4 Tips for Improving Customer Profitability

Despite increased focus on customer centricity and putting customers at the core of the business, many organizations do not have an accurate understanding of which customers are profitable and which are unprofitable. With markets increasingly becoming competitive and consumer behaviours constantly shifting, investing in customer relationships is the key to long term sustained profitability.

Gone are the days of unrelenting customer loyalty. Today’s consumers are actively pursuing brands and providers who deeply understand their struggles for progress, why they make the choices they make and then create the right solutions and related set of experiences to ensure they solve their Jobs to Be Done. In other words, customers are looking for companies that are able to deliver unrivalled experience. Failure by the company to meet these expectations means the customer will simply choose to spend their money elsewhere.

Companies that are able to deliver this first class customer experience are better placed to acquire and retain more profitable customers, and increase the profitability of customers that are low or loss-making. Thus, as more companies increasingly focus on customer centricity, customer profitability analysis (CPA) should become a top priority for all businesses. CPA helps you identify which customers are profitable and which are unprofitable. Not only does CPA tell you the profitability status of each customer, done properly, it also helps you develop an understanding of why certain customers are more or less profitable than others.

Develop a Deeper Understanding of Your Customers

In the past accessing customer data was a big challenge. However, in today’s technologically driven and networked economy, detailed customer profiling is now possible. Thanks to advanced analytics, huge data sets can now easily be collected, stored and analysed to reveal strategic insights, and to a large degree, predict future customer behaviour. All this is achieved in real time.

Having a broader understanding of your customers empowers you to start offering products and services that communicate directly to various customer groups and deliver your brand promise. It also enables you to focus on one-to-one or personalized customer marketing as opposed to adopting a one-size-fits-all approach. Take time to understand what is it that your customers value about their relationship with your business and what are the experiences they are seeking in order to make progress.

So often businesses ignore the social, emotional and functional attributes of their product or service offerings and spend significant time on generics, resulting in frustrated customers and lost revenues. Customers are now hyper connected. Social media platforms are continuing to gain prominence as communication channels for customers to discuss brands, ask questions or raise issues and complaints. Millions of these voices should not be ignored at any one time as doing so leads to higher churn rates. Every social conversation is a real-time reflection of your brand promise and potential.

When companies engage and respond to customer service requests over social media, those customers end up spending more with the company and are also most likely to recommend the brand to colleagues. Do you know what customers are saying about your products and services and how to change the conversation if you need to?

Developing a deeper understanding of your customers means moving beyond the basics of income, age, gender, race or geographical location. Take a comprehensive and holistic view of your customers. Fusing different data sources, structured and structured will help you unlock key customer insights and differentiate your company from competition. Today, we have more data about customers, that is growing increasingly complex and dynamic. Gathering data is not the main problem. The real challenge is transforming information into insights that we can leverage to provide customers with a superior experience.

Know The Costs-to-Serve Component of Your Business

The core idea behind customer profitability analysis is that companies can improve their profitability and reduce their operating costs by being more customer focused. Emphasis should not be on acquiring a large number of customers, rather, on acquiring high-value, long-term customer relationships. Quality versus Quantity. Not all customers are profitable. On the face of it, they might all look profitable but when we dig deeper to assess their worth, you will be surprised to find out that a handful of them are margin leakers.

Knowing which customers are costing your business more to serve in comparison to the revenues they generate helps you channel focus and resources on this group in order to try and convert them into profitable buyers. When it comes to measuring customer profitability levels, using aggregate measures of profitability, such as gross margin, is misleading. These measures ignore the nuances of serving particular customers, segments or other populations of interest. One other common practice which is also misleading involves applying a flat cost-to-serve percentage to each transaction’s gross margin in order to calculate the transaction’s profitability.

Companies should analyse the profitability on a transaction-by-transaction basis and examining each transaction’s profitability based on its pocket margin – the actual profit earned after deducting all the costs related to a transaction. It is no secret that the majority of customers are after a superior product or service at the lowest price possible. Although at times it is possible to grant them concessions, long-term this is not sustainable.

