It would be nice to be in a position where you had no competition. Unfortunately, very few businesses are lucky enough to be providing goods or services to a market where there is none. This means you have to be better than your competitor – not necessarily better at everything, but better (at least) at something.
It’s not about what you think. It’s about what your customers think. That’s called Competitive Advantage. It’s how you are rated relative to your competitors, in the eyes of the customers. Customers will pay for the things that are valuable to them. This is called the perceived value.
By understanding what you are good at, and then using your IT system to strengthen that, you can be better than your competitors and gain market share. You could also charge more.
For example, if you dispatch orders within minutes of receiving them, your customers may conclude that you are an efficient organisation. They may be prepared to pay a premium for your speedy dispatch.
The cost to you is small. You already have a system – you just need to be smarter about the way you use it. By improving your efficiency, you will be able to improve your profitability.
In order to achieve a competitive advantage that can be maintained for a long time, your company must operate at a lower cost, or charge a price premium, or both.
Cost and price advantages can really only be achieved in two ways.
1. Doing the same things your competitors do, but doing them better. Your company must be able to stay in front, as your competitors will also get better over time. Effective use of your IT systems can keep you ahead of the pack.
2. Doing things differently to your competitors in a way that delivers a unique value to your customers.
Your organisation should position itself where:
- Competitors find it difficult to copy your products and/or services
- Customers want to stay with your organisation
- Your cost base cannot be eroded
If you wish to charge more than your competitors, customers must perceive large differences between you and your competitors. The more different your products and/or services are, the more you can charge and the more likely you are to succeed.
Improving competitive advantage using IT
The starting point for improving your competitive advantage is a thorough analysis of how you do things at present. This is called the Current State. Start by defining the functional areas of your business, for example Operations, Production, Marketing, Distribution, R&D, HR and Finance.
For each of these functional areas, create a flow chart to represent your current processes. You should then indicate on the flow chart the areas where you feel you could improve. A good way of doing this is to ask the questions such as:
- “What do we do well?”
- “What do we do not so well?”
- “What do we do better than our competitors?”
- “What do we do worse than our competitors?”
In the areas where you are better than your competitors, you need to ensure that your IT system retains this advantage. Compromising in these areas will result in a loss of competitive advantage. In the areas where your competitors are better than you, your IT implementer’s role is to add his knowledge and experience and to design a solution for you that is better than your competitors’. This is called the Future State.
By continually addressing your areas of weakness, you will gradually move your organisation into a relatively strong competitive position. This is called continuous process improvement, or business process improvement. Make sure that you are using the functionality in your current software to the fullest extent. Keep your software up to date as new versions will usually have improved functionality. Stay ahead of your competitors, because you can be sure that your strongest competitors will be using the most up to date IT to maintain their competitive advantage.