Finding Competitive Advantage

We should all be lucky enough to work in an organization whose products have a competitive advantage that are regularly delivered on a platter by a savvy R&D department which whips up superior products that will have customers begging to get them. ?Sadly, reality is rarely so kind and often we find ourselves in the same position as the manager we’ll read about below; caught between an aggressive competitor and an unsympathetic global management team.? Rather than accept the inevitable, this leader developed a strategy that leveraged his local market’s asymmetries. ?In doing so he and his team created a competitive advantage for their company while outsmarting a savvy global competitor.?

Finding Competitive Advantage

The Turkish division of a large European medical equipment manufacturer was facing a major challenge.? Until this point they’d mostly controlled the market but a major USA manufacturer, (and their main competitor globally) was moving in.? The American competitor had already muscled into other European markets and was now itching to establish a foothold in the secondary markets – Turkey being one of them.?

Both the European and USA competitors had similar product lines that medical professionals used to diagnose traumatic injuries and manage life threatening diseases (MRI, X-ray machines etc).? Since both product lines were almost identical it was difficult to determine who had the advantage, leaving price as the only plausible lever; a lever the American competitor was using aggressively.??

In Europe, medical equipment purchases are funded by governments, but choosing a supplier was left to local hospital authorities.? The European incumbent had a lot to lose as Europe was their home market and generated the lion’s share of their profits.? The European sales VP reminded the country manager in Turkey that any discounting would erode profit margins – something bonus pay was based on. ?Caught between a rock and hard place, most would resign themselves to the inevitable…but this manager didn’t.?

Competitive advantage is always derived from market asymmetries.? Superior product attributes are obvious asymmetries, but other market asymmetries can come from places that might not be so obvious at first glance.? Identifying all market asymmetries is a leader’s job as is determining which asymmetries to leverage and how to leverage them to gain maximum competitive advantage.??

Determining that both competitors had similar equipment, the Turkish manager hunted for other market abnormalities which could be leveraged into a competitive advantage.? Market research showed that equipment downtime resulted in significant disruptions and costs to hospitals.? Procedures were often cancelled due to equipment malfunctions and faulty calibration.?? While hospital administrators focused on the purchase price of an MRI or X-ray machine what they were failing to realize was the hit on their operating budget when the equipment went down.? It’s here where the Turkish team had a significant competitive advantage – not due to superior product quality but because of a superior organizational structure.?

Turkey, compared to most European countries is quite large with long travel times between major centres.? The American competitor had established their service headquarters in Istanbul, by far the largest city but geographically on the far edge of Turkey – a strategic error.? Repair technicians needed to fly to remote locations to repair their equipment resulting in extended delays in getting the equipment back online.?? In contrast the established European competitor had trained service personnel located in each major center meaning an MRI machine could be recalibrated the same day vs two or more days for the American competitor’s product.???

A strategy was devised where all service centres in the Turkey were empowered to measure the “operation hours” of all hospital capital equipment across Turkey.?? Data showed that European Supplier’s equipment had an approx. 20% greater uptime over their American competitor.?? With this data they were successful in creating a program that changed the Hospital purchase criteria in Turkey to focus on “cost / day of operation”.? The steep discounts the American competitor was offering weren’t enough to compensate for what was perceived as poor quality equipment.?

What can we learn from our Turkish manager’s strategy…

1.?????? Competitive advantage comes from market asymmetries …not just product asymmetries.

2.?????? To find market asymmetries a leader must push past the obvious and do the analysis needed to unravel a market’s secrets.? This is what strategic leaders train themselves to do….to see what everyone has seen before and think what no one else has thought before.

3.?????? Strategy is a cohesive response to an important challenge that includes concrete actions, coordinated across a diverse team and in this case across a country.??????

?A strategic plan always defines a critical challenge facing the company showing the gap between where the business is now and where it needs to be.? It then builds a bridge to close that gap.? Does your strategy do that?

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1. Good Strategy Bad Strategy by?Richard Rumelt