When making pricing decisions, it is important to consider all of the things you are giving away that add value to the customer, and don’t forget they shrink your pocket margin and take money from your pocket. There is always that group of customers that is difficult to serve, constantly nagging you and making unreasonable requests. Because the majority of businesses are only interested in boosting top-line revenues and want to preserve the relationship, they are repeatedly giving in to these unreasonable demands.

We have to try by all means not to set a precedence for our customers and make them believe that they can get away with anything. There are times when concessions make sense, and other times a very bad decision.

By clarifying the impact of customer requests on individual cost-to-serve elements, a customer profitability analysis can help your company avoid leaking pocket margins through such slip-ups. At the same time, it gives you an opportunity to educate and empower your employees to negotiate more profitable prices and terms of service. ABC data can be used to calculate the overall profitability of serving a customer with a product.

A detailed breakdown of costs-to-serve can help you identify opportunities to improve profits by altering buying behaviour in ways that are relatively unimportant to the customer, but drive large cost-to-serve savings for you. By examining customers’ historical transaction details, a company can determine which products are likely to drive profitable add-on-sales. Up-selling and cross-selling opportunities are far more likely when the customers are happy.

Evolve Existing Customer Relationship Management (CRM) Systems

Digital transformation is a journey that’s well underway for many companies, and the connected customer is at the heart of it. It is no longer a case of whether a company should embrace digital, but rather, how soon. IoT and Industry 4.0 technologies are reshaping business models for the better, enabling companies across all industries to boost business performance and consistently deliver unique shopping experiences across multiple channels.

As companies adopt these new technologies, it is critical to drive data integration across the business and ensure that existing systems are capable of communicating flawlessly with other software. This will further enhance your abilities to collect and analyse data, and gain strategic customer insights at a very detailed level.

It is also important to acknowledge that the ultimate goal of CPA may not, in some circumstances, mean selling a product or service at a higher price, but providing a pleasant customer experience. Greater customer service also has a commercial value, even if it doesn’t deliver an immediate commercial benefit. Thanks to new technologies, companies are now able to discover new insights from previously unimaginable sources. Notable examples are speech and facial recognition applications. Through these applications, companies are now able get a better view of their customers, identify irritated or unhappy customers and stem some troubling trends way before they become uncontainable.

No doubt advances in computing power are presenting new strategic performance improvement opportunities for the business. However, care must be taken that the company does not end up investing in unnecessary systems. It is easier for the company to jump on the investment band wagon without first clearly answering why. Successfully and consistently identifying what information is the most relevant and generates the most value is key to selecting the right tool. Technology is an enabler of higher performance.

Transforming Customer Profitability is an Evolving Journey

For the business to obtain the greatest commercial benefit from CPA, there is need to transform not only the company’s management systems, but also the company’s attitude towards its customers. Customer experience is significantly differentiating leaders from laggards. How you engage with customers before, during, and after a sale will dictate future success. Additionally, CPA must be aligned and implemented together with the strategy of the business. If there is a divide between CPA’s stated goals within the business and the way this is actually delivered to the customer, the whole process will succumb to its knees.

Also important to note is that customer profitability analysis is an organization-wide exercise, and not an isolated exercise embraced by one department or segment only as this will not deliver the required levels of cost reduction and profit increases. However, due to resource constraints, you can start small, focusing first on a portion of revenues or a single product line, business unit or geography, and then expand the effort as resources allow. In the long run, these pilot projects can act as proof of concept and also generate profit increases that can be used to fund further improvements. It is better to start small than do nothing at all.

Customer profitability analysis gives a company a clear view of how much revenue each customer generates (what they buy and how they buy), how much it costs the company to generate that revenue, and, most importantly, when and why these costs are incurred. This information is then used to guide efforts to transform the company’s less profitable relationships into improved profitable buyers. Firing customers should be your last resort after you have exhausted all reasonable efforts.

