Competitive advantage no longer enough: Survey

The Jakarta Post, Jakarta

Competitive advantage is no longer enough to achieve high growth in revenue and profit.

That was the strongest message reiterated by France's INSEAD business school at a management seminar organized for senior executives of publicly-listed PT Astra International here last week.

INSEAD professor Ben. M. Bensaou noted that staying ahead of competition was not enough anymore, pointing out that high-growth companies do not bother much about their rivals. Instead, they focus their resources on making their competitors irrelevant through a strategic logic called value innovation.

Speaking at the Astra Management Development Institute, Bensaou defined value creation as the simultaneous pursuit of radically superior value for buyers and lower costs for companies.

At another seminar organized for chief executive officers at the Marriott Hotel, Ken Gibson of McKinsey & Company said top- performing companies, which his consulting firm had studied over the last four years, showed a common characteristic; that their management consistently carried out five distinctive "must do" leadership elements.

The five elements are: Communicate clear and compelling missions; create aggressive targets and goals; build atomized organizations with clear accountability; provide transparent and timely performance feedback and enforce visible consequence management.

The McKinsey survey also found that top-performing companies create an environment where underperformers feel under strong pressure to select themselves out. This is quite different from many companies in Asia where regulations make management reluctant to act against low-performers.

INSEAD, which has been playing a significant role in enhancing the capabilities of most Astra senior executives, presented at the seminar the findings of five years of research by W. Chan Kim and Rene Mauborgne on more than 30 different industrial companies around the world with in-depth interviews of hundreds of managers, analysts and researchers.

Another INSEAD professor, H.C. de Bettignies, enlightened Astra executives with the role of values, ethics and performance management and of how the values of business leaders shape managerial behavior and influence corporate culture.

The research compared high-growth companies to those with less successful performance records and found that the managers of the less successful firms tended to think only along the five conventional textbook dimensions of strategy: Industry assumptions, strategic focus, customers, assets and capabilities and product and service offerings.

How is value innovation brought into the market place?

The study cited several high-growth companies that had succeeded not only in beating their rivals but in making their competitors irrelevant.

Success Case 1: For decades major U.S.television networks used the same format for their news programming, aired shows in the same slot and competed on their analysis of events, the professionalism with which they delivered the news and the popularity of their anchors.

But in 1980, CNN changed the rule of the market game, entering the scene with a focus on creating a quantum leap in value, not on competing with the networks. CNN replaced the networks, format with real-time news from around the world and emerged as the leader in global news broadcasting and created a new demand around the world. But it was also able to produce 24 hours of real-time news for one-fifth the cost of network news.

The message conveyed by the CNN success: Conventional logic leads companies to compete at the margin for an incremental share and use competitors as benchmarks. Value innovators offer a tremendous leap in value and build on the powerful commonalities in the features that customers value.

Success Case 2: Many cinema operators in Belgium shut down in the 1980s after the success of videocassette recorders and satellite and cable television. Instead of continuing to compete for a shrinking market, cinema operator Bert Claeys created Kinepolis, a megaplex with 25 screens and 7,600 seats, thereby offering moviegoers a radically superior experience. Screens measure up to 29 meters by 10 meters and viewing rooms have 70- millimeter projection equipment and state-of-the art sound equipment.

Kinepolis offers oversized seats with individual armrests and lots of legroom with a steeply sloped floor to ensure everyone an unobstructed view. Today, Belgians refer to it as much more than simply a night at the movies. It has solved the problem of parking scarcity and cost and has resulted in one of the lowest- cost structures in the industry. In its first year, Kinepolis won 50 percent of the market in Brussels and expanded the market by about 40 percent.

The message: Instead of battling competitors over targeted segments of the market, Bert Claeys made the competition irrelevant by putting aside conventional thinking about what a theater is supposed to look like. And the company did all that while reducing its costs.

Success Case 3: In the mid-1980s, the budget hotel industry in France suffered from stagnation and overcapacity. In 1985, Accor launched Formule 1, a line of budget hotels without costly restaurants and appealing lounges, offering small rooms with a bed and bare necessities. The Formule 1 concept gave Accor such a big cost advantage that it allowed the company to improve the features customers valued most -- a good night's sleep for a low price.

Accor has not only captured the mass of French budget-hotel customers but also expanded the market as truck divers, who previously slept in their vehicles and businesspeople needing a few hours of rest, have been drawn to Formule 1 hotels.

The study singled out several other companies that made competitors irrelevant through their value innovation.

But, the research found that companies, which were most successful at repeating value innovation were those that took advantage of all three platforms on which value innovation could take place: Product, service and delivery.