Skip to content

Better Business on Purpose

Podcast

Fractured 2 Visions Scale Business

Episode 5: How to Use Strategy – Competitive Advantage

In this episode, we’ll explore competitive advantage and ways to think about how your business delivers relative value to the market. Butler confesses that he hails from a long line of German stud farmers.

 
Strategic Management Society Member
Organization Development Network Member
Insights Association Member
 

Transcript

This podcast is presented by Mission & Fields, consulting and coaching to take your business to the next level. The “Better Business on Purpose” podcast exists to spur you on in pursuing the deeper questions related to leading a business, questions that require the interaction of strategy and identity.

Yates – Hello. Welcome to the Better Business on Purpose podcast. This is your host, Yates Jarvis, and I’m here with co-host Butler Stoudenmire. Is that the official way to pronounce it in your home country?

Butler – Yeah.

Yates – What is that?

Butler – How do I pronounce it? Or what’s the home country?

Yates – Both.

Butler – We say Stoudenmire where I’m from, here in South Georgia. People in South Carolina with the last name, though, actually say Stoudenmire. It’s from Germany, I’m not sure how they say it, but the way it’s spelled, I assume it’s Stoudenmire, which is kind of a middle road.

Yates – Okay. Okay. It’s German, you said?

Butler – Yeah. The family myth is that it’s German for stud farmer. I’ve never actually confirmed that, but that’s what we say, at least.

Yates – And you’re a result of that lineage, apparently. Right?

Butler – That’s right.

Yates – That’s what you tell your dates?

Butler – Yes. First date.

Yates – That’s why they’re running, man. That’s why they’re running. Okay, well great to have you on again, Butler. What are we diving into today?

Butler – Today we are diving into the topic of competitive advantage.

Yates – Okay. That’s relevant to stud farming somehow.

Butler – Somehow.

Yates – Maybe we don’t use that analogy. Okay. Competitive advantage. That sounds very scientific.

Butler – Yeah, and it’s a term people like to say. But kind of like the term strategy, I think a lot of people don’t really know what it actually is. I mean competition is in there, advantage is in there, it’s somewhat self explanatory, but what it actually is is a little elusive.

Yates – Yes. And the other version of the phrase, sustainable competitive advantage, what does that really mean? So let me give a quick breakdown of the way that I see competitive advantage. One analogy you may have heard is, and this has nothing to do with advantage really, but you’ll see it, when you’re trying to outrun a bear. The best way to not get caught is to just outrun your friend. So basically, the idea is that your advantage is relative. So competitive advantage basically means, “Hey, your advantage is relative. It’s competitive. It’s about who’s in your market.” So as an example, if you were going to launch a website, and you were in a completely different industry from Amazon, and Amazon has a certain type of website with certain features and that sort of thing, and they’re ahead of the curve, maybe this is five, 10 years ago, you don’t have to have the same quality of website that Amazon has.

 

What you need to do is understand the competitors within your market and beat them. So sometimes you need to be innovative. One version of competitive advantage is through innovation, another is through price, another is through cost. But as you develop a competitive advantage, you always have to look at the level that you develop in relationship to competitors, because there’s cost associated with developing that advantage. So if I sell ice cream, and I want my ice cream to be 40% cheaper than my competitors, well that sounds great, but there’s a reason there’s isn’t cheaper, and it’s going to cost you money, it’s going to cost you time and effort and focus, in order to get that 40% cost reduction, if that’s even possible. And same thing if you want to innovate and have flavors that travel up into people’s sinuses, this is not an idea I’m recommending. Rainbow sinuses, that’s my new ice cream shop. Every flavor going up through your nose.

Butler – Smell the rainbow.

Yates – Smell the rainbow. Taste the rainbow, smell the rainbow.

 

We got co-branding ads already. But if you wanted to do something innovative that hasn’t existed before, that offers unique value in a way that no one else can provide, you’d want to do that at the lowest cost possible, because you’re going to be in a whole league of your own. And that’s why, even with innovation, it makes sense to release things that are minimum viable, things people can use now that you can learn from them and make it better over time. But what you don’t want to do with innovation is go develop it and sit on it for 30 years in a garage to make it perfect. Because all of that investment isn’t going to wield, in most cases, the type of return that you would expect from all of that time and money that you’ve put into it. So innovation is kind of like an instant launch type of thing at some minimum level.

