to be the best. It is difficult for a competitor to catch up because you are doing what you do best, and you are constantly shaping that very best to remain the very best. Successful companies follow this cycle of success when they master the skill of business model innovation:
learn to do one reinvention;
decide to do a second reinvention, broadening the scope even more;
turn reinvention into a repeating, continuous activity; and
search for targets of new opportunity, moving into new places you never thought you would go.
What are some companies that have successfully mastered the art of business model innovation?:
Goldcorp – a mining company that uncovered millions of dollars of gold reserves through a contest for geologists rather than the customary exploratory drilling.
Ecolab – a firm that provided best practices in facilities operations to their customers and continued to charge normal prices for its chemicals and services, yet often providing cost reduction benefits to its customers that are a large multiple of what Ecolab’s products and services cost.
Disneyland – an entertainment enterprise that priced theme park passes to encourage longer stays, thus increasing profitability through the extra money people spend during their longer stays.
There are a number of refreshing aspects of this book. As aforementioned, the premise is unlike other books on competitive advantage, as it does not urge businesses to follow the more mainstream processes for innovation through new products and cost cutting. It is also refreshing in that it focuses on success stories in both large, successful companies with which everyone is familiar, as well as small companies and entrepreneurial ventures that are far lesser known but perhaps “closer to home” to many of us in the business world. Another positive is the book’s organization, with case studies to illustrate each key concept and a list of questions at the end of each chapter to help the reader apply the learning.
One downside of the book – it does not detail the specific steps for identifying the highest potential business model innovations. The list of possible reinventions might be lengthy for many companies. How does one arrive at the long list and then prioritize and identify ideas with the highest potential? In the absence of a systematic approach for doing this, the process of choosing the one best innovation to execute at a given point in time seems to be a daunting task. Certainly one that can be overcome, but some practical steps for getting there would be helpful.
The first part of the book focuses on the most productive areas for business model innovation: Increasing value without raising price. Leave your preconceived ideas behind and truly find out what customers are looking for, things that are difficult for them to find and very valuable to them. Innovate so you can provide this value profitably without raising costs or prices. Adjusting prices to increase sales profitably. Adjust prices to change the way your goods and services are used and to ultimately expand consumption, rather than setting prices to meet profit targets at the same volumes. Eliminating costs that reduce end-user benefits. Reduce unnecessary costs faster than the competition, allowing you to deliver additional, more valuable benefits to end-users at more attractive prices. The second part of the book focuses on creating sustainable benefits for all the stakeholders of the organization through business model innovation: Building a buffer for lean times. The ultimate business model innovation is one that would take a company’s competitors years to duplicate. Also, take appropriate risks, focus the organization, and avoid unproductive investments. This creates a situation that will be able to withstand hard times. Sharing the benefits with all who create them. High CEO compensation is in the news today, but there is no correlation between companies with highly-paid leaders and company success; focus rather on supporting the interests of all stakeholders at various levels of the organization and sharing the benefits with them. The third part of the book focuses on expanding your business model innovation: Starting business model innovation ahead of competitors and staying focused. You will reap the early benefits of your innovation even if a competitor is eventually able to follow you later on; focus on providing more superior results for end users over the competitors even if you need to pioneer to achieve this, and focus on places where being “first” will provide the highest level of competitive advantage. Enhancing your ongoing business model innovation capability. Continually nurturing the ability to innovate your business model will create more opportunities so that a new model is always waiting in the wings; enthusiastically spark these innovations so that business model innovation becomes second nature to your team and serves as a competitive advantage that no competitor can rival. The fourth part of the book discusses ways to pursue even larger opportunities through business model innovation: Focusing on the areas of highest potential. Understand trends, explore ways to serve a larger, more attractive target, and focus on initiatives that allow for a substantial competitive advantage. Expanding the benefits of the business model innovation. Seek many ways for many stakeholders to gain in order to raise enthusiasm among all groups involved and inspire even more innovations. As marketers, we are always challenging ourselves to “think out of the box” and to “meet customer needs”. This book provides a process for combining these two activities for a winning result – a strategy that actually builds on what you already do best, and helps you take it to the next level in a continuous process. The result? The ultimate competitive advantage.
This book is perfect for anyone seeking to grow a successful business; it has relevant ideas for all sizes of businesses, from single consultants to small start-ups to large, established corporations. Those in industries that have a large number of competitors, or industries with a particularly fierce level of competition, will find great value in the book. Those who work with products or services considered to be commodities, and vitally need a differentiation strategy, will also find the premise of this book very valuable in moving their business out of the “commodity” mindset.
Reviewed by Kristin M. McGillicuddyA version of this review was originally published in CMJ Volume 22 Number 5, 2005