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Why KPIs Alone Do Not Drive Results

No matter how small or big a company is, all companies aspire to achieve superior business performance that beats the odds. Meeting after meeting, they map out a road map for achieving this success. KPIs are brainstormed and a select critical few to focus on defined for monitoring.

Designed to track performance against targets and drive results, KPIs help managers and executives establish whether performance is improving, deteriorating or remaining stagnant. This then allows them to take corrective action where necessary.

The problem we see in many companies today is lack of KPIs ownership and accountability. Yes, they are tracking the right metrics but the process ends there. There is no individual who is responsible for the performance of that metric.

KPIs Need People Ownership and Accountability

KPIs alone do not drive results, they need people ownership and accountability. Ownership is key to ensuring successful adoption of performance management across the organization. Lack of buy-in and engagement makes it difficult for employees to manage their performance.

On the other hand, accountability ensures that individuals, teams and management are held responsible for their performance against specific initiatives. Having said this, you need to empower your employees to drive performance and not micromanage them.

If employees are not given autonomy to manage their performance, in the event of faltering results, they will most often enter into a fight-or-flight mode which by default is counterproductive.

When it is clear who owns the results, management can make follow-ups with responsible individuals or teams, provide visibility of how they are performing and how their performance is impacting the top-level business metrics. This helps create awareness of any performance problems that need addressing at the earliest convenience.

One of the reasons why companies are facing KPIs ownership problems is because of a lack of shared understanding of the meaning of performance measurement. So often, performance measurement is associated with punishment and rewards. Hit the targets and you get rewarded. Miss the targets and you get punished.

This shouldn’t be the case. Rather, performance measurement should act as an improvement tool that propels the organization forward.

A Culture Focused on Performance is Needed

In order to drive company-wide adoption and buy-in, organizations must develop a culture of performance. What do I mean by this? All employees must go through training on “what is performance management?” and how to do it.

This is key to ensuring that everyone speaks the same language concerning KPIs and performance improvement. It is imperative that employees have a shared understanding of how performance is managed and communicated, both at individual and team level, and how this influences overall objectives.

In addition to training opportunities, organizations should also provide tools that enable employees to embrace this culture. The environment should be supportive of this cultural shift, otherwise all efforts will end up being fruitless.

Improving corporate performance starts with individuals and entails a cultural and mental shift. Thus, employees should be able to see the cause-and-effect relationship between their actions, business performance and rewards. One way of creating this awareness involves identifying performance champions within the organization and granting them the responsibility and resources required for transforming the culture.

For example, performance champions play a critical role of continuously reinforcing the right habits in one another so that performance improvement is on their minds all the time. They also help explain the significance and value of using KPIs or metrics of success in their everyday work.

Once individuals and teams have a clearer understanding of the “why” part of KPIs, it completely changes the way they view performance management and also the importance they grant to the process.

Execution is Key to Business Performance Improvement

Although KPIs provide focus and act as a road map for strategic success, we should not ignore the important role people play in this entire process. There is a huge difference between tracking performance and tacking action. Performance management goes beyond monitoring of key metrics.

To be effective and enable better decision making, KPIs need to be evaluated against a target. This helps establish whether the outcome is acceptable or not, at the same time allowing corrective action to be taken.

If there is no pre-defined target to measure actual results against, how can we expect decision makers to take immediate remedial actions? Positive actions and results are a product of consistent, relevant and reliable information being shared across the organization.

Despite more and more data being tracked, reported and communicated in today’s analytics world, many decision makers are still lacking the necessary business insights to improve performance. They are repeatedly receiving insignificant information, which unfortunately, they are unable to act upon to drive business performance.

Once information is consistent, relevant, reliable and communicated throughout the organization, it can be acted upon. It is therefore important to make sure that the information that is being communicated and presented is in a format that is quickly and easily understandable and consumable.

