Why Defining a Firm’s Capabilities, Purpose, and Niche Creates Competitive AdvantagePublished: April 11, 2007 in Knowledge@Emory
Is it so different for the leader of a company to ask, “What is this company capable of?” than it is for an individual to wonder, “Who am I?” Not according to at least one presentation given at the third annual Atlanta Competitive Advantage Conference held at Emory University’s Goizueta Business School.
Joey Reiman, CEO of the ideation company, BrightHouse, and an adjunct professor in marketing at Emory’s Goizueta Business School, contends that it’s not competitive advantage a company should seek, but distinctive advantage. Finding this distinction, like finding the meaning of self, requires going within.
In a panel discussion entitled, “Recognizing Distinctive Advantages Within Companies,“ Reiman told participants he advises company leaders to look inside their firms to find capabilities—not outside. “The best way to find one’s own capabilities is to ponder on them—go deeper—not wider,” says Reiman, who has advised company leaders at firms like The Coca-Cola Company and The Home Depot.
To do this, Reiman says a company should begin to unearth its distinctive advantage by identifying its ethos (“the core sentiment of a company—its central strength”). It accomplishes this by establishing its “master idea,” or, as he phrased it, the “ineffable that needs to be articulated.”
Examples of firms who have grasped this concept and used it to galvanize a company include Apple Computer, Inc.’s “Think Different” slogan; and NIKE, Inc.’s ubiquitous “Just Do It.” All are master ideas, Reiman believes, that articulate their companies’ ethos. In Apple’s case, it’s the push for non-conventional creativity. NIKE’s master idea suggests that limits, at least when it comes to sports, don’t exist.
What leaders at Apple and Nike do get, Reiman explains, is that merely making a profit isn’t enough to sustain a company. It’s the organization that operates via a purpose that can and will make a profit if the company ethos is clearly defined and a company’s culture is constructed to support it.
What Reiman suggests is that companies strive to arrive at a kind of “Camelot.” Like King Arthur’s mysterious stronghold, a “Camelot company” occupies or defines a “place” that’s indispensable. “More and more companies are looking beyond process and productivity and are looking for purpose,” contends Reiman. “The Road to Camelot means reflecting and going inside a company, not using all the energy to go outside.”
Reiman continues to encounter company leaders that see this inner search for distinctive advantage as a radical idea. In fact, one of the other panel presenters, York University’s Moshe Farjoun (who completed a study in conjunction with Tel Aviv University’s Tali Shimoni), determined that companies, especially in situations where they have little or no direct historical experience, often look outside the firm to gather information about their capabilities.
Although firms often learn from their own related experience and learn by doing, Farjoun and Shimoni noticed a strong social component to unearthing capabilities. Companies sought advice from customers and studied their competitors to learn about their own capabilities.
“What we learned overall was that companies used learning interactions and social learning with other players in the environment,” explains Farjoun, who noted this was most prevalent when it came to decisions regarding deploying capabilities in contexts more novel to the firm. “Ironically, we came full circle in recognizing the role of others—actors and observers—in the formation of self-capability judgments.”
A third presenter, Filipe Santos, an assistant professor of entrepreneurship at INSEAD, offered additional insight. Santos’ paper, co-authored by Kathleen Eisenhardt, professor of strategy and organization at Stanford University and Research Director of the Stanford Technology Ventures Program, focused on how entrepreneurial firms in nascent fields construct markets and organize boundaries.
In the Santos/Eisenhardt study, presenter Santos explains that entrepreneurial firms were aware of their distinctive advantages in a nascent industry, and they attempted to shape the market and organize boundaries in a way that gave them power in their respective market.
The study focused on a diverse group of entrepreneurial companies in operation during the mid-1990s e-commerce boom. Since these markets were emerging and loosely defined, small entrepreneurial companies had a chance to create a space for themselves. They did so utilizing three key processes: claiming, demarcating and controlling.
First, entrepreneurs would claim a nascent market by making the identity of its firm and the market synonymous. They were able to accomplish this through a mix of leadership signals, stories about the firm, and by adopting business templates that successfully balanced familiarity with novelty.
One budding security software company the pair studied wanted to be distinct. “So they said we don’t want to concentrate on security. Let’s focus on the broader domain of trust,” Santos explains.
The company leaders decided to look at trust in the off-line world and find a way to translate that same sense of trust to an online world. They came up with a digitally stamped seal of approval. They called in a lawyer to codify all the company’s internal practices and then published their best practices for all to see.
Why do that? “To be seen as the reference provider,” observes Santos. The firm also disseminated stories to create a mythical feel about the firm. By so doing, they were able to establish a distinct identity.
In order to sell their product, this firm endeavored to demarcate the market. This was accomplished, notes Santos, by creating a clear perimeter for the firm and by shaping the surrounding industry structure. By co-opting established firms via alliances with much larger “players” in the market, “[the firm] created a boundary around the market they were trying to create,” says Santos.
Lastly, the company attempted to control the market by overlapping its footprint with the changing scope of the market. Rather than allow rivals to become stepping-stones for established firms, the software company used acquisitions to eliminate potential rivals and to structure the market to its advantage. “They didn’t want [their rivals] to grow,” explains Santos. “They wanted to corner the whole market so there were no options and they also wanted to cancel other standards.”
This shift from competitive to distinctive advantage was the impetus for creating the ACAC conference, explains organizer Richard Makadok, a professor of organization and management at Goizueta.
"We are at the beginning of a dramatic change in the way people view strategy. Most people assume that the #1 most important goal of strategy is to achieve competitive advantage—in other words, to be better, in some way, than your competitors,” explains Makadok. “But today, we are increasingly recognizing that distinctive advantage trumps competitive advantage virtually every time because being different is more important than being better. The reason for this is simple: If you just aim to be better than your rivals, using the same metrics that they use, then even if you succeed, you will still always have competition nipping at your heels. On the other hand, if you aim to be different, then you may carve out a niche where you have no real competition.”
Because of this, Makadok says, managers need to move from a “benchmarking” mindset to one that focuses on distinction.
“Over the past few decades, many companies have become obsessed with benchmarking—comparing their performance with rivals on industry-wide standard metrics. But benchmarking pulls companies in exactly the wrong direction, because it leaves them looking more similar to their rivals, rather than more different,” he says.
Instead, Makadok contends, managers would benefit more if they “worry less about how their firms score on industry-wide standard metrics, and instead focus on finding completely new-to-the-industry metrics on which their firm is uniquely positioned to excel and succeed."
Makadok continues to promote the discussion of this strategic change with the fourth annual conference which is slated for June 14-16, 2007. The conference draws academics from the United States and abroad to discuss research on distinctive advantage. Practitioners are also invited to bring a real-world application to the conference. Among the topics at this year’s conference are: why do some companies and new ventures consistently outperform their competitors and why do some businesses succeed in the same industry environments where others fail and what can managers and entrepreneurs do about it?For more information on the Fourth Annual ACAC conference or to submit papers (the last date for papers is Friday, March 16), visit http://www.bus.emory.edu/Rmakadok/ACAC/.