Underlying all the challenges that business owners and CEOs face is the basic question of how do you turn your company into the industry leader? (Or, if it’s already there, how do you keep it there?) For if you can make your company the best in the business, then you will enjoy sustainable growth and high profitability.
Over the past several weeks, I’ve been conducting brief educational sessions with groups of CEOs and business owners in New Hampshire and Maine through the Renaissance Executive Forums. I share with them a business model for creating sustainable competitive advantage, called the Noble Enterprise.
Before participating in my sessions, members of each group responded to a questionnaire about their businesses. A primary question was about competitive advantage, asked this way:
- What are the causes of your business’s current level of success?
- What are the threats to your business?
- And what will be the causes of your future success?
The answers ran the gamut, as you might expect, because the REF members come from a wide range of industries. What I’ve found over many years of helping companies is that owners and executives tend to focus in, at most, two or three of four areas.
Here is a composite of their answers, grouped according to those four themes.
What’s happening outside my company that I’m either taking advantage of, or might be a threat or an opportunity?
- Stable energy & raw materials prices
- Strong suppliers
Company Actions & Offerings
What we DO as a company
- Filling needs in the market (through quality products)
- Great product/service – features, quality
- New products
- Our marketing
- Delivery performance
- Tight control on spending
- Ability to change with changing customer needs by introducing new product and introducing cost efficiencies
HOW we operate as a company
The people dimension of our company – who we are, our culture, what we stand for, and how we operate
- Keep improving as a team/company
Who we are as Leaders
- Personal credibility
A few observations about this list (and the thinking behind them), and I find that it’s fairly similar to lists I’ve encountered in my work with dozens of other companies
Most senior executives and business owners naturally focus on what it is that their companies do and offer to the market as the source of their success. This falls under “Company Actions and Offerings” mentioned above. While this is the delivery vehicle to the market, it’s not the whole story about where to find and create competitive advantage.
What is seldom mentioned, though equally important to those “outer” aspects of our company is the equally important inner aspect, How We Operate the Company (mentioned above). Yet this is a fertile area to focus on in order to create competitive advantage. The character of your people, your culture – all can contribute to making your company the industry leader.
“Threats” are naturally seen as external. If our competitor does something or our customers shift somehow, these are seen as natural threats to our business. Actually what they are is a threat to our current operations, signaling the need to change. Companies that are good at anticipating and responding to change, will find that change can actually help them leap ahead of competition.
What is even less thought of is: What within the hearts and minds of the company’s leader(s) may represent either a threat or a potential source of competitive advantage?
A few of the REF participants did refer to the strength of their people or relationships with vendors and customers as potential sources of success. I believe increasingly that what really sets leading companies apart from the also-rans are such things as the nature of the relationships they do form.
What’s the secret here?
It’s that most leaders are so busy trying to improve the outer aspects of their companies that they either ignore or give slight attention to the inner sources (what goes on inside people). These are the Inner Sources of Competitive Advantage, and I believe they are becoming more important and more potent in helping companies win in the marketplace.
Even more of a secret is that when you work on these inner dimensions of your company – and start winning, your competitors don’t see why. They look for what it is you’re doing, rather than how you’re doing it.
While all companies are always working on improving the outer dimensions – for example, their decisions and actions on which products to offer, with what features and what qualities to provide – and mounting often large efforts to redesign and streamline business processes, the winning companies are also doing something else.
That something else is to strengthen the inner dimensions. It’s not only a powerful strategy, but largely invisible and difficult to copy by competitors, who (naturally) are focused on the outer dimension.
Herb Kelleher, former CEO of Southwest Airlines captured this beautifully in an interview by the Wall Street Journal years ago. The interviewer asked a question along the lines of: “You’re always talking about culture. Tell us about that.”
He answered: “I’ve tried to create a culture of caring for people in the totality of their lives, not just at work. There’s no magic formula. It’s like building a giant mosaic – It takes thousands of little pieces.” Then he added, “The intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture, our esprit de corps.”