You can have well-defined KPIs but what matters most are not the indicators or how many you have, but what your employees and teams do with these indicators.

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KPIs Should Actually Reflect Business Reality

KPIs are an important tool to help us explain progress towards our stated goals and strategic priorities. Despite their usefulness in helping us understand where we are coming from and where we are going, KPIs are not well understood in many business settings. The key part is the one that is a significant problem. One of the first challenges faced by management and executives is determining what makes a performance indicator key.

Not every performance indicator is key. For a measure to be considered key, it must focus on what really matters to the decision makers, prompt action when things have gone wrong, alert when performance is fading, and motivate when everything is going well. The fact that you have a list of measures that you are tracking on periodic basis does not necessarily mean all of them matter. For me, KPIs are those critical few measures that drive the achievement of strategic objectives.

In other words, KPIs represent the measures that an organization relies on to monitor and drive business performance. Since these key metrics are relevant to a particular company, management should not feel compelled to create KPIs with the sole intention of replicating those reported by their peers. Although there are standard measures for each industry or sector, not all companies have the same strategy, objectives, initiatives, priorities, capabilities, data sources etc.

As a result of these differences, companies prioritize metrics differently and assign different weights to their objectives. Thus, the key to unlocking performance measurement potential is linking the process to your organization’s strategy and objectives. Considering the fact that your value proposition and business drivers are unique to you, your KPIs should also be unique to your organization.

Linking KPIs to strategy enables you to assess whether the strategies adopted by the company have the potential to succeed or not and this allows you to proactively take corrective action where and when necessary.

In current times of increasing economic uncertainty, digital disruption, changing business models, constantly shifting customer habits, rising regulatory pressures and increased competition and complexity; new strategies and objectives emerge questioning the relevance of KPIs used to monitor performance in previous periods.

The KPIs chosen to track performance and provide decision support must continue to be relevant over time and help executives develop a deeper understanding of the business. Thanks to developments in new technologies, organizations now have access to new and more critical information which in turn is facilitating reporting of new KPIs that accurately represent the organization’s strategy, the performance against which determines success.

Since KPIs helps us identify, explain and resolve critical performance issues that are instrumental for the overall success of the business, functional managers should regularly question the significance of the current set of KPIs and determine if they are actually supporting executives in making effective strategic decisions. Performance indicators that are useful cover all business areas and activities, and empower decision makers to conduct an impartial review of the business.

They also allow collaboration between functional teams and support synergies by underlying the impact of decisions taken by others on the overall performance of the company.

It is no secret that today we are living and working in an information age where information overload has become the norm. There is so much information out there to the extent that decision makers are also experiencing this information overload and don’t know what to do. In some organizations, functional teams are obsessed with measurement and have now forgotten the true meaning and objectives of metrics. The temptation to measure everything that can be measured is significantly high.

We cannot measure everything just for the sake of measuring. We need to measure only that which is critical and are able to actually do something about it. Managers or those individuals tasked with creating and monitoring performance metrics should regularly ask themselves one of these two questions – (1) Are our KPIs presented in isolation from the organization’s strategy or objectives? (2) Are our KPIs adapted to their target audience?

You don’t want to waste ample time and resources measuring those metrics that lack any insights for strategic decision making. In most cases, when KPIs are developed in isolation that is when companies end up watching a long list of measures. What you need instead is to focus on only a few metrics that are actionable, bearing in mind that the number of KPIs to measure depends on your target audience.

Executive and operational scorecards normally have a different number of KPIs to focus on. However, understanding how executive metrics and operational metrics align and support each other is crucial. This helps address the problems arising from redundant or contradictory metrics.

Defining the right KPIs and linking them across all levels of the organization to drive consistent execution is key to achieving breakthrough performance.

Remember, not everything that is measured is managed.

 

 

 

 

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What Makes an Effective Finance Business Partner?

