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See the Important Shifts Happening
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in the 1960’s
This era was about Manufacturing and owning factories. Capital, hard assets, and processes for manufacturing were key. Small players didn’t stand a chance against the powerful incumbents
Asian suppliers enabled cheap mass production and the economic upswing enabled mass consumption. As a result, mass marketing and mass distribution became critical for business success. Success was driven by access to capital, distribution channels, brand power, efficiencies in production and cost benefits through larger scale. All of this creates strong barriers to entry.
in the 2010’s
Now technology and information start to enter the stage. New productivity tools enable companies to operate more efficiently, reducing the impact of scale. Product Development is gaining in importance as the speed of product lifecycles increases.
The Davids have taken over from the Goliaths
It has been caused by a plentitude of trends across Business, Innovation and Culture.
We as consumers not only went from shopping in a retail store to ordering online and mobile. We also shifted from buying products to obtaining the same offering as services. We started to communicate not only with websites, but also with apps and increasingly with bots. Along the way we also have switched sides, having become hotel operators, full-time content producers, curators as we host AirBnB guests, and as we record, like, share and comment on social media platforms.
As a result of technology developments and outsourcing opportunities, the physical quality of most products is at an equal level. Most hardware components have been commoditised.
Building cars has become a software task. The biggest marketing agency of today started out as a social network. It’s key asset is the data that it collects about our behaviour. We are talking about Facebook of course. Similarly, the success of our movie and music stores is now driven by their data science capabilities. If in doubt, then have look at Netflix’s recruiting site. And of course, the ‘hotel’ business AirBnB, does not operate hotels.
“Our Age of Anxiety is, in great part, the result of trying to do today’s job with yesterday’s tools and yesterday’s concepts.”
Let’s envision the Rules of Business as an Operating System which Companies need to operate.
This Operating System has been updated as we have moved from the Industrial Age into the Digital Age.
The big shifts across the Business Innovation and Culture
force us to reconsider how the Success Factors of businesses have changed
and how companies need to operate today.
What happens once an Operating System is updated on our computer? To enable the smooth operation and compatibility we also need to update the Application Software. In Business, this Application Software is our understanding of new value propositions, business models and and business structure
Yet, while most companies are aware of the overhaul of the Operating System – the transformation of the business environment – they have failed to update their Business Thinking – their Application Software – accordingly.
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.