Does that mean collaboration & competition are the two sides of the same coin called invisible hand?

While the idea of equating economy’s invisible hand with that of our creator’s hand(with a slogan like collaboration without coercion) has resonated well with our readers, some have opined that, it is a myopic view, with a self-limiting economic mindset, to say the least. Granted our creator’s hand is an omnipotent, omnipresent, omniscient, discipline agnostic, multi dimensional hand, that is capable of manifesting itself, in many different forms, through our motivational freewill (as explained in our debate style post) -- however, when the context is economics and/or strategy (or value creation at large), it predominantly manifests only, in two different self-interest ways: collaboration (as we saw in the last post) and competition (as we are going to see in today’s post).

Sure enough, the same people(or firms) who collaborate with each other to meet their self interest needs, also end up competing with each other, as some of us are driven little more than others, partly because of our aspiration for more wants. Turns out, this “needs driven collaboration” and “wants driven competition”, happen to be the primary forces that keep the invisible hand in perfect tension, in the form of the supply and demand curves of the economy. Simply put, if collaboration is a supply driver, then competition is a demand driver, which makes us to hypothesize that collaboration and competition are the two sides of same economic coin called invisible hand only.

Sure enough, it brings up an interesting follow-up question,

• If collaboration and competition are the two sides of same coin called invisible hand, how does competition manifests itself within 21st century businesses?

With competition being one of the key concepts that has been studied extensively by experts (particularly the Red Ocean folks), let’s see if we can complement their thinking with our firm’s Virtual Ocean thinking, without eclipsing them?

For example,

With competition being a demand driver that is primarily triggered by our value creating instincts, how about reframing competition, with a simple value equation, that is well grounded on micro economics principles? Simply put,

Customer Value = Get the “Jobs to be done” with a differentiated offering/Price (where, jobs to be done in this context is our needs + wants)

Turns out, the denominator (price) part of this value equation, happens to be governed by a flat demand principle, while the numerator (i.e. differentiated offering), by the downward/upward sloping demand principle. Sure enough, firms have only two levers, when they want to be competitive, from the standpoint of providing maximum value to customers – either decrease the price (denominator) and/or increase the numerator (differentiation).

And, if one needs to explain this value equation further, with a micro economics lens –

When the competition is governed by the flat demand curve (i.e. when firms reduce the price, the denominator of the value equation), the demand curve remains flat, as customers see the value of an offering as same, as that of the competitors, and sure enough, it is a price taking/locking competitive scenario, at whatever level the market sets the price.  

On the other hand, when the competition is governed by the downward/upward sloping demand curve (i.e. when firms increase the differentiation, the numerator), the demand curve slopes (downward for some offerings and upwards for some luxury offerings), as some segment of customers still think that the firm’s offering is different from others, and so, are prepared to pay a higher price, which means it is a price setting/commanding competitive scenario.

An implication of these two scenarios is that, competition, like collaboration is also a composite trait with two levers  i.e. motivational heartbeat energy trait called price (the denominator) and a beliefs/mindset energy trait called differentiation (the numerator). In other words, competition is a, virtuous sweet spot of, how the heartbeat energy trait called cost converges with the mindset energy trait called differentiation, by releasing the right dose for the right moment.

Now that we have framed competition with our energy management and micro economic lenses, please refer to the sidebar within the earlier debate style post, to learn more of these energy trait subtleties, by substituting collaboration (cooperation + coordination) with competition (price + differentiation).

Coming back to the primary message of our post today, competition, like collaboration, also manifest itself as five value creating, completive advantage scenarios, depending upon the dosage level of cost and differentiation, as synthesized on the top of the page. In other words, when cost and differentiation are plotted in X/Y axis respectively, we see five value creating, competitive advantage scenarios emerging, as a virtuous sweet-spot of, how cost and differentiation energies converge, by releasing the right dose for the right value creation moment.

