Ever since Michael Porter wrote his well-known book on competitive advantage about 30 years ago, it has become an essential condition of business that one can not succeed without a competitive differentiator.
Although, the general logic in Porter’s book is flawless, in practice many chief executive officers (CEOs) are caught up in situations of having to deliver with relatively few real differentiators. In the classic Porterian model, companies win because they have chunky competitive differentiators such as access to natural resources, monopolistic licence rights, famous brands, market know-how, etc.
While these are important differentiators, the vast majority of organizations do not have the luxury of acquiring such differentiators. Instead, in most real life situations major investment decisions are driven by a belief that there is room for yet another player in a rapidly growing market or by a fear that being absent would somehow imply missing the bus.
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The rush for new investment has been reinforced by cheaper technology and capital, which has made it possible for almost all companies to hope that they can enter any market with the possibility of leadership.
Tackling rivals: Michael Porter says the essence of many strategies can be to perform activities differently. Jonathan Fickies / Bloomberg
Such a simplistic approach to competition, based only on market potential, ignores some subtleties. In economies such as India, which have been on a high growth path of at least 6% a year for many years and where there are constraints in even relatively commonplace resources, it is possible for a first mover to have vastly advantageous economies even though a second mover might feel it has a large market to tap into.
Boards can sometimes miss this fact. Therefore, companies separated even by three-four years can be faced with very different economics. In making investment decisions, when faced with apparently similar competitors separated by a few years, boards will need to examine whether the differential costs of acquisition and the maturity of their organization to use these resources are similar to their perceived rivals.
A great example of how even a few years can make a difference is seen when organizations are able to hire the best talent earlier than others. Given the fact that loyal employees will generally not leave organizations en masse even when there are attractive options elsewhere, companies may be able to maintain a relatively high-skill workforce at relatively low cost, merely because of having hired earlier in the economic cycle.