As a watch enthusiast, I follow with interest the ever growing number of watch “micro-brands” that are appearing, boasting high-quality Swiss movements and innovative designs.
It is now possible to produce watches that compete with the high-end Swiss brands at a fraction of the cost. The new manufacturers are agile and able to adapt to market feedback in near real-time, which is often difficult for existing leaders.
It is obvious why it makes sense for new, purely digital market entrants to keep at the cutting edge of digital transformation – they need to drive market share. But why do organizations that have been around for decades and are already turning economic profits need to embark on a digital transformation journey?
Removing the Barriers to Market Entry
Globalization has removed the barrier of high initial capital investment as many products can now be produced at much lower scales in emerging countries.
Access to talent is easier, too, as people are increasingly mobile and mobile technology makes collaboration with employees and partners even easier, wherever they are.
Finally, the so-called SMAC (Social, Mobile, Analytics, and Cloud) means that it is easier than ever to gauge interest for a product, identify your market and promote your product on social media, all leveraging “Pay as you Grow” infrastructure, taking agility to a whole new level.
What was, not long ago, the preserve of long established brands or large groups is now accessible to innovators with very little capital investment.
Another characteristic of the digital transformation we are witnessing is that industry verticals are also being redefined. Large industrial groups have always diversified their activities but this has traditionally happened through M&A in the same or adjacent verticals.
More recently, though, companies that have grown organically are entering completely new verticals. Technology firms in particular, having acquired gigantic capitalization, are seeking to broaden their activities in verticals where technology plays a dominant role such as banking, payments, robotics or automotive.
As an extreme example, many would have thought that space flight or launch services would be one of the industries with the highest possible barrier to entry.
Yet some tech giants have managed to capture significant market shares from well-established companies such as Arianespace or ULA.
Elon Musk’s SpaceX has managed, in less than 15 years, to apply price pressure to existing leaders through innovation such as reusable rockets and vertical landing.
Amazon’s Jeff Bezos and his Blue Shepherd venture is sure to add price pressure, but also create new markets that traditional players may lack the agility to exploit, such as microsatellites.
So Is Sustainable Competitive Advantage an Aging Concept From the 20th Century?
I think not. I would even go as far as saying that it has never been as relevant as today. Strategy is still key, driven by supply and demand.
The sustainable part of the concept used to come from an organization’s differentiated product or pricing. What will allow companies to secure a sustainable competitive advantage and Schumpeterian rent in today’s economy is their ability to innovate. They need to fail and learn faster than their nearest competitor to meet existing and untapped demand.
Beyond the tip of the iceberg that is mobile apps and fancy UIs, a company’s ability to transform its core service and processes is what will give it the necessary agility to compete with new market entrants, big or small.
Embracing enterprise-wide Agile initiatives such as Scaled Agile (SAFe) should be top of the agenda.
So like SpaceX’s grasshopper rocket that can land pretty much anywhere, on earth or on a floating barge, an organization’s digital transformation should aim to give it the agility required to make its competitive advantage sustainable, regardless of the challenges coming its way.