Unfortunately, competitive advantages do not come in the prescription bottles with clearly displayed expiration dates. But advantages do expire: Competitors adopt them so it is no more a differentiation, the capability becomes too commonplace that it simply becomes a basic expectation, it gets commoditized and loses its value. Understanding that the competitive advantages have a window-of-opportunity can help corporations better prioritize their capital investments targeted at creating new capabilities. 

As an industry matures, some of its functional capabilities become commonplace and lose their ability to provide any competitive advantage. These functional capabilities might have produced the competitive advantages for the first movers in the industry, but when almost everybody in the industry achieves parity on a functional capability, such a capability simply becomes a prerequisite to compete in that segment without any ability to create competitive advantages. image

The figure clarifies this concept: Capability A has a big initial competitive advantage, but this advantage disappears with time as the capability becomes commonplace and everyone in the industry achieves parity. Ability to accept and process payments electronically is an example of a business capability that has progressed from being a differentiator to becoming a prerequisite for all types and sizes of businesses. Another example will be self checkout counters that are fast gaining parity among large retailers and will soon lose their ability to provide any differentiation.

Once a business capability has become standard fare in an industry segment, all firms are expected to have that capability. Presence of the capability then does not produce any competitive advantage, though its absence will produce disadvantages due to the general consumer expectation. This is the process of capability commoditization. However, innovative enhancements to such capabilities will open up the opportunities for creating advantages and the cycle can continue. The impact of such enhancements generally depends on whether they are just incremental or epochal.

However, even epochal changes changes are eventually adopted by a large number of firms and may not remain differentiators. Take the case of online retail, which would have been an epochal change 20 years ago, but cannot really be seen seen as a differentiator any more. More recently, Amazon’s introduction of Kindle is another major shift in terms of established models for selling and delivery of content. Competition from Barnes and Noble’s Nook, Google’s eBooks, Sony and others is already on its way, but Amazon is still realizing a definite first-mover advantage that shows up in their market-share.

Sometimes, the opportunity may not be clear at the onset of a new competitive business capability. This is especially true when a newcomer in an industry breaks away from the conventional model of doing business and changes the paradigm. If the new business capability succeeds, it can provide the new firm with a huge competitive advantage. Such changes can be devastating for the incumbents, though evaluating all such shifts and addressing them proactively is also a risky venture. When Dell started their business based on its custom-built laptops for the consumers, this principle was on play, the rest, as they say is history.

Therefore, companies must continuously evaluate their competitive advantages to ascertain whether they are still providing them the differentiation that their business strategy depends on to survive and grow.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/QxrLAEgpr6k/are-your-advantages-expired.html

The total cost of ownership or TCO has long been the focus of sourcing and procurement  A new report from Accenture says the pioneers are now moving towards total value of ownership or TVO. Just semantics or real evolution: Decide for yourself though there are definite ideas that are worth emulating.

The paper brings out several key differentiators between the pioneers and followers (termed in the paper as masters and contenders), noteworthy among then being the following: the alignment with business strategy, visibility across the extended supply chain, and extended view of spend management.

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Understanding the business strategy and aligning your functional strategy with it definitely seems to be the biggest story of this evolution. Very few corporations have achieved the holy grail of such alignment and then again within a few key business functions. But the logic holds: Any functional strategy that does not support the goals of the business strategy is effectively wasting valuable resources and contributing nothing towards creating value or advantage for the corporation. This is the core principle that I have discussed at length in my book on supply chain strategy. In an example provided by Accenture, an automobile company achieves such alignment through first commissioning “a gap analysis to see where the company might need to improve. The exercise revealed the importance of tying procurement more closely to the overall business strategy.” This though is a foregone conclusion: You don’t need to commission a study to find that if your functional strategies are not aligned with the business strategy, you are wasting your resources. What you need to do is to establish the goals of the business strategy clearly enough that each function can quickly assess its contribution and identify capability gaps that must be addressed for effectively achieving those goals.     

The visibility across the extended supply chain and extended view of spend management are old stories: These are not so much the evolution in concept as they are the evolution in technology that is making these concepts more real and achievable. The web, cloud, virtualization, computing and connectivity performance is making real-time collaboration possible among business partners at costs that are affordable. These technologies are also driving the corporation’s ability to collect much more data across the spectrum of activities collectively under procurement to create a clear picture of costs involved": Whether these costs are direct procurement costs obtainable from the purchase orders or indirect costs obtained through an expensive activity analysis in the warehouse. Of course, that does not diminish the pioneering work being done by the procurement masters in establishing the processes to extend their view of procurement costs and use the data to effectively support their businesses.

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© Vivek Sehgal, 2011, All Rights Reserved.

Want to know more about supply chain processes and supply chain strategy? Check out my books on Supply Chain Management at Amazon .



Originally posted by Vivek Sehgal at http://feedproxy.google.com/~r/SupplyChainMusingsstrategyVisionOperationalExcellence/~3/Qje1vagpiQU/mastered-tco-now-learn-tvo.html

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