Adding value, creating distinction
Article Date: Jun 20 2005
You can create and sustain a competitive advantage – and attract outside investors – if you build value and differentiation into the DNA of your business, says Chris Ingram.
A deep understanding of the market, a real knowledge of what your customer needs and a keen eye as to where the market is heading are the key attributes that I believe ambitious companies must possess if they want to attract important, long-term investors to help them grow fast.
But, and I’m sure this won’t surprise you, these are basic attributes. If you have them, great. But they are merely the passport to the next phase of assessment, which is this: how does your business create value and how does it differentiate itself? At the risk of over-simplifying the issue (and putting a lot of costly consultants out of a job), there are five main ways in which this can be done.
1. The PRICE advantage
A pricing advantage can be achieved through:
i) Better technology – but it requires constant investment to stay at the leading edge. German companies generally did, UK companies generally didn’t; and our manufacturing industry has died relatively quickly as a result.
ii) Location – sourcing from the lowest cost producers or locating closest to bulk raw materials.
iii) Scale – you can build scale organically yourself or buy it (through M&A) or acquire a licence. Another route is through a joint venture or partnership with those who have already achieved scale elsewhere, although you will need to offer them something in return: probably a geographical or know-how advantage.
2. SPEED attractions
Speed in this context can be secured through:
i) Technology – for example, Natural Motion, an animation software company for the movie and video games market, in which my firm, Genesis, has invested, can produce animation eight times faster than existing competitors.
ii) Experience – knowing which corners to cut and where the pitfalls are.
iii) A simplified/slimmed-down approach – this works well in a market over-laden with technology that is not used and/or not understood. There are a huge number of consumer markets like this where I predict fortunes will be made by offering less, not more. (Interestingly, one of the first examples of this was launched in the mobile phone market only this month: Vodafone Simply). ‘Less’ often means ‘less stress’ to many, so there will not need to be much of a discount offered for this lack of so-called sophistication.
3. Feel the QUALITY
Creating quality is as much to do with alchemy, as it is to do with science. For instance, technology can offer you a quality, price or speed advantage but, by itself, it’s rarely sustainable. Marketing has to be equally valued, as have other key business ingredients. And in this context, ingredients can apply just as well to the team you are building as to anything else.
Quality also refers to providing great customer service, which is always a massive opportunity. In homes, in pubs – in fact, everywhere – you always hear people complaining about poor service but the vast majority of big companies are too organised into separate silos, where employees don’t talk to each other, to actually solve this issue. This leaves the door wide open for entrepreneurs who tend to be much more in touch with their customers and staff.
4. Acquisition possibilities
A clear acquisition strategy can allow you to capture economies of scale in a range of areas – manufacturing, marketing, R&D, purchasing and distribution. It can also get you out of problematic growth predicaments. I say this because Genesis Investments has a single title publishing business in its portfolio that is suffering, despite having grown the top line relatively well (for ‘manufacturing’ read ‘printing’ in this instance). In a nutshell, this outfit has diseconomies of scale, even compared with medium-sized businesses. To create a commercially interesting business we will have to either acquire or grow rapidly organically through new launches and spin-offs. If we cannot achieve that, we should sell the business.
5. Being different
Being different is always something of a conundrum for businesses. For instance, procurement people think ‘different’ is always bad because they have no basis for comparison so they can’t beat you down on price. But if your product is different then you can sidestep a lot of the competitive issues mentioned above.
Increasingly now, given the difficulty in maintaining a technological lead and the ability for anyone to outsource manufacturing to a low-cost country, competitive differentiation is achieved through perceived differences rather than tangible ones. Hence the huge and growing interest in building brands – differentiated and with their own unique positioning. This is often done artificially, communicating what one would like the business to be. However, it’s much more sustainable if the brand successfully reflects the best of the culture and values of the company.
Many in the West speak despairingly of the huge shift in manufacturing to Asia, particularly China, largely because they feel it is impossible to compete successfully.
Without dismissing the point, let me put a different perspective on that with an anecdote. A Chinese chief executive came to our strategic consultancy offices in Wigmore Street, London last year. When we met she explained that she’d arrived half an hour early so had gone next door to Selfridges to look around. I enquired what she thought of the experience.
‘Well, when I looked closely in one department, just about everything had been made in China. It was dreadful. In each case you are charging at least ten times more for the same item than we received for making it in China!’
The point was that ‘we’ had captured nearly all the value and not the Chinese who had done most of the work. And that is achieved almost exclusively through the brand and its values. The customers were buying into that (physically and emotionally) and were not concerned with the place of manufacture once a certain quality standard had been achieved.
A key competitive advantage of UK Ltd over China is that we can build brands much better than the Chinese (in fact it’s something at which we’re truly world class). We cannot relax, but unless we’re really silly, this is one competitive advantage that we can keep.
Chris Ingram has considerable experience of building and managing rapid-growth companies and is widely regarded as the inventor of the modern media agency. He started CIA in 1976 with 3 people and £10,000. It grew into Tempus Group and was sold to WPP for over £430 million in 2001. In 2002 he launched Genesis Investments, a private equity business, and in July 2003 he launched The Ingram Partnership, a strategic brand building and communications consultancy.