These days the pressures and challenges a business faces are constantly changing and the finance function, along with the organization as a whole, must be ready to adapt. Finance must act as a navigator and support business leaders with information and analysis about the organization’s position and course, contribute to strategic decision-making and enterprise performance improvement. In other words, finance must partner more with the business and help create value.

To fulfill these new responsibilities, it is important for finance professionals to acquire a new blend of skills that will enable them to partner more effectively with other business areas and exert greater influence on the company’s strategic and operational decisions.

Here are my top 5 qualities of effective finance business partners.

1. They clearly understand the requirements of the role

Finance business partnering goes beyond tracking and reporting the numbers (traditional financial reporting). At the core of finance business partnering is developing a deeper understanding of the drivers of these numbers and making these numbers work for the business. Unlike conventional finance teams that focus on historical numbers, finance business partners take a forward-looking and commercial view of the business and provide strategic insights based on industry and macro-economic trends and competitor dynamics that drive better business performance.

They combine various enterprise performance management (EPM) techniques and methods to examine business performance, interpret and explain to decision makers what the numbers mean for the long-term success of the organization. It is this understanding of what is required to be effective in the role that differentiates successful finance business partners from the less successful ones.

2. They are always close enough to the business and its operations

Finance is increasingly being called upon to provide decision support on key strategic and operational decisions. Thanks to automation, the majority of routine accounting processes are now automated and streamlined, leaving enough capacity for finance to focus on value-add activities. Effective finance business partners have extensive business acumen that extends the realms of the finance function.

For example, they have a clearer understanding of sales, marketing, R&D, supply chain, and production, which enables them to proactively and confidently support these business areas. They have a natural interest in the business and how the different parts of the organization fit together to complete the puzzle. They are also inquisitive with a desire to understand a broad range of commercial and macro-economic issues and the implications these have on business performance.

High performing business partners also have higher levels of credibility and trust with business leaders. They are able to engage in extensive dialogue with business leaders, challenging constructively their assumptions and decisions to ensure the business is managed in the long-term interests of all stakeholders. It is through these engagements with business leaders that effective finance business partners have managed to build a reputation for themselves and secured senior management business partnering buy-in.

3. They possess the key soft skills necessary to fulfill the role

In addition to the core finance and accounting skills, successful finance business partners also possess commercial insight and strategic thinking combined with influencing, communication and leadership skills. Commercial insight enables them to stay abreast of developments in their company, industry and the wider economy. These insights in turn help the organization to proactively seize opportunities and mitigate any new threats.

Communication skills are essential for effectively presenting financial data and the decision it supports to non-finance people.

When invited to the decision table, effective business partners are able to listen attentively to the ongoing dialogue, interpret correctly different scenarios, influence current choices and challenge management thinking to drive better decision-making. In today’s dynamic environment, repeatedly asking key performance questions and challenging the status quo is key to making effective and reliable strategic and operational decisions.

Not every finance professional is destined to be a business partner. Some finance people are interested in the technical matters and therefore prefer working under SSC and COE models.

However, where the strategy and structure of your organization allows business partnering and views finance as a very important partner, it is important that business leaders conduct a skills analysis gap to determine the skills currently available and those that are needed to build the business in the future.

This will help you strike the right balance between recruiting to bring new skills and developing existing finance team members to become effective finance business partners.

4. They are aware who their internal customers are

Effective finance business have clear knowledge of who their internal customers are, and they are constantly working to ensure that the needs of these customers are met. For example, the stakeholders that other finance professionals (such as business controller, financial accountant or reporting accountant) represent are different from those served by the finance business partner.

Knowing who your customer is helps you focus your efforts only on those tasks that are critical to them and capable of adding value. It is unwise to have the finance business partner spend the majority of his/her time, say on account reconciliations, instead of on providing objective and independent analysis of how the business is performing and advising managers on what decisions must be made to improve performance.

5. They are focused on continuous improvement

Finance business partnering is not a once-off project with a start and an end date. Instead, the role is a continuous transformation of the finance function to focus resources and talent on activities where they can have a real impact on profitable growth and value creation.

