The expression “sustainable competitive advantage” is commonly used in business. It is a section title somewhere in most business plans. It is talked about in the hallway of most large companies. I believe it has becomes so commonplace that it isn’t treated seriously enough. Not even close!
“Our advantage is our people.” I’ve heard this so many times. “Our people are better than their people.” Really? I’ll take Google’s search engine. You take their best dozen people. Let’s see who wins. It might be laudable to want to credit “our people” as a company’s key advantage but this strikes me as a feel-good distraction from zeroing in on true advantages and disadvantages.
“We are great at execution.” Slightly more specific words might substitute for execution, such as “marketing”, “operations”, “customer service”or “engineering”. There are certain companies who have developed a franchise in one of these areas, such as HP for technical innovation, but for the most part, these are generic expressions that speak to execution ability. Most companies believe they are good at execution. Most engineering departments believe they are exceptional at engineering. However “we execute well” is not a suitable franchise. Said slightly differently, strong execution, in a general sense, is not an adequate substitute for having a true franchise. If it is, your company has a potential problem. If competitors have a strong franchise, a company that relies primarily on execution has a much steeper hill to climb. Oakland A’s did very well in baseball for a number of years, despite having a payroll that was a fraction of the Yankees. At the end of the day, however, the Yank’s franchise proved too powerful to overcome.
Does your company have a strong franchise? What is it? How well does your company understand its franchise? On a relative basis, how well does it understand the strength and weaknesses of its franchise relative to those of its competitors? Does this understanding get shared with all employees? Is there a passion about what is special about the company?
I will emphasize the importance of not kidding oneself in this area. If your franchise is strong, you have a foundation to build on. Good business decisions are underpinned with a clear understanding of what specifically is the company’s pillar of strength. If your franchise is weak, it is extremely important to acknowledge this and use this understanding to make responsible decisions. Bad outcomes result when a company has a mis-understanding of either the nature of its franchise or its relative strength. Poor decisions are made. Years often go by before the implications are fully understood.
Know your franchise. Be honest about its strength. Use this information to improve your decision making.
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