Is digital necessary or sufficient for competitive advantage - Part 2

Abstract

Every firm that operates today looks for ways and means to create competitive advantage, but how do you determine whether it exists. While classical approaches have existed, several others have evolved, and more so in today’s phygital world. Through this article, I look back at different strategies that have evolved and explore how digital fits in. It’s best to acknowledge the inspiration for this upfront, my faculty from IIM Indore, Dr. Srinivas Gunta, whose style of explaining such concepts had these imprinted in my mind. Few questions we may cover through this are:

1. What are the ways to achieve competitive advantage? (Part 1)
2. Are these similar or different from classical approach? (covered here)
3. Can digital be the key to achieving this, sustainably (covered here)
4. What is important to realizing digital adoption? (Part 3)        

Click here for Part 1 / Part 3 / Full Version

Recap – Part 1:

Resource based view (RBV) comprising of VRIO (Valuable, Rarity, Imitation and Organizational Capability) framework has been the classical approach to determining competitive advantage. Several other strategies have emerged over time, some of them were: Routine Based Strategies, Financial Economies of Scale, One Platform Approach and Market-Brand-Mind Leadership.

Are the emerging strategies different from classical approach?

Of the above, financial Strength may well correspond to the first of VRIO framework, the large “Value” of assets available for and from the large scale of operations. I am tempted to align the One Platform strategy with the second element - “Rarity” – as there cannot be multiple platforms in the same segment in the same market. The advantage arising from M-B-M leadership is not “Imitable” by anyone. Routines are in itself one of the elements of building “organizational” capabilities, which is the 4th element of the VRIO framework.

It does make me ponder if the VRIO framework of fulfilling all four conditions is mandatory to succeed. Each of these elements can individually offer a competitive advantage as seen with various examples. We have all learnt “necessary, but not sufficient” concept in mathematics, but this is a case of each element being “sufficient, but not necessary”. The seven notes of Indian classical music form the foundation for all tunes and music forms of the world. Similarly, elements of RBV-VRIO framework, can take multiple shapes and forms to provide competitive advantage.

Is digital the key to achieve “sustainable” competitive advantage?

Let us now try and fit digital into the VRIO framework. The staggering amount of valuation of apps and start ups in a way indicate the value that they offer to business. The foundation of platform strategy is the digital core around which the business model develops and achieving this would make this capability a rarity in the respective sector. One of the key elements of digital, analytics, and the powerful part of it – AI/ML is not an imitable capability. A predictive maintenance model for 1 transformer within a plant may not be replicable as-is to another transformer in a plant, each asset needs exclusive training efforts to succeed. The automation capabilities and the process standardization need of a digital solution in a way “routinizes” the processes, the R part of VRIO. In short, digital has all elements of “VRIO” – and hence may be considered to provide the ways and means of achieving competitive advantage.

While digital offers plenty of spot wonder PoCs, improvement is only achieved if it is made sustainable. Historically, consultants have always used excel based tools to make process improvements, both for planning and reporting them. Digitally enabled improvements, through standardization, if embedded into BAU, would also make such improvements sustainable. On a lighter note, the more contemporary “sustainability” is also addressed by digital - automation reduces resource consumption – be it manpower, paper or cost of operations.

It therefore becomes imperative to adopt digital transformation the right way. In the last part, we look at the various considerations relevant for digital adoption.

Click here for Part 1 / Part 3 / Full Version

What to expect in Part 1 and Part 3?

• What are the different strategies to achieve competitive advantage? (Part 1)
• Are these strategies similar or different from classical approach? (covered here)
• Can digital be the key to achieving competitive advantage, sustainably? (covered here)
• What would be important to realizing digital adoption? (Part 3)

Disclaimer: ?This article represents my thoughts/views on the subject based on personal and professional knowledge and experience across organizations and does not act as a research support or as a professional recommendation to any organization or from any organization. Special thanks to Prof. Gunta for his style of teaching that inspires, MS Power-point, for its icons and images that make this readable and Google search for the logos. This article does not provide any view on these companies in any manner. These logos have been used only as examples for explaining the concepts and not for any other purpose.