Effective finance business partners have a set of performance measures that they track against goals in specific decision areas, highlight performance misses and progress, and determine ways of improving. Since these business partners are always close to the business, they are regularly seeking feedback from business managers to see if they are meeting their expectations.

They celebrate small wins and view these as springboards to bigger wins. Effective finance business partnering is not about the title bestowed on the individual, rather, it is about continuously adding strategic and operational value to the business.

What are the other qualities effective business partners possess that I have missed?

 

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Achieving Sustainable Competitive Advantage

Today, businesses are operating in an intensely competitive environment. New products and markets are continuously being created disrupting the traditional offerings. To succeed in this environment, your business needs to shake up the status quo and avoid competing in exactly the same way as your rivals.

When it comes to competitive advantage in business, it is critical to understand that advantage over rivals is rooted in differences. Of course, no one has advantage at everything, but what is important is for the business leaders to be able to identify key asymmetries that are capable of being converted into superior advantages.

Is competitive advantage sustainable?

Your business has a competitive advantage if you’re able to produce products at a lower cost than can competitors, or deliver more perceived value than can competitors, or a mix of the two.

However, you need to understand that your product costs differ with the product and application. Your customers are geographically dispersed, have different knowledge, varying tastes and other characteristics. As a result of these subtleties, you will realize that most advantages will extend only so far.

Thus, many at times, the advantage is only on certain products and/or services and among only a specific group of customers. The group’s earning potential and desire for a unique shopping experience determines the level of value placed on your company’s products and/or services.

With customer behaviors constantly shifting, competing on price alone is no longer sufficient. Today’s customers are looking far beyond lower prices, they want value for money and an unforgettable user experience. In many industries, technology has reduced or removed market entry costs and other barriers.

Your business might be able to achieve cost leadership but how is this reflecting on your margins? Take IKEA for example, one might argue that they are doing well with a cost leadership strategy. Fair enough. But if you look closer, the company has managed to combine all three of Michael Porter’s generic strategies to deliver its value proposition and unique customer shopping experiences.

These capabilities have been honed and improved on by IKEA over the years and are very difficult for a small start-up to copy as is. A small start-up lacks the investments needed to develop the market and capabilities to achieve efficient processing and economies of scale, thus preventing him from achieving equivalent costs.

Just as in IKEA’s example above, for your competitive advantage to be sustainable, your competitors must not be in a position to easily duplicate it, or they must not be able to duplicate the resources underlying it. This kind of unique offer demands your high level creativity and the ability to imagine differences that are possible and even those that are not currently possible.

These differences must not only be unique to your own eyes, but must also be valued by the customer enough to pay for that difference.

Some differences are not attractive enough to justify the additional cost of delivering them. Instead of being appreciated by the marketplace, they are viewed a negative attribute of the offering. In long run, the company ends up losing stupendous amounts of money because it is now trying to change the minds of customers, with no certainty of success.

Isolating Mechanisms

The concept of “Isolating Mechanisms” is borrowed from biology and describes the reproductive characteristics which prevents species from fusing. Applied to business strategy, this describes unique characteristics that prevent competitors from entering your marketplace and dethroning you.

Possessing these characteristics is key to sustaining your competitive advantage. Examples of isolating mechanisms include reputations, brand names, commercial and social relationships, tacit knowledge, network effects, skills gained through knowledge, significant economies of scale and complementary services.

Isolating mechanisms enable us to shift our focus from competing on price alone and find unique ways of increasing value. Today’s competition is very intense, and by providing more value to our customers we avoid being commodities.

How do we create value?

Having an edge over customers is not the same as achieving higher profitability. Think of Uber, the ride-sharing company. The company disrupted the taxi industry with its advanced technology and applications, making a name for itself. However, although the company has been taking in more revenues, it has also been losing money like crazy.

The relationship between wealth and competitive advantage is dynamic. In other words, wealth increases when competitive advantage increases or when the demand for the resources underlying it increases. That’s why it is critical to understand all the sources of your competitive advantage.

