Your Sustainable Competitive Advantage

Why are some businesses so much more successful than others? These businesses grow faster than most, are more profitable and have great staff that are motivated and perform. How can you make sure your business is in this group?

It is hard work running your own business. Especially when you have customers to find and service, staff to lead and motivate, bills to pay and stock to manage. Although most businesses face the same challenges and operate in the same economy, what makes some businesses successful while others seem to struggle? 

A study of 3,000 small and medium-sized businesses in NZ back in 2003 found that 93% of leading businesses had formal planning processes in place. However incredibly, in same year, more than half of New Zealand small and medium-sized businesses had either no plan or one which was hopelessly out of date. Fast forward nearly ten years to 2011 and the results are no different.

The recession has been a game changer and reminded us that the ground rules for successful businesses still matter. In the new marketplace where cash is harder to obtain and spending is down business fundamentals have moved from “nice to have” to the difference between success and failure.

The most successful business owners invest the time to seek assistance in identifying their key business risks and opportunities. They understand their competitive advantage and are typically not afraid to challenge the status quo. These business owners embrace change and innovation constantly reviewing and updating their business planning. 

Determining the level of growth for your business is an important part of the business planning process. A business needs a plan for growth but this should not be at the expense of margin. Goals should be set for the level of growth and these goals need to be specific and able to be measured regularly.

Say for example your business is a specialist manufacturer, if your goal is to grow sales:

• Do you want to grow by a total dollar amount or by a percentage?
• At what level do you want to grow sales and over what period?
• Will growth come from existing products or newly developed products?
• Will new customers or existing customers contribute to this growth?

Understanding where your business is located within the business life cycle is essential when determining levels of growth for your business. Is you business in start up phase with few sales and customers or has the business been operating successfully for 15 years in a mature market with a strong regular customer base? Projecting annual growth of 50% – 100% would be much more realistic for a start up business, which has yet to establish itself in the market, as opposed to a long established business with a history of small annual growth. 

Don’t forget the ability of your current business systems and processes to cope with projected growth. This is a key area overlooked and many successful businesses have failed in part because they neglected to update, replace or expand their business systems in line with growth. 

Your Sustainable Competitive Advantage or SCA is your point of difference or winning edge that enables you to keep ahead of the competition.

Four Key Aspects of a SCA include:

• It must be of value as perceived by your customers or clients.
• It uses the business’s major competitors as its reference by evaluating the relative strengths, weaknesses and competitive position of each major competitor.
• It must have a pervasive cultural impact on the behaviour off all individuals within the business.
• It must be sustainable at the least in the medium term and preferable in the long term.

There are typically three choices for a SCA – low cost, service or product:

Product. A business which adopts a product SCA will require a focus on business characteristics that create a distinct product (or products), either in their functional capabilities or their presentation or image. These businesses will therefore focus most heavily on product development, marketing and innovation functions. Apple is perhaps the best example of a company following a product differentiation strategy. 

Low cost. A business which adopts a low cost SCA will focus all its efforts and energy on achieving the lowest possible product/service cost. These businesses will therefore focus heavily on production and logistic aspects of their operations. The Warehouse could be said to be a business following a low cost strategy. 

Service. A business which adopts a service SCA will require a focus on business characteristics that create a distinct service, being customer focused at all levels of the organisation. Businesses will invest in staff training and development, and focus on marketing and customer relationship aspects. Kirkaldie & Staines department store in Wellington is an example of a company following a service differentiation strategy.

To be successful and grow your business you must take the time to analyse and identify opportunities but most importantly it is critical that this is backed by action. Planning without action will result in the status quo, or worse, terminal decline for your business.

The key to any growth strategy is to identify and develop opportunities with an acceptable balance of risk and return, and the strategy must be in line with your SCA. It is important to remember that developing growth strategies and identifying your SCA are only part of the overall strategic business planning process. A process that is not a “one off” quick fix, but rather a key business activity that is revisited, refined and updated on at least an annual basis.

To discuss your strategic planning and business improvement needs, please contact: 

Brendon Cutler 
Manager – Business Services 
E brendon.cutler@hayesknight.co.nz
T +64 9 414 5444