Butler – Yeah. You know, it’s funny. As you were talking, I was thinking, my brain cell fired, and I went back to when I was in college and studying in economics comparative advantage, a little bit different than competitive advantage. But essentially, that has to do with the concept of, you may have a comparative advantage versus your rival that means you should focus on producing something, or maybe they have a comparative advantage over you on something. And part of that is that you need to let them produce that, and you can just purchase that good or service from them. So I think that gets back to what we’ve talked about, in terms of, your competitive advantage is going to stem from what your strategy and your vision is, your shared vision, and that’s what you need to focus on, and you don’t need to try to be all things to all people. And you need to let your competitors do what they’re doing, but understand what your competitive advantage is, and just focus on that and invest into that.

Yates – Yes, that’s a great point. I also want to note that you said your brain cell, and I’m going to be using that against you now to talk about the size of your brain being a single brain cell. We’ll talk about evolution, who knows what this is going to be speaking to, but I’m using this, at least for the next two years.

Butler – Oh goodie.

Yates – All right. That’s a great point. When we’re talking about competitive advantage, we mentioned a couple areas, through innovation, through cost, through low price. So there’s various ways that you can compete. And when developing a competitive advantage, we’ve mentioned, “Okay, it’s relative to the competitors in your market.” Some people don’t even know who the competitors in their market are, really. And the funniest thing is when you talk to somebody and they don’t think they have any at all, which often is not the case. Most people aren’t just operating in a niche with nobody chomping at the same budget, or trying to serve similar needs. As you all have assessed your competitive advantage, do you have a sense of who your competitors are and how often have you looked at them and cataloged where they have an advantage and where you do, and how do you look at that?

Butler – Yeah, we have a pretty good sense of it. Obviously, healthcare is an interesting environment where there’s a lot of different dynamics going on, and it’s not so clear cut, and it’s not necessarily the most competitive market either, there’s a lot of barriers to entry. But in our region, we would probably say there’s four or five direct and somewhat comparable competitors to us. How much time have we taken to truly catalog what their strengths and weaknesses and offerings are versus ours? We haven’t taken too much time. We consider ourselves to be far and above in terms of quality, and that’s where our competitive advantage truly does lie. We’ve made a lot of investment into some team members that other organizations just don’t have. And they’re not revenue producing positions, they are purely driving our quality efforts. So that’s an investment that we’re making, but it results in pretty dang high quality.

Yates – That reminds me of many of the customers I work with, or clients that I work with. They have a sense of where they have a competitive advantage, but they don’t have data. And one of the things that we have to do when we’re developing a competitive advantage, we identify the resources within the organization and the resources outside of the organization. One of the things that we do is assess the resources within the organization, firm effects, that help us to better understand where we can invest and why. But the flip side of that is being able to actually document the level of that advantage. And so that means getting your hands on information that you may never have had before. When you look at your competitors, Butler, is there just information sitting out on the internet that tells you everything you need to know about the key areas where you want to be better, such as quality. Can you scrounge for that? Do you think it’s going to take investment to get it? Is that a reason why maybe metrics aren’t used to define the advantage you have in certain resources?

Butler – In terms of our own performance, that data is pretty readily available. We get it from the payer sources in our industry and some regulatory bodies. As far as our competitors, there is data related to Medicare, not to get too nuts and bolts in the healthcare world. But there is data out there that we can get on quality and cost on our competitors. But again, it’s very convoluted, very regulated, and it’s not the easiest to interpret data. So we haven’t done too much with it, though it definitely could yield some better understanding.

Yates – And we talked about shared vision in the last episode, and that’s about the future. When we look at competitive advantage and some of the data points we have, we’re developing this advantage for not just the market as it is today, but the market as it will be developed. And so the more that we can understand what’s happening in the world, the more that we can understand outside of the organization pressures and powers, such as changes to government policy, which is something I know you guys are susceptible to.

