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See the Important Shifts Happening
We have been taught that the ability to deliver quality products can form a strong economic moat for businesses. This has been the hallmark of the Industrial Age.
Today, quality has been commoditized. It has become an enabler, but not a differentiator.
Learn what The New Differentiators are and what Skill Sets companies need to deliver them.
The traditional curriculum has taught us that a company should have a sustainable competitive advantage, or as it is also called, an economic moat. There were various sources of competitive advantage. The most important one was a company’s ability to produce the highest quality products. This idea is pretty basic. A company that for some reason is able produce a better product can differentiate in the marketplace and convince customers to buy their product.
This is quite obvious for safety critical B2B products, such as automotive parts. But it similarly goes for everyday consumer products, such as a deodorant, which, in a way, can be safety critical as well.
This ability to produce highest quality products can be based on a number of skills and resources. The company may operate a well organised production facility, or high precision manufacturing plants with skilled workers and outstanding quality controls. Their production technology or their product technology may be superior. They may be able to better manage the supply chain, or they may have access to some special resources. As varied as these skills and resources are, there is a common pattern. These companies manage certain processes better than their competitors. The Industrial Age was the Golden Age for Masters of Processes.
image credits: PhotoDune, jorgosphotos
Now this was the traditional situation, as we know it since Warren Buffet coined the term economic moat. Yet, something has been happening in the recent past. Something that profoundly affects the sustainability of such competitive advantages.
To better understand what’s going on, let’s take a step back. A competitive advantage is only sustainable as long as it’s hard to replicate. In other words, it is not about being able to manufacture better products today; it’s about keeping that advantage tomorrow. It’s about having a sustainable edge.
Let’s switch perspectives to get a clearer view of whether and how quality is still a sustainable competitive advantage these days. Assumed we buy a product as consumers. How hard is it to find a quality product that fulfils our quality requirements? Tell me about a product category, where you don’t have the option of a variety of choices that perform along these requirements.
And then, how big are the differences of quality between products within a certain category? What is the difference between a BMW and a Mercedes in terms of performance and functionality? Which new TV set is the best one to buy? It’s not without a reason that the market for product reviews and comparisons is booming. Differences in quality are not easy to spot.
Just recently I was in a rush to find a new trolley. I checked out a few stores that offered the usual suspects of Samsonite, Delsey, and the likes. The more I looked the harder the choice became. How should I decide? Should I take the Samsonite just to be safe that it will last? But then, my old Delsey had lasted for years. Finally, I found one on discount. It looked nice and solid, offering at least Delsey-like quality, so I thought. It did not show the original price for some reason. But the discounted price seemed more than fair. So I thought. Probably a discount of 20-30%. Not a bad deal. Only after the purchase did I learn about the price tag. It turned out the discount had been 70%. The manufacturer was actually a sub-brand of Tumi and a Formula 1 sponsor. Of course, knowing this I am starting to like the trolley even more. But I bought it without without realising that I bought the spirit of the Formula 1. It doesn’t make me travel faster, but the functionality is not all that the price tag reflects. Oh, and yes, the handle broke after only a year.
Let’s assume for a second that we take away all brand labels. Can we still tell the quality differences between offerings? We will be able to spot the difference between a Ferrari and a Vauxhall, but can we tell the difference between a Volkswagen and an Audi? Between a Samsonite and a Delsey? Between GAP and Banana Republic? The race is getting tight.
And even if we can tell the quality difference, do we need this extra premium quality? Or does the Samsonite, Delsey or Wenger type quality fulfill our needs? How does the handmade clockwork mechanism of a Rolex improve our ability to tell the time? Would folks still buy it if it was packed inside the case of a much cheaper Swatch?
But then what are our criteria for making purchase decisions? In how many situations is it still quality? Or is it the brand or something else? Let’s face it, if we are looking to purchase a trolley, a car or a tv, then we take quality for granted.
If we look at 80’s and 90’s car commercials, we see advanced performance and technology features taking center stage.
Audi’s “Vorsprung durch Technik” possibly is one of the more prominent examples.
Just now I am looking at the US Audi website. What catches my eye are special edition cars in “eye-catching exterior colors”, and a cooperation with sustainable shoemaker TOMS, offering specially designed Audi shoes to customers. On the German website I see that is “Sportiness is calling” for the new SQ5. While all are interesting campaigns, they also indicate that “Vorsprung durch Technik” has been enhanced through “Vorsprung durch Design”.
Similarly, BMW’s video ads delight me mostly with beautiful images of the landscape that the car is driving in. Being fully absorbed by the beautiful landscape, my immediate instinct is to redirect my browser to a travel website. But then the logo and slogan at the end of the commercial bring me back to reality, reminding me that the featured car was indeed a BMW, and not an Audi or Mercedes.
If we look for the true innovations we see that they have moved from the core product to auxiliary services, such as the connected car and autonomous driving. But we will get to those services in a few minutes.
Without doubt those companies make excellent cars, which offer a superior driving experience and they keep innovating. But quality, interpreted as functioning of a product or as a product’s performance, has become an enabler, but not a differentiator for most companies today. As we will see, this means that the core skill set of the business has shifted accordingly.