Why Your Competitive Advantage Will Fail — Unless it’s the Experience You Deliver

by Ethan Imboden

posted on 08-08-2017

Competition has taken on a new level of dynamism and unpredictability as new entrants, powered by new technologies, continue to demonstrate that scale, longevity, and brand no longer offer incumbents much protection. Today, even industry leaders — or perhaps particularly industry leaders — need to innovate with the pace and agility of startups to skip forward to tomorrow’s entirely new sources of value and new lines of business.

When Dell launched in the mid-80s, it quickly won market share with a key competitive advantage — a direct sales front end, fed by a just-in-time supply chain. This combination delivered healthy margins at price points that undercut everyone around them. Alas, though Dell’s dominance was long lived, it was not immortal. By 2005, its competitors caught up, leaving Dell as just another runner in the “race to the bottom” it initiated. In the year from August 2005 to August 2006, Dell’s share price dropped over 46 percent. This was the beginning of what would be a wavy, but irreversible, 65 percent downward slide by the time the company was taken private in October 2013.

Though dramatic, Dell’s story is not uncommon — Borders, Motorola, Blockbuster, and an ever-growing list of others hit similar snags when their key competitive advantages were commoditized or leap-frogged. For decades, conventional wisdom held that business success hinged on finding a core sustainable competitive advantage, then tuning the organization to exploit it ever more efficiently over the course of years, or even decades. With today’s increased pace and intensity of competition — made possible by globalization, lower barriers to entry, and the acceleration of technology — the lifespan of competitive advantages has shrunk dramatically.

Embrace the End of Sustained Advantage.
Leaders of established companies once focused heavily on the continuous optimization of a relatively stable competitive advantage in a relatively stable business. Now, they must also help drive their teams to discover, develop, and build entirely new competitive advantages and businesses. As these advantages will be relatively short-lived, it’s necessary to assemble and nurture a portfolio of them, so that as each one moves from a period of higher-yield to one of diminishing returns, new initiatives, new lines of business, or entirely independent ventures, can be implemented to continue accelerating growth.

Amazon demonstrates this approach well. The company launched as an online bookstore, then evolved into “the everything store” — selling $36 billion worth of “everything” in the first quarter of this year alone. But this progression seems obvious compared to Amazon’s more lateral movements. The company’s cloud infrastructure business (Amazon Web Services) accounted for 8 percent of Amazon’s profit in this last quarter, reporting $3.53 billion in revenue. Their artificial intelligence services (Amazon AI), connected home products (Amazon Echo), exclusive video production arm (Amazon Originals) and the recent acquisition of Whole Foods have extended the company far beyond all prior notions of “online retailer.”

At the heart of Amazon’s remarkable growth — including a massive 49,000 percent increase in share price since going public in 1997 — is its ability to maneuver rapidly to initiate new experiences and entirely new businesses that anticipate the evolving needs of its customers. Indeed, exceptional commitment to customer experience is perhaps the clearest through-line connecting Amazon’s far-ranging innovation initiatives.

**Anchor Your Future in Customer Experience.
**More than ever, customers are buying experiences, not products. Adding to this emphasis, every incumbent who invests in streamlining their customer experience, along with every start-up who launches a new technology-powered customer experience, ratchets up your customers’ expectations. And these expectations aren’t just driven by competitors within your industry — they are shaped by Facebook, Snapchat, Airbnb, Amazon, and the countless other innovators engaging your customers throughout their day.

In this environment, customers don’t sit still. To earn their loyalty, you need to provide a unified and delightful system of product, service, and brand. Experience businesses that engage customers in seamless relationships where, when, and how it is most relevant to them will outperform the rest. Design, as the author and choreographer of experience, has never been a more crucial component of competition and growth.

Leverage Venture Design to Build the Unprecedented.
Change in our world continues to accelerate. As a result, with each day that passes, yesterday teaches us less about tomorrow. Traditional strategies that rely on looking to our past, then extrapolating forward from there, are of limited value when we’re working to create a discontinuous future. By necessity, disruption, and the innovation it entails, is a forward-looking effort. We need to imagine our future state, then work backwards to chart our course.

Venture design is a lean approach to human-centered design that is optimized for the creation, launch, and ramp-up of new businesses. It helps companies of all sizes and levels of tenure to efficiently start new ventures and bring unprecedented products and services to market, fast.

The approach is optimized for the unique circumstances of new ventures. Ventures are time-constrained, resource-constrained, information-constrained, and data-constrained, and must also contend with a dizzying lack of constraint on what the future might hold and how the business might pivot as it grows. The power of design is that it thrives in uncertainty, responds strategically to constraint, surfaces lateral opportunities and generates step-change solutions.

Unlike typical tenured corporate culture, startup culture is comfortable with the notion that knowing where you’re trying to go — having a shared vision and purpose — is more important than knowing exactly how to get there. Deep innovation, creating that which has not previously existed, is never a linear path, and never goes as planned. Though you can increase the likelihood of a breakthrough, you’re going to have a hard time scheduling one. Likewise, entrepreneurship is a succession of many small leaps of faith. In both cases, the big vision stays relatively constant, but the work that leads us there is highly iterative, and adjusts course in response to each discovery along the way.

Enlist Marketers in Venture Wayfinding.
Centering new ventures around customer experience helps innovation teams stay focused on what matters, and honest about their progress. With their long-standing role in gathering customer data and insights, marketers have an opportunity to play a pivotal role in steering new ventures — particularly if they’re comfortable across the intersecting realms of design research, customer insights, and market research. (Hint: Design research has nothing to do with focus groups.)

New ventures — and successful experience businesses — continually reorient their internal efforts as they collide with the outside world. Each iteration of the core product or service relies on empirical validation of the experience to inform the iteration to follow. The rise of data, and particularly our dramatically improved abilities to collect and extract insights from it, make this cycle significantly more powerful.

Drive Tomorrow’s Bottom Line.
Companies will always need to be skilled at optimizing the core business that drives their bottom line today. But to drive the future bottom line, companies need to simultaneously host an entrepreneurial culture, and the capability to be able to tackle unimagined opportunities with courage and alacrity. As Amazon’s dynamic path demonstrates, new ideas today may be a core business tomorrow, but finding those opportunities requires the openness and adaptability of a startup. It also requires strong collaboration across disciplines and business units, and a rejection of rigid, top-down thinking.

To drive innovation and new venture creation forward, business leaders should reallocate much of the time and capital currently committed to researching the past and instead apply it to running tests of the future. Focus on more comprehensive customer experiences that envelope new offerings and form the foundation of successful customer relationships. These relationships — built over time and across shared experiences — will enable you to bring your customers along into the next incarnation of your business.

Topics: Adobe Summit, Leadership