Importance of Understanding the Levels of Competitive Advantage | Operational Excellence Quick Hits

Max Krug: (00:05)
Looking at levels of competitive advantage. There’s different levels of competitive advantage. I’ve developed this pyramid that’s really based on the concept of Blue Ocean Strategy. So if you haven’t read that book, Blue Ocean Strategy, it’s a good book to read, because it talks about how to create uncontested market space. I see Google, I see Amazon in that blue ocean, uncontested market space.

Max Krug: (00:34)
The bottom of the pyramid is the red ocean, and the number of competitors is large. And going up the axis here, the vertical axis, is the time for competitors to replicate. We know the lowest level of competitive advantage is price. If you’re competing against your competitors on price, how long before the competitors can match your price? I can give a price for a service or a product, immediately they can undercut me. You don’t want to be competing here. It’s a shark frenzy. Everyone’s trying to compete for the same, or delivering the same products based on price.

Max Krug: (01:18)
The next level up I put is quality. This is really the form, fit and function, or the service that you’re providing to the customer that’s satisfying their immediate need. That can gain you a little bit of competitive advantage, if you have superior quality relative to competitors, but it’s not a longterm solution. The next level up is changing a deep rooted policy. This is internally focused to your organization. You have a lot of policies, and sometimes those policies are actually preventing you from giving great customer service. The example I like to use here is the postal service. When do most people go to the post office during the workweek? They usually go their lunch hour. When do the post office take their lunch? During your lunch hour, so you walk in, there’s 20 people standing in line, and one person at the counter. Because their policy is, we take lunch from noon to 1:00.

Max Krug: (02:28)
Well, how about if I change that policy, and take lunch when we have an off-peak period? It can significantly improve the customer service. Think about your organizations. What policies do we have in place, currently, that are providing us from giving superior customer service? And they’re all over the place. If we can change an internal policy that opens up the opportunity to satisfy a customer need to the extent that nobody else can, it’s going to give you a competitive advantage. These things are easy to find, if you know what to look for, and it can give an immediate impact in terms of better service.

Max Krug: (03:14)
The next step up is changing a paradigm for the customer, so this is changing the way the customer thinks. I like to use Walmart as an example here. People that are familiar with Walmart, and what it was prior to Walmart. The paradigm prior to Walmart was if I needed drugs, I went to the drug store. If I needed groceries, I went to the grocery store. If I needed my eyes checked, I went to my eye doctor. But they said, “We can bring that all together and you can have your oil changed in your car, do your grocery shopping, get your prescription filled, have your eyes checked, all in one stop shop.” That was a change in paradigm for the customer. You don’t need to go to 10 different shops to get what you need. You can do it all in one shop.

Max Krug: (04:03)
Back with a Henry Ford quote, “If I ask my customers what they wanted, they would have said faster horses,” because their paradigm is horses the only mode of transportation. Walmart became a huge organization, because they changed the paradigm for the customer. Then we move up to the highest level of competitive advantage, removing that limitation for the customer. Amazon, what limitation did they remove? I don’t need to go to the store to get what I need. It’s delivered to my house, and I can shop, I can check availability, and I can check price competitively with multiple people from one location.

Max Krug: (04:50)
Removing a significant limitation, I want to think about your business. How are you wasting your customer’s time? If you’re wasting your customer’s time, there’s opportunities for a significant competitive advantage.