Wednesday, August 30, 2006

Sustainable Competitive Advantage

I have been privileged in my career to have worked for some interesting corporations and although 20 years apart my time at Dell and Amstrad have some striking similarities. In both cases they gained significant market share. This was achieved in part due to a business model that provided a substantial cost advantage over their major competitors.

 

Selling or marketing a product that is noticeably lower in price usually fuels great growth and market success. The challenge is sustainability when the market conditions change. Both organisations controlled expenses ruthlessly to maximise shareholder value.

 

Amstrad came unstuck because of quality issues with its flagship computer range, it hadn’t anticipated poor component quality nor was it ready to manage the market crisis that caused. Shortening product lifecycles as processors and other components leapt in performance also undermined their mass production business model favouring just in time manufacturing techniques used by the market newcomer Dell.

 

Today Dell’s market share is very substantial, but recent growth has faltered. Have customers recognised that price and specification aren’t the only factors to consider? Do customers see any benefit in higher specifications? Have prices fallen by so much that the actual cash difference (rather than a percentage saving) is minimal and not worth sacrificing for great service? Has the competition strengthened that much? It is probably all of these factors and more besides.

 

In both examples did they invest in preparation for market change? I don’t think so.

1 comment:

Chris Holland said...

Hey Keith - nice blog. As for growth - it was bound to tail off. The productivity gains from tech have started to tail - since the only new stuff Microsoft seems capable of coming up with is flashier menu's and new toolbars - Outlook, Word and Excel are still fundamentally the same as they have been for the last few years... so why replace all those pc's and licenses? It's not (necessarily) Dell's innovation that has faltered - but Microsofts in the area of the desktop. It looks like Vista sucks up more CPU power to make a newer user interface... making your computer slower and adding no advantage to the corporate user... so why upgrade...