Is digital necessary or sufficient for competitive advantage

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

Click here for Part 1 / Part 2?/ Part 3

Achieving competitive advantage – how has this evolved:

Competitive advantage can be shortly explained as?"The ability of an organization to outperform competition sustainably and achieve market leadership". This ability can come from several factors, and there are several concepts, frameworks and approaches which have evolved over time that talks about this.

1.?Resource Based Strategies:?B-school strategy lessons teach us this classical approach to determine if a firm has competitive advantage.

To recap, four elements are assessed –?Value of assets,?Rarity of resources, high cost of?Imitability and?Organization capability – popularly referred as “VRIO”?framework. A firm that fulfils all these 4 parameters qualifies to having a competitive advantage in its operating sector. Several examples of this are known to us – Companies like Apple in Technology based on inimitability, Oil based conglomerates based on value of resources, etc.

2.?Routine-Based Strategies:?The relevance of resource-based strategy was best contradicted by the Indian IT sector.

They had large volumes of knowledge, some stored in various forms, while the other within the minds of their human resources. Indians, being the best “jugaads”, found the best way to manage large scale, developing standard processes i.e., routines – to store, share, re-use and replicate this knowledge across projects and time. Making this a competitive advantage, had its own elements – contrast to the ones in?VRIO framework?– storability, replicability, repeatability, to name a few. A less known view of competitive advantage, this has mostly stayed as a research area, I was lucky to learn this concept as part of an elective from the inspiration behind this piece.

3.?Financial Economies of Scale:?Reliance entered late into the telecom market, but with a bang, backed up by the value of the group, with large investments up front.

They became the leaders within a short period and are now expanding further horizontally through multiple related services. While several start-ups have emerged, none can still challenge Amazon, the sheer might of the firm and the brand enabling them to tie up users to their shopping and media platforms. I am also one of those, who can’t imagine living without their shopping platform, prime video or music app, and they are a perfect example for the next approach as well.

4.?“One Platform” Approach:?An emerging strategy, several players globally and in India, be it Lafarge Holcim or UTCL in cement or JSW in Steel have shown the intent to being more than a product or solution provider.

They aspire to be a comprehensive platform addressing all the building needs of a consumer. While the above examples lay in the industrial sector, “Swiggy” –now caters to all delivery needs – food, groceries and genie services. Interestingly, two of them JSW and Swiggy have a commonality – “1”; JSW One is its integrated platform, while Swiggy’s loyalty program is now Swiggy One! And we have one platform for media - covering prime video, amazon music, kindle, audible and firestick. Not to forget that they are on the path to becoming a platform of platforms. They might soon become, if not already, one of the the biggest retailers in India. I was thoroughly impressed by the strategic intent of my current organization – of creating a conviviality platform. This strategy might well be one of the most contemporary strategies companies take in the next few years.

5.?MBM?Leadership:?There exists an “MBB” for consulting, I call out an “MBM” for leadership resulting in competitive advantage.

Market:?Market leadership creates a virtuous loop through the ability to shape sector trends. New innovations and business models are often acquired, if not developed. IPL, not just replicated the football leagues of the world, and more specifically, “ICL” – Indian Cricket League by Zee sports, but did it bigger and better, than any-one could imagine.

Brand:?Brand is by default an asset with an underlying value, but its power is best depicted by “Maggi”, which bounced back so quickly despite and post the “lead-saga”.

Mind:?Mind leadership, is not just about capturing the mind of customers. There are several viral videos and topics which change every other day. To me, it’s about imprinting or engraving the mind of the population – based on quality and trust beyond times. While “Tata” is neither a brand leader nor a market leader in food products, I prefer buying “Tata Sampann” from the day I saw it. While many names may come and go, there can only be one “Tata” in India. This not just creates customers, it creates well-wishers, who hope for you to succeed as in the case of Air-India acquisition.

I find these examples particularly interesting – with Tata, being a corporate house, fitting as an example for mind leadership, where-as an entity like IPL in cricket, which has a more emotional connect and hence mind capture, fitting as an example for market leadership. Digital, has been a key feature in some of these strategies, and it would be interesting to see how it fits in the overall ”VRIO” framework.

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. Let us look at the various considerations relevant for digital adoption.

From doing digital… to being digital…

This has been a popular thought w.r.t digital adoption – “Being digital rather than doing digital”. Most consulting companies would have their point of view to this, parametrizing this abstract concept through a digital maturity assessment tool or service. The key elements of such assessments cover most aspects of business transformation – purpose, policy, process and people. These aspects though, are very relevant for any organization and creates considerable difference in the digital journey and impact.

The role of communication and change management in digital adoption

Such a transformation deserves focus on change management to make it sustainable. And this change needs to be relevant to all the layers of the organization. Some of the key considerations to remember while embarking on this journey.

Conclusion

Whether digital makes you a winner or not, not adopting digital would definitely make you irrelevant going forward. While they bring fresh concepts and methods, the classical fundamentals of doing business well shall never become irrelevant. When-ever we think something new, lets keep the basics right, validate with first principles and take off from there!

Click here for Part 1 / Part 2?/ Part 3

What to expect in the 3 parts?

• What are the different strategies to achieve competitive advantage? (covered here)
• Are these strategies similar or different from classical approach? (Part 2)
• Can digital be the key to achieving competitive advantage, sustainably? (Part 2)
• 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.