How many times have you come across statements that read, “We are the best in the world, We are the leaders, We are number one.” If you’re one of the organizations using these rhetoric, can you easily back your statements with facts? It is one thing to say you will be the best in the world in a certain industry, it’s quite another to explain how this is reflected in costs, differentiation and focus.

It is therefore important that your strategy clearly articulates how your overall intentions are translated into competitive advantage. Advantage over rivals only becomes more valuable if the number of customers grows and/or the quantity demanded by each customer also grows.

Increased demand will lead to an improvement in long-term profits only if the business is in possession of scarce resources that enable it to create a sustainable advantage.

1. Continuously Improve

What Got You Here Won’t Get You There. We are living in an ever-changing world where change is no longer a nice-to-have but a must. There is no guarantee that your current value proposition will continue to deliver stellar performance.

You therefore need to deepen your advantage and widen the gap between your customer’s value and cost. Many businesses are comfortable with the status quo and the way things are currently being done. The assumption is that everyone knows what they are doing. This is a very dangerous way of running the business.

Time and again, you must re-examine each aspect of your products, processes and details of how value is delivered, not just from cost controls or incentives (financial) point of view but also from the stakeholder (non-financial) point of view.

Are you carefully studying their attitudes, decisions and feelings?How strong are the isolating mechanisms surrounding key value delivery methods?

Having answers to the above questions will help you anticipate and prepare for problems before they occur.

2. Broaden the extent of advantage 

There is always a part of the market that is currently not being served and needs exploiting. Sometimes, in order to create value you don’t have to compete in exactly the same market as your current competitors.

Extending an existing competitive advantage brings your company into new fields and new competitors. What are the special skills and resources that are underlying your current advantage? Can you build on these existing strengths?

The challenge for many leaders is that when looking at their company’s capabilities, they do so only at face value or generalizations. The real danger in this is that they end up diversifying into products, markets and processes they know nothing about, or have limited knowledge of. After venturing into these new avenues and performing dismally, they wonder why this is the case.

To successfully extend your advantage, you need adequate knowledge and know-how of your new territories. Failure to have this important information at your disposal is a recipe for disastrous consequences.

You should not expect to take existing products to non-traditional customers, or create new products for existing customers, or create new products for new customers and expect overnight success if you have not first done your homework and defined the value proposition all these customers are seeking.

3. Strengthen your isolating mechanisms 

As mentioned earlier on, isolating mechanisms prevent rivals from replicating your products or service offerings, or the resources driving your advantage.

Now that you have identified and defined characteristics that are essential for your business to increase value and succeed, you need not rest on your laurels, but rather, create new ones and/or strengthen existing ones. The aim is to have as much little imitative competition as possible and have increased value flow to your business.

Depending on the nature of your business and industry, you need to locate that set of competitive advantages that allows you first to survive and then to thrive. For instance, in tech-related industries, having stronger patents, brand-name protections and copyrights works best. In other industries where the collective knowledge of groups drives performance, strengthening this isolating mechanism depends on turnover rates.

Another broad approach to strengthening isolating mechanisms is to have a moving target for imitators. This approach ensures you are always steps ahead of your competitors. By the time your rivals figure out how to replicate much of your proprietary know-how and other specialized resources it would be too late for them.

Continuously improving your products, services, processes, systems, proprietary knowledge etc. makes it very difficult for rivals to imitate and catch up with you.

Remember, no one has advantage at everything. Chances are that your rivals are already trying to differentiate and are doing it better. Don’t lose heart. As the old saying reads, “Do not put all your eggs in one basket.” That is, do not be over reliant on any one attempt to gain a single competitive advantage.

Press where you have advantages, side-step situations in which you do not have and exploit your competitors’ weaknesses and avoid leading with your own. Obstacles will always be there but you need to be adaptable so that you can react to setbacks without losing your business. It is all about where to play and how to win.

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