Manjari Raman: The Peter Parker Principle

OUT OF THE BOX/ Having competitive advantage isn't enough. You need to use it right

Using competitive advantage is like being Spiderman. Unless you decide to use the super powers that you have, you are just the average Peter Parker. Competitive advantage is like being Spiderman for one other reason too: it hardly ever happens.

In fact, Bruce Chew, a thought leader at the Monitor Group, a global family of professional service firms, says quite succinctly: "Competitive advantage is very rare, competitive position is very real."

That will shock managers who plan strategy based on their firms' alleged competitive advantage. That's exactly Chew's point. Managers need to be shaken out of the yes/ no trap of competitive advantage.

That's because companies either turn placid in the belief that yes, they have competitive advantage, or panic at the thought of no, they don't have competitive advantage.

According to Chew, the question that "does our company have a competitive advantage or not" is a red herring. The question to ask is: what is the company's relative competitive position and how are the company's strategies affecting that position?

Chew calls this framework "the geometry of competition" because it not only helps a company map the competitive space, but also mark its relative position in that space.

According to this framework, the company must possess three success factors to create "competitive advantage": competitive offerings, frontier capabilities, and a fit between the two.

By focusing on competitive offerings, a company is forced to align itself to deliver what the customer wants "" not just what it believes the customer should want. Competitive offerings also help the company focus internally on building capabilities that deliver what customers want.

Wal-Mart is able to sell goods at rock-bottom prices to customers who are shopping for bargains, but to do that, Wal-Mart needs to build systems, structures, and supply chains that facilitate those low prices.

Frontier capabilities are linked to how the industry sorts itself out. Simplistically, in the television industry for example, there would be a top-end high-performance offering consisting of the latest thin-screen, wall-mounted plasma TVs. At the bottom would be inexpensive, small, portable black-and-white sets.

Together, all the players across the spectrum of the industry would yield a "frontier" or envelope of choice between performance and cost. To earn a superior return, says Chew, a company's offerings need to be on the industry frontier.

Says Chew: "If I have a popular offering, and I am not on the frontier, it means someone else can produce the same offering, in terms of price and performance, at a lower cost. That is the player who will earn the superior return. Conversely, if I am not on the frontier at the upper end, then someone else is able to offer a superior performance at the same cost, which means they can end my status as a winning offering."

The importance of the fit between the two is obvious: there is no point selling a low-cost boom-box if you are playing in the hi-performance music systems market.

The relevance of competitive position is quite critical in the Indian info-tech industry. Last month, analysts from a top-tier Wall Street firm toured India's top IT companies.

While the report was bullish on Indian IT, the one concern it raised was: "The content and focus of all the companies we visited seem to be about the same, making differentiation among the companies that are much more challenging. In particular, we note the consistency of strategies across the board. This is not the first time that we have come to this conclusion; in fact we noted this same issue after our September 2003 company meetings. At the time, we noted that all the top-tier firms looked largely alike in service offering, pricing, workforce quality, skill set, execution/ delivery and client service."

Now there's a classic example of an industry with a low-cost-based competitive advantage "" but within which, firms are still jockeying for competitive position. That raises all kinds of possibilities. Some companies will be able to focus on customer offerings. One option: to develop new products that even customers don't know they need as yet "" just as Sony built the Walkman.

Other companies can choose to build frontier capabilities and offer performance at a lower cost. And, of course, some smart companies will have the opportunity to mine the middle ground. Don't forget, late entrant Samsung carved a huge chunk of the cellphone market by focusing on the middle section that market leader Nokia ignored.

By forcing companies to think about competitive position instead of competitive advantage, Chew says he is able to divert their attention to pressing questions that are often ignored.

Says Chew: "It gets to the question of where the firm has the potential to have a superior position. What does the firm have to do to improve the position? Are the offerings in line with the new position? Are the firm's capabilities any different from the competition?" After all, competitive advantage isn't about having super powers, but doing extraordinary things with the abilities you have.