The 90% Rule for evaluating competitive advantage
It’s a scene being played out in strategy workshops all over the world; the consultant is standing out front, marker in hand, poised to capture the fleeting thoughts of a room abuzz with creativity. The S-quadrant on the wall is brimming with reassuring adjectives and the mood steadily rises as the list continues to swell.
So what’s wrong with this picture?
The problem is that most people like to play along with positive sentiment. We are in business and we have to believe that we are going to make it.
But strategic planning can’t be about belief; it needs to be about clarity of purpose and accomplishments, fashioned from sharp uncompromising analysis.
To achieve this, we need to clear away the mists of the daydream and close in on reality. This means finding ways to make critical assessments of our own ideas while preserving lateral thinking and the opportunity for creative and novel solutions. Not easy, but it can be done.
The assessment of strengths and competitive advantage is all about relative comparisons. Your strengths are compared to those of the competition, your offerings are compared to the demands of the market, your opportunities are compared to your capability to deliver, and so on it goes.
What we need is an easy way to test our thinking when doing these comparisons. We need to be sure that when we claim a strength and make sure that it's not just a me-too scenario.
Having run quite a few strategy sessions, I can share with you that most organisations - straight off the bat - will list their people as a key strength and therefore claim people as a point of competitive advantage.
While I think it’s great that people are recognised and valued, I can tell you that many other organisations out there also think that it they have great people too. The truth is that attributes like these rarely set one business apart from the other. To understand our strengths, we need to find points of significant difference – the things that we do way better than anyone else – the capabilities we possess that very few, if any, of our competitors have.
Furthermore, our points-of-difference to not only need to be real, they also needs to matter to our customers.
As I said before: Not easy, but doable. Well actually it’s pretty easy, if you approach it the right way. Here’s how I go about it.
First, I imagine a bell curve that represents how our competitors would score a particular strength in the market. On a scale of 0 to 10, where the average score is adjusted to be 5, very few would score much less than 2, and very few would score much more than 8. Now compared to the average competitor what would our score be?
I would say as general rule, if it's less than 8, then we are too close to being average. Likewise, if less than 2, we are now looking at a serious weakness.
While these scoring hurdles might look high, I think it’s better to be even more demanding and use a threshold of 9. This brings the issue of relative advantage into focus, and it counteracts the effects of confirmation bias (i.e. the natural tendency for people to overestimate their strengths and underestimate their weaknesses).
Bell curves can be a little cumbersome to deal with in strategic planning sessions, so instead, I use the same principles to invoke a 90%. That being; your business is not allowed to claim a particular strength unless it is better than 90% of the competition.
This approach produces a much smaller and much more honest list of strengths. It helps to uncover what’s really making the business tick within the market.
Some people get squeamish about seeing the bare facts of how their business is going, but it’s the only way to build on what you really have in hand.
Best wishes and good luck.
About the author: Mark Schroffel is a Partner in the Melbourne-based strategy consulting firm Schroffel, Renwick & Beeson. As a lifelong student of strategy and organisational change, Mark coordinates discussion groups and seminars on contemporary approaches to organisational leadership and strategy planning. Mark’s qualifications include an MBA, a Graduate Certificate in Change Management, and a Bachelor of Science is Psychology. He is also a graduate of the Royal Military College (Duntroon). Mark recently graduated from Stanford University’s selective eight-course Professional Certificate in Innovation and Entrepreneurship.
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