 

And other things that are an advantage to you, which is a barrier to entry is an advantage, but it’s also something that you have to use to shape investments for the future if you think those advantages are going to slip away, or you need to bolster them, or you need to develop further advantage over others that already enjoy that same barrier to entry. So it’s definitely something that has to be cultivated, studied, and if things aren’t changing, you have to have a stance on when they will change. Because all of that changes how you’re going to be able to invest in developing your own specific advantage.

Butler – Yates, would you put the concept of competitive advantage within the concept of shared vision or something that comes from it?

Yates – The competitive advantage is not something within the shared vision. The shared vision can be shaped by some knowledge of competitive advantage that you have, but ultimately it may require the development of capabilities that you do not have and resources that you do not have. So if Starbucks has a shared vision, this is not theirs, but if they didn’t have a vision of owning the coffee space, but envisioned being the place where community and co-work occurs, maybe they look and they go, “Man, everybody’s using their laptops at Starbucks. And we aren’t really a coffee shop, we’re kind of like a drug store/co-work space.” And so they had a vision. They might have to develop different competencies or capabilities within their training, within their stores, they have to invest in different resources within each retail location to go toward that vision.

 

So competitive advantage and how you plan for it is definitely affected by the vision. And sometimes it can be used to help shape the vision, especially if you’re trying to stick a little bit closer to home, to where the businesses today. But ultimately it is going to be a slave to the vision and the strategy. The strategy, which kind of tells how you are going to go about positioning yourself for that vision, is something that really informs where you have to develop that competitive advantage.

 

But like we said in the last episode, part of this is assessing current reality, and so the same thing occurs. What is our current competitive advantage? Do we have any at all? If we do, what is it? And do we want it to be this? Many businesses, they might have a competitive advantage on cost, they might be 10% lower than a competitor, but their vision and their strategy is nothing about being a low cost provider. But that might be why much of their business is coming to them. And so you might see that you have different competitive advantages for different ideal customer profiles for your business. So for one segment of your customer, your competitive advantage is your pricing in a certain sphere of product. But for another type of customer, it might be quality or outcomes, which is quality for you. Does that make sense?

Butler – It’s just, when you were talking about looking into the future and how a competitive advantage may change or might need to change, I was thinking, similar to, as we discussed with shared vision, again, there’s opportunities where you need to be having conversations with people in your organization, and you have to have those foundations laid.

Yates – When we get down to the nooks and crannies of competitive advantage, it is happening where interactions with your customers are happening in many cases. And so everyone is involved in not just helping to assess what the advantage is, but capturing that advantage. So part of competitive advantage is being organized to capture it. So just because you have this advantage, we’re 10% lower on our cost, doesn’t mean that you’re capturing it. Wonder if you didn’t have any salespeople, or your office was closed always. That’s not being organized to capture the value that you’re creating by being a lower cost provider. So your people are an important part of capturing that value. And then, when we talk about sustaining the value of competitive advantage, having that advantage in a way that’s continuing on to the future, that really comes to having a bold opinion about why the world is the way it is and where it’s going, and readying yourself for capabilities that are relevant now and into the future, and making sacrifices to serve this year and the next three years versus five years, 10 years from now.

 

And that’s hard, especially if your company is struggling just to try to make a profit this year, or just to survive this year. You can hear this and go, “I’ve got no time to plan for 10 years. I’m just trying to survive today.” But probably part of the reason that you’re struggling today is because five years ago, you didn’t think about how to develop a competitive advantage for where you’re at and for where the market’s at, and you didn’t understand your competitors, where they were going to be, your customers and what their needs were going to be. So this is a thought process that behooves you, even to help how you compete today. So if you’re not thinking like that, and you’re not assessing what’s going on in the market, what your customer needs are, and how those have changed and will change, it’s a healthy exercise to touch everything we’ve talked about in the last four episodes. Planning versus reacting targets, focus and prioritization, shared vision and competitive advantage.

 

Thank you again for listening to the better business on purpose podcast. We hope that this content is going to help you take a better look at your business, and to answer some questions for your business that could help it improve. In the next episode, we’ll be discussing company culture, and how to define what makes a company culture healthy. If you have any questions, please send us an email bbop@missionandfields.com. We look forward to talking again soon. Goodbye now.