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Do You Know Your Company's Competitive Advantage?

With the worst record in Major League Baseball this year, the Pittsburgh Pirates cannot be said to have had a competitive advantage over anyone. On the other hand, Rafael Nadal-the #1 ranking tennis player-clearly has a competitive advantage over everyone else on the men's tour. Put a bat in Nadal's hand, though, and the odds are he'd never make it even against Pirate pitching.

Competitive advantage is a function of what game you're playing. Not only that, in business competitive advantage is defined not by some abstraction and not by your rival, but by your customers. When ABC Corp. competes with XYZ, Inc., it's not to see which can run the 100-yard dash fastest. They're competing to see whose offer will appeal most to a set of customers. Forgetting that is like pretending Rhett and Ashley are just rivals for a gold medal.

Win By Playing a Different Game
The question isn't "which company is better?" It's "Which customers will buy from you, not the other guy, and why?" Oddly, this key strategy question is often unasked, and even more often answered sloppily. Executives often forget that they can-and often should-beat their competitors by playing a different game. Think about, for instance, two retailers: Barneys and H&M. Both are fashion-forward shops selling to young, urban women-and sometimes to the same young, urban women. In Manhattan, it's a three-block walk from Barneys' Madison Avenue store to the H&M on Lex.

But the two companies play very different games. H&M has about 2000 stores in 38 markets; they the company speaks of "the world of H&M," they mean the world. Barneys world is far more rarified, with 9 "flagship" stores in places like Beverly Hills, Manhattan, and Scottsdale and twice as many smaller "co-op stores," only in the U.S. Sarah Jessica Parker once told Vanity Fair, "If you're a nice girl and work hard, you get to go shopping at Barneys. It's the decadent reward."

Same industry, similar customer base-but it's meaningless to say that one has a competitive advantage over the other. It would be dangerous, if you were running one of them, to try to ape the other. Dollars to donuts H&M has a much leaner, more efficient supply chain than Barneys. And sure as shooting Barneys would be pissing money away if it tried to match H&M in that department. To put it into jargon: The dashboards of the CEOs of the two stores would and should track very different key performance indicators.

Don't Follow the Others, Build on Your Strengths

Strategic "me-tooism" is endemic. Companies benchmark each other, chase the same hot technologies or markets, fall for the same management fads. What they should do is define a game they are uniquely able to play well, then maintain and invest in the capabilities needed to stay on top of that game. The first step in doing this, I argued a couple of weeks ago, is to identify what intangible assets matter most to your way to play. A company like Bang & Olofson will hire different people, set a different innovation strategy, sell through different channels, and manage its brand different from, say, Panasonic or Nokia.

As HR experts Dave Ulrich and Norm Smallwood point out, a smart company will develop a distinctive leadership brand. They define this as "a reputation for developing exceptional managers with a distinct set of talents that are uniquely geared to fulfill customers' and investors' expectations." Even more specifically, it means hiring and promoting people in order to build capabilities that reinforce the choice you have made about the game you're playing, not in order to fill in some generic map of HR competencies.

The same goes for all the other intangibles: your IT system, your processes, your philosophy of customer relations. They are, or should be, selected and perfected according to your needs rather than a "what's benchmark" or "what's world-class' standard that may be meaningless to your business.

In almost every industry, there's more than one way to play, which means there's more than one definition of competitive advantage-and more than one winner. Rhett may win Scarlett, after all, but Ashley gets Melanie, and who's to say who had the happier ending?

Image courtesy Flickr user ChodHound

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