On the Edge by Glover T. Ferguson
Vanishing point: The search for
Glover T. Ferguson
Chief ScientistAccenture6
www.accenture.com/Outlook
It’s one of those immutable laws ofbusiness: Once you have competitors,your customers have a choice. Andonce your customers have a choice,you have to answer the question,“Why should we buy from you?” The answer to this question is yourcompetitive advantage, whether it’s a matter of quality, price or someother consideration. Sooner or later,however, your competitor is going to make the same claims for hisproduct or service, or match yourprice. In other words, creating thatcompetitive advantage is only halfthe battle. When it comes to maxi-mizing profits, it’s sustaining theadvantage that counts.
The search for sustainable competi-tive advantage can take many forms.It used to be that a patent wouldbuy you as many as 20 years beforeyour competitor could legally clonethe protected features of your prod-uct or production process. But
shorter product development cyclesand software-based features haveconspired to dramatically reduce theeffective life of a patent.
The fleeting nature of legal protec-tions like patents has led many companies to try to find the nextbreakthrough or substitute before the competition does. One of the best examples of this continuousinnovation approach is the freneticsearch for new drugs in the pharmaceuticals industry.
But such continuous innovation,
although necessary, has its downside.Waking up each morning knowingyou have to invent something
the market will embrace is exhaust-ing. And if your innovation doesn’ttake hold, you could be looking for a new job.
A more advanced approach to sus-taining competitive advantage is con-verting your product to a platformthrough which you deliver services. Aservice provides an additional streamof revenue and is inherently more dif-ficult to commoditize than a product.(For a related article, see page 26.)Although many companies havebegun to deliver services throughtheir products (or maybe they wereservice companies to begin with),they will eventually find that evenservices can be commoditized. If ser-vices offer some companies a respitefrom the demands of continuousinnovation and the globalization of competition, they also offer anattractive target for all competitors.The next step in defending competitiveadvantage involves providing betterservice through deeper knowledge ofyour customer. The idea is that if youhave developed or learned informationabout your customer’s needs and
processes, you can serve that customerbetter than your competitor can. For example, an Internet booksellercan make you targeted offers basedon your prior purchases. Retailbanks have long pursued a strategyof treating the financial data theygather from customers—through services like direct payroll depositsand electronic bill paying—as propri-etary information. This means thatchanging banks can be very painful.Web services represent the mostinnovative attempt to date to create
sustainable competitive advantage
sustainable competitive advantagebased on services that are rich incontext—information that is specifi-cally related to buyer-seller transac-tions. Web services are softwareapplications that use open-standardprotocols to communicate with otherapplications over the Internet. Theseprotocols provide the raw materialfor new languages that can expressyour location, your preferences, yourhealth data, your financial data andan inventory of your belongings. As the web services model matures,it will include the ability to grantand revoke access to any or all ofthis data. Once this information canbe expressed in nonproprietary
forms, it won’t be long before it canbe held by a trusted third party anddispensed on your command. Oncethe information it holds is no longerproprietary, your bank will have tocompete on the basis of servicesoffered. A startup website can haveas much knowledge about you as anestablished online retailer. To be sure, none of this will happenwithout one heck of a fight. Howmany banks will lead the movementtoward making their customer dataopen and transferable?
Before you answer, think back to the early days of text messaging.Those were the days when you couldsend a message to anyone—anyone,that is, who used the same cellularservice you did.
Why did telecommunications compa-nies agree to exchange text messages?Because the advantage of the propri-etary solution went to the largestplayers. The next largest players in
the industry realized that if they connected, they could together be bigger than the largest players, neutralizing the advantage of size. The resulting market force requiredeveryone to play nicely together orbecome the least attractive vendor.The same kind of market pressurewill apply to the sharing of financialand medical data with assistancefrom insurance companies (for healthdata) and regulators (for financialdata). It won’t happen tomorrow. It probably won’t happen next year.But it will happen.
State-sponsored monopolies—gone.Tariff protection—vanished. Patentstend to have a practical life that issubstantially shorter than their legallife. Products are commoditized andeventually morph into services. Services are commoditized andbecome context rich. Context iscommoditized and made availablethrough web services.
Now everyone will potentially haveaccess to every piece of contextualor environmental data. That leavestwo remaining sources of advantage. The operative word here is poten-tially;companies will need permis-sion for access to personal data andthe potential it offers. So the firstadvantage depends on trust. Youwant access to my medical data?You want access to my spendingpatterns? Why should I grant thispermission? Do I know you? Havewe done business before? Do I knowpeople who have had good or badexperiences with you in the past?The trusted incumbent company willmost likely have the right answers to
these questions—and therefore willhave the advantage.
The second advantage will dependon how your company uses thattrust. If you and your competitor are equally trusted and have bothgained access to the same universeof data, then the advantage will goto the company that has developedmore useful insights based on thataccess and has used those insights to provide new or improved productsor services. If your company is the first to correlate levels of
methane within house walls to thepresence of termites, then you canoffer customers a more economical, accurate and proactive system ofextermination than competitors who must trap the little blighters. If you don’t mind being a commoditysupplier, then your strategy is simple:minimize cost and maximize scale. If you want to command a premiummargin, it gets more complicated. Innovation, patent protection and themove to services will continue to beimportant. But your future advantagewill ride on your ability to make yourofferings more valued through thebeneficial use of personal and privatecorporate data. It’s ironic. Afteraccounting for all the technologicaladvances of the past and future, yoursustainable competitive advantage will rely on two very human charac-teristics: insight and trust.sGlover T. Fergusonis based in Chicago.glover.t.ferguson@accenture.com
Outlook 2003, Number 27