Simply put,

• When “cost” and “differentiation” energies are released as LOW-LOW, VOS’ competitive advantage manifests within Smart Shepherds value station (VS) in the lower left quadrant as “Low Cost Advantage”. In other words, when a firm focuses on reducing the denominator part of the value equation to increase customer value, customers see the value of an offering as the “sea of sameness”, and so, competitive advantage scenario in this quadrant is the “price taking, flat demand curve driven low cost advantage”. The leadership style within this value station is service leadership, nurturing the customer capital driven jobs to be done strategy, using elegant innovations, as summarized in the exhibit above. Refer to one of our earlier posts for innovation style definitions.
• When “cost” and “differentiation” energies are released as HIGH-LOW, VOS’ competitive advantage manifests within Savvy Servants value station (VS) in the lower right quadrant as “Lock-in advantage”. In other words, when a firm focuses on increasing the denominator part of the value equation with a higher price (to increase their profit), with say, a lock-in business model like subscription model, customers see the value of an offering as a “sea of sameness with convenience/necessity” and so, competitive advantage scenario here is the “price locking, flat demand curve driven, subscription type lock-in advantage”. The leadership style in this quadrant is servant leadership, nurturing the human capital driven growth strategy, using effective innovations.
• When “cost” and “differentiation” energies are released as LOW-HIGH, VOS’ competitive advantage manifests within Analytical Managers value station (VS) in the upper left quadrant as “Differentiation Advantage”. In other words, when a firm focuses on increasing the numerator (i.e. differentiation) of the value equation to increase customer value, with a help of, say, an industry standard specification based branded offering, customers see the value as a “sea of differentiated offering”, and so, competitive advantage scenario here is “price setting ,downward sloping demand curve driven differentiation advantage”. The leadership style in this quadrant is transactional leadership, nurturing the financial capital driven resource allocation strategy, using efficiency innovations.
• When “cost” and “differentiation” energies are released as HIGH-HIGH, VOS’ competitive advantage manifests within Product Pioneers value station (VS) in the upper right quadrant as “Exclusivity Advantage”. In other words, when a firm focuses on increasing both the numerator (i.e. differentiation) and denominator (cost) of the value equation (to increase the value of customers and their value simultaneously), with a help of, say, a differentiated luxury brand driven offering, customers see the value as a “sea of differentiated luxury offering”, and so, competitive advantage scenario here is the “price commanding, upward sloping demand driven differentiated luxury type exclusivity advantage”. The leadership style in this quadrant is transformational leadership, nurturing the Product and Services capital driven execution strategy, using purpose innovations.
• When “cost” and “differentiation” energies are released in a balanced manner, VOS’ competitive advantage manifests within Mended CXO's purpose value station (VS) in the middle quadrant as “Inclusivity Advantage”. In other words, when a firm focuses on balancing both the numerator (i.e. differentiation) and denominator (cost) of the value equation, to increase the value of all parties, with a help of, say, a good enough differentiation/cost equation, customers see the value as a “sea of good enough offerings with good enough price”, and so, competitive advantage scenario here is the “price/demand balanced good enough differentiation & good enough cost driven inclusivity advantage”. The leadership style in this quadrant is situational leadership, nurturing the Purpose capital driven value multiplication strategy, using resource innovations.

Conclusion

Like other VOS styles, VOS' five value creating competitive advantage scenarios are just the outcomes (i.e. END) of, how our "cost" type heartbeat energies and "differentiation" type mindset energies (i.e. MEANS), get amalgamated, by releasing the right dose for the right value creation moment, as summarized in the exhibit above.

That said, here are our five takeaways today.

1. When value creation opportunity falls under the smart shepherd’s value station and the firm’s offerings are a commodity type of offerings that are universally available across all channels (e.g. essentials offered through super markets), the best competitive advantage to be pursued is "Low Cost Advantage".
2. When value creation opportunity falls under the savvy servant’s value station and firm’s offerings are a commodity, that can be easily wrapped up with a convenience based business model like subscription (and/or fixed term contract based bundling models like utility services), the best competitive advantage to be pursued is "Price Lock-in Advantage".
3. When value creation opportunity falls under the analytical mangers value station and the firm’s offerings are differentiated offerings that are available only through certain channels (e.g. industry standard specification driven branded offerings), the best competitive advantage to be pursued is "Differentiation Advantage".
4. When value creation opportunity falls under the product pioneers value station and the firm’s offerings are differentiated luxury that is available only on exclusive channels (e.g. high end luxury offered through specialty stores like Apple stores/high end fashion boutiques), the best competitive advantage to be pursued is "Exclusivity Advantage".
5. When value creation opportunity falls under the mended CXO's purpose value station and the firm’s offerings are perceived as both commodity and specialty, depending upon the eyes of the beholder that are available across all channels (e.g. essentials that are viewed as commodity in developing markets, might be viewed as specialty, in emerging markets provided they are marketed with good enough features), the best competitive advantage to be pursued is "Inclusivity Advantage".

Granted, competitive advantage as a concept has been studied and pursued by experts and companies alike, for quite some time, however, structuring them with this value equation mindset(that is well grounded on micro economics principles) , is a first of its kind in the industry, that has been pioneered by our firm, based on the learning’s from our Virtual Ocean Strategy (VOS) driven VizPlanet platforms. Should any of our readers want to learn more, we would be glad to have